Negotiation is one of the most overlooked things in the lives of entrepreneurs. There are many reasons for this, which we’ll get into in this episode, but suffice it to say that when entrepreneurs don’t learn how to negotiate well, lots of money is left on the table. To discuss this issue I asked my business coach, Marty Park to give us an overview of the issue.
Marty has built businesses from the ground up for years— 14 companies over two decades. He’s able to speak to this issue from experiential and observational standpoints. He’s fought to scale, grow, and even sell businesses like any entrepreneur and has learned the power of negotiation for increasing profitability. He regularly advises business coaching clients in these issues as well.
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Outline of This Episode
- [0:40] Marty Park: Entrepreneur and Business Coach (my business coach)
- [6:40] The things entrepreneurs overlook when it comes to negotiation
- [13:14] A negotiation Marty experienced that didn’t go well
- [24:53] Marty’s absolute favorite negotiation. It involved free beer
- [30:38] Leveraging responses from three perspectives (Logos, Pathos, Ethos)
- [34:08] One item Marty says entrepreneurs MUST do when it comes to negotiation
Is your leverage enough to get the response you need?
I believe we learn just as much from failure as we do from our successes. In fact, sometimes we learn more from the failures. So, many of my guests are asked, “What is one of your biggest negotiation failures?” Marty’s story is classic. He was early in his career as a restaurateur and had a contract with a linen company that he wanted to negotiate to a lower price. Marty’s idea of negotiating was to threaten to leave if the service provider didn’t give him better pricing. That was all he had and that is what he did.
There were multiple problems with such an approach in his situation. He was a small player in the equation, dealing with a huge company. That translates into very little leverage when it comes to making threats. Sure, he had the ability to walk away and could do so, but it wasn’t enough motivation to pressure the large company to change its pricing. He was also naively negotiating himself into the possibility of paying more than he was at the time because he hadn’t investigated other options. The Lesson? Don’t just threaten. Approach every negotiation with a clear and well-informed strategy.
If you ever consider a business partnership, you need to negotiate it well
Marty has been involved in business partnerships in the past and he made it very clear during our conversation that partnerships need to be negotiated wisely from the outset. It’s great to think of the advantages of working in tandem with a partner, but you also need to think through the possibility of failure and what should be done if things don’t work out.
But beyond that, being smart about the things you work out together once you are partners can make the difference between hundreds of thousands of dollars and nothing. In Marty’s case, he had negotiated with his partner to achieve a 49% equity position for himself, up from his previous 35% position. Marty felt so good about gaining 14% equity that he didn’t think through the reality of the situation. He soon realized that his 49% ownership stake carried zero percent decision-making power.
As he and his partner sold the business, the partner signed off on the sale agreement without reading it through—and changes had been made by the purchasing party of which he was unaware. Marty was typically the one to read every line of agreements, but in this case, he wasn’t able to. He and his partner lost one-quarter of a million dollars in the deal. The Lesson? Negotiate for things that really matter, not things that sound or look good in theory.
Negotiations should take into account three types of consideration
Aristotle wrote about three “Modes of Persuasion,” which when rightly understood, can wield significant influence in negotiations. Aristotle called these three modes by three distinct names—Ethos, Logos, and Pathos. Ethos is a means of convincing others of a position based on the credibility of a trusted source. Logos is an appeal to logic, persuading with reason, facts, and figures. Pathos is an appeal to emotion, persuading by creating an emotional response.
These are important to understand because there is a very real emotional side to negotiations, whether the negotiations happening are about a rate of return or other functional terms of the deal. The vast majority of us don’t make solely logical decisions and the skilled negotiator appeals to all three of these modes of persuasion when working out the terms of a deal. Marty describes a handful of value-less perks he’s seen included in deals that were the very thing that pushed the person over the line, simply because the inclusion had an emotional appeal to them.
Entrepreneurs can negotiate more effectively with two simple improvements
Marty’s experience has given him the opportunity to see many negotiations, good and bad. He’s noticed that entrepreneurs are especially bad at negotiating simply because their plates are full. They are busy trying to scale their company and don’t recognize the benefits of being skilled at negotiating, or the opportunities for doing so. Marty suggests that entrepreneurs open their eyes to these two realities…
- Opportunities for beneficial negotiations are all around
The decisions entrepreneurs make day to day are the very things that beg for good negotiation skills. Those who learn to negotiate well enable their companies to grow more quickly and become profitable sooner. Negotiations with employees, suppliers, and even clients fall into this category.
- Preparation is always required
Once you see the opportunities where negotiation could be beneficial, make sure you come to the negotiating table prepared. The opportunities are not only about bottom-line revenue, but they could also help you lay the foundation for a better future for the company. Don’t take them lightly.
Listen to hear Marty’s hilarious but insightful stories and to get your head around the way negotiation can amplify the work you’re doing as a founder or entrepreneur.
Resources & People Mentioned
Get a Free Ticket to the Spark Event in February at:
Ticket Code: ninja2020
Connect with Marty Park
- Marty’s website: https://www.martypark.com/
- Marty’s book: Tiger By The Tail
- ‘Follow Marty on LinkedIn
- Marty on Twitter: @TheMartyPark
Connect With Mark
- Follow Negotiations Ninja on Twitter: @NegotiationPod
- Connect with Mark on LinkedIn
- Follow Negotiations Ninja on LinkedIn
- Connect on Instagram: @NegotiationPod