Negotiation

1
Negotiation

• Defining negotiation
• Negotiation exercise
• Concepts in Negotiation
• Power
• Zone of Potential Agreement
• Preparing for Negotiation
• Best Alternative to a Negotiated Agreement

Many of todays slides and activities are adapted
from Prof. Mary Rowes MIT Negotiation and
Conflict Mgmt class.
2
Negotiation

• Two or more parties must make decisions about
  their interdependent goals
• Interdependence and scarce resources can create
  conflict
• Committed to nonviolent means for conflict
  resolution
• There is no agreed-upon method, standard, or
  policy for making this decision
• Every human interaction is a negotiation
• Negotiation is common in high tech startups
• More uncertainty means more negotiation
• Financing deals

3
Negotiating financing

• In allocation of equity, negotiation is important
• The difficulty of negotiation is reflected in the
  fact that most founders split equity ownership
  evenly among themselves.
• Bringing on new investors alters this arrangement
• But motives matter
• the typical angel deal might be best
  characterized by the provision of a small bit of
  money for a little of a company under generous
  terms in the hope that the one-time investment
  will be a winner.
• Angel investors on average expect 26 IRR, VCs
  expect higher, but this percentage varies widely
• Negotiating this percentage affects the pre-money
  valuation of the firm, and thus the percentage
  that an investors investment will represent (for
  angels 5-25, for VCs higher)

Scott Shanes Fools Gold The Truth Behind
Angel Investing in America. UNHs Center
for Venture Research
4
Characteristics of Negotiation Situations

• There are two or more parties with a conflict of
  interest
• Parties negotiate because they think they can get
  a better deal than by taking what the other side
  will give them.
• Parties prefer to search for agreement rather
  than fight openly, capitulate, permanently break
  off contact, take their dispute to a third party.
• Parties expect give and take both sides will
  modify or give in somewhat on their opening
  statements, requests, or demands
• Successful negotiation involves resolving
• Tangibles (e.g., the price or the terms of
  agreement)
• Intangibles (the underlying psychological
  motivations)

5
Negotiation Exercise

• Class is divided in pairs, each with the general
  instruction to divide 2 between the two players.
• No side deals or subterfuges allowed.
• Please follow the instructions even if they are
  distasteful to you.
• You will have specific personal instructions with
  each new partner they will be different each
  time. Do not tell anyone else these instructions
  until ALL the bargaining is over.

6
Negotiation exercise cont.

• You will have 2 min. to prepare. Plan, thinking
  of
• What are your goals? Optimistic goals? What will
  you settle for?
• What does the other person want? How will you
  find out?
• How will you persuade the other person?
• What will your moves be?
• You cannot ask questions for more instructions.
• You will have 5 minutes to negotiate.

7
Modes of dealing with conflict
8
Power and Negotiation

• Power is not an individual or organizational
  characteristic, but a relational property
  inversely proportional to the dependence between
  two parties.
• Dependence of actor A upon actor B is (1)
  directly proportional to As motivational
  investment (importance) to goals mediated by B,
  and (2) inversely proportional to the
  availability of those goals to A outside of the
  A-B relation (Emerson, 1962).
• The effects of these dependence relationships may
  be altered by processes of cost reduction or
  balancing operations.

9
Sources of power

• Structural
• Due to position, history, seniority, earned
  status through membership, social class,
  possession of resources (economic, political)
• Relational
• Prior favors, obligations

10
Changing the Power

• Cost Reduction

• Balancing Operations

• Develop other alternatives
• Increase information

• Demonstrate compatible interests
• Increase information
• Framing/persuasion
• Draw on past favors

11
Framing

• focusing, shaping and organizing the world around
  us
• Framing of events and processes is influenced by
  backgrounds, experiences, expectations, and needs
• Negotiators who understand framing may understand
  how to have more control over the negotiation
  process
• Frames may be malleable and, if so, can be shaped
  or reshaped, shift, and change

12
Negotiation concepts

• Most negotiation is a combination of
  distributive or win-lose bargaining and
  integrative or win-win bargaining. This is
  called mixed motive bargaining.
• The Reservation point (RP) is the point at which
  a person will stop bargaining or adjust RP to
  achieve a settlement.
• BATNA (the Best Alternative to a Negotiated
  Agreement) usually defines where the RP is.
• A target is the amount the person wishes to get
  in the process of bargaining.
• Repeated interactions with the same person affect
  the agreement negotiated relationship matters
  more.

13
Zone of Potential Agreement (ZOPA)

• Aspirations From bargaining research shows that
  other things being equal, higher aspirations lead
  to more favorable settlements
• First offer higher first offer often leads to
  better outcomes for the maker of the first offer
• Anchoring ability of one party to influence the
  other partys cognitive assessment of the ZOPA.
  (responding parties who are anchored are likely
  to do worse than parties who resist or test the
  anchor
• Pattern of Concessions In distributive
  bargaining, the settlement price results from a
  dance of concessions from initial offers and
  counter offers.

2
?
Sellers settlement range
ZOPA
Buyers settlement range
0
?
14
Principled vs. Positional
(from Roger Fisher, William Ury, and Bruce
Patton, Getting To Yes Negotiating Agreement
Without Giving In), Adapted from Mary Powers MIT
Negotiation and Conflict Mgmt class
15
Principled vs. Positional
(from Roger Fisher, William Ury, and Bruce
Patton, Getting To Yes Negotiating Agreement
Without Giving In), Adapted from Mary Powers MIT
Negotiation and Conflict Mgmt class
16
Mapping out the Agreement

• Point 1 Interest
• Your Interests
• Where do I want to go?
• Why do I want this?
• What problem am I trying to solve?
• Their Interests
• What do they care about?
• Point 2 Options
• Possible agreements or part of an agreement which
  leads to mutual gain and which can expand the
  pie.

17
Mapping out the Agreement

• Point 3 Standards
• An independent standard which can be used as a
  measuring stick that allows you to decide what is
  a fair solution.
• Point 4 Alternatives
• Identify your BATNA
• Boost your BATNA
• Decide if you should negotiate
• Identify their BATNA

18
Mapping out the Agreement

• Point 5 Proposals
• What do you aspire to?
• What would you be content with?
• What could you live with?

19
Negotiation Recommendations

• Much of what is learned is subconscious
• The biggest failure is not to negotiate
• Success preparation
• You dont get what you deserve, you get what you
  negotiate!
• Parties have both common and conflicting
  interests
• Process of interaction between two or more
  parties where both an offer and acceptance are
  communicated

20
Successful Negotiation cont.

• Focus on the facts
• Multiply the alternatives
• Create common goals
• Use humor
• Balance the power structure
• Seek consensus with qualification
• Avoid
• Win/lose, either/or thinking
• Selling short
• Bargaining based on positions