Supported by Greenhaven Road Capital, finding value off the beaten path.
This is a repost from elsewhere but it needs to be its own post.
In Never Split the Difference, Chris Voss suggests that tit-for-tat and split the difference negotiations are the easy way out. He opens the book with a critique of the Harvard Negotiations Project and the book Getting to Yes. It’s okay, Voss writes, but you need to know more.
I’ll admit my bias. Getting to Yes is a book I regularly refer to. It’s one of those books – much like spiritual texts like the Bible, Meditations, or the Tao de Ching – where you don’t need to read it cover to cover. Instead, the most value comes from dipping and sipping.
Voss is a former FBI hostage negotiator who took the ideas from GTY and evolved them. Never Split isn’t a replacement for GTY, it’s a supplement. The two books are like Yin and Yang. One was built by academics in ivory towers, the other by a hostage negotiator in Central America.
The two books have a lot in common and combining them we get a whole that’s greater than the sum of their parts. Let’s look at what to do before and during negotiations.
There are three questions you must answer before the negotiations.
- What are the facts of the situation?
- What are the perceptions of the situation?
- What are some options out of the situation?
Another way to put is to follow Charlie Munger’s “two-track” analysis.
“First, what are the factors that really govern the interests involved, rationally considered? And second, what are the subconscious influences where the brain at a subconscious level is automatically doing these things – which by and large are useful, but which often malfunction.”
What kind of facts are there? Try to accumulate as many facts as possible that support your side of the negotiations. In GTY this is so you can “insist on objective criteria.” For a house some of those facts will be; comparable homes in size, school district, or amenities (master bath, pool). A seller might also stress the newer appliances while a buyer might note the older roof. Voss writes that you “fall to your highest level of preparation.”
The second facet is the perceptions each party may have about the negotiation. My brother recently closed on a home purchase and part of their final offer to the sellers was a letter about their growing family and a picture of his one-year-old son. That appealed to the buyer’s perception about who might own their home. Other things like “entertaining guests” or “safety” may be perceptions a house buyer holds as important.
Finally, you should prepare your list of options for a negotiation. Time, for example, gives you a lot of optionality. Voss often dealt with kidnappers and realized they lacked the option of time because they dropped their ransom demands as the weekend got closer. Why? They wanted fun money. After he learned this Voss decreased negotiation payouts only towards the end of the week when the kidnappers were more antsy to get paid.
Be creative when you answer these pre-negotiation questions. Voss compares a negotiation to playing cards. You don’t know what the other person is holding, so you need to come up with a range of options. It won’t be all-encompassing, but coming up with ideas beforehand can prepare you for the negotiations when those cards are finally played.
Voss spends most of the first part of his book explaining how to listen – and for good reason. Listening is hard. Eric Maddox had a difficult listening job. He was the interrogator in Tikrit Iraq in 2003. Special Forces operators would bring prisoners to Maddox and he had to put aside his feelings (“These men just shot at me”) and focus on the facts. Maddox wrote, “I didn’t care how bad a prisoner was, or was supposed to be…It was important to look at both sides as objectively as I could.”
“Your goal at the outset,” writes Voss, “is to extract and observe as much information as possible.”
How do you become empathetic and collect information?
|Voss’s tactics||They say||You say|
|Be a mirror.||“This is a family heirloom and it’s hard to part with.”||“You must have a deep connection with it.”|
|Repeat their last 3 words.||“My grandmother passed this down to me.”||“She passed it down to you?”|
|Label their pain.||“I just don’t know if I can give this up.”||“It sounds to me like there’s an emotional connection to this item.”|
Remember that during this discovery phase, the aim is understanding, not agreement. The more you can get the other side to talk, the better. In GTY the authors warn against a negotiation concession where a psychological one will do. Sometimes people just want to be heard. There’s a two-minute YouTube video with fourteen million views that show this.
When Danny Meyer opened Union Square Cafe he had a lot of kinks to work out. That meant he had to negotiate with a lot of customers. Your table is not ready, we lost your reservation, we’re out of fish and so on. Meyer wrote in his book, “For most people, it’s far more important to feel heard than to be agreed with.” He added that as the service provider you always get to write the last chapter. At his restaurant, this meant a free glass of dessert wine to people who had something unplanned occur. This wine was cheap for Meyer to provide but valuable to his restaurant guests.
Positions are not concerns
As you listen develop a picture of the person’s concerns which manifest as requests. When I bought the house I live in now I learned one of the concerns from the seller was moving closer to town. I would never have guessed this and it’s an example of something I didn’t and wouldn’t know about. The position was to sell the house, but the concern was to spend less time in the car.
Dollars are often front and center in negotiations but because it’s a convenient language for concerns but everyone has concerns beyond the dollar.
|Landlord||$||…and stable, mature tenant who pays the rent on time. They also want minimal vacancy and limited expenses for maintenance.|
|Employer||$||…and institutional memory and minimal switching costs associated with hiring new employees.|
|Salesman||$||…and fast transactions, referrals.|
|Chris Voss||$||…and publicity. Voss agreed with the Memphis Bar Association to a reduced rate in return for a magazine cover article.|
|Warren Buffett||$||…and quality businesses. Buffett went from looking for “cigar butts” to chasing “moats.”|
Never Split and GTY both emphasize control and security as two fundamental human concerns.
Another concern to keep in mind is that of the third party. In a home purchase, there is the seller and buyer but also the buyer’s bank who will require a home appraisal to validate the loan amount.
Ken Grossman found out the hard way about negotiations with third parties when he tried to buy out his partner Paul Camusi. The two had gotten funding from friends and family. In that group was Camusi’s extended family. After years of negotiation and mediation, Grossman got a good enough agreement and bought out Paul and his family. Even though negotiations like this can take a long time,
Voss writes that if you hear someone described as “crazy” you should take that as a signal to look for clues.
Early on Grossman didn’t pay his employees as much as other places but he wrote, “they loved what we were doing and it was a fun place to work.” He identified their concerns as enjoying life. Part of that was how much you got paid and part of it was how much you liked your job. By 2009 Grossman built a larger and more successful company and created on-site daycare, medical care, and classrooms. Grossman understands his employee’s concerns.
He didn’t understand this for his buyout of Camusi. You see, he didn’t have to buyout only Paul but also Paul’s mother and others who had given the company loans in the early years. Few people are actually crazy, what’s more likely is that you don’t understand their concerns.
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