Entrepreneur, negotiation is part of your life and haggling has its place too!

2012-08-23 09:27

Last week Thursday on the Money Show on 702 Talk Radio and 567 Cape Talk, Bruce Whitfield and I spoke about negotiation and haggling. I was surprised at the extent of negotiation that I as an entrepreneur get involved in. it’s a fundamental part of being an entrepreneur. You negotiate everything from suppliers, customers, staff, family, life. I said it before and am ever so convinced; entrepreneurship is perpetual, you live, eat and breath your business and negotiation is part of that. It is inescapable.

So, we should always be improving our capability in this science, this art! Let’s unpack a few of the key points we spoke about.

Negotiate or Haggle

There is a difference in my view. You negotiate when you seek value in a transaction or interaction. You haggle when it’s all and only about price. You haggle in relationships that are one-night-stands, pardon the phrase if you will. You haggle commodities that can be supplied by many other people. You haggle curios in a foreign country where every second store has replica of the Acropolis or Eiffel Tower. Value and price have an indirect relationship and they are different. Value has a strategic outcome. It has a relationship orientation and goes further to achieve an on-going benefit from the transaction. In these instances, price might be a second, third, fourth priority. In haggling, price is the end game!

Negotiate with a high WAQ

The most important condition that you must attempt to achieve before entering a negotiation is your walk-away ability, something I am going to coin the walk-away quotient or WAQ. In any negotiation, the greater your dependence on the deal happening, the smaller the chance of you securing a deal that will favour you since you will make uncomfortable compromises or completely agree to your worst position to get the deal done. You have no choice! If you enter a negotiation with a few options other than to have this deal happen, you will negotiate a better outcome for yourself since if this deal doesn’t work, you have other options. So, one of the most effective arrows in your negotiation quiver that you could ever which to have is a high WAQ.

But beware of the adverse effect of a high WAQ. It can make you brutal in the negotiation if the other party needs the deal more than you do. Sharp deals that are typically the outcome of a high WAQ favouring one party against the low WAQ of the other can be the eventual outcome and sharp deals are not sustainability. Whipping the other party with your high WAQ whip into a one-sided deal is haggling; it will lead to the one-night stand. No matter what contractual outcomes you achieve in a one-sided sharp deal, the other party will default or collapse the deal in some other way. The time, effort and resources you throw into making the deal happen, into implementation and execution will be wasted in the medium term.

Build your WAQ

The most effective method for building your WAQ is preparation combined with time. There are certain negotiations you should ideally not enter and you have the choice until your conditions change. Here are some practical examples of how to build your WAQ before entering into a negotiation.

Securing the rights to a great product in a one-sided deal

I work with an entrepreneur that is an importer/distributor in the sports industry. He successfully secured the rights to a well-known sporting brand from his principles in Europe. A condition against which they awarded him the rights was that he could only bring in their brand. At the time of negotiating the deal, this seemed fine. It was the first brand that he had secured and wanted to get into the business of being a branded agent distributor. Until then, he was a general wholesaler and was being cut to shreds in the market place. He needed a point of difference, something that only he could offer. To meet the onerous obligations negotiated by the principles abroad, he had agreed to some big targets. The only way to achieve them was to go straight to the chain stores. One contract, many stores, big volumes was his strategy. His WAQ was very low but managed to get a deal. A one-sided deal. No certainty, no compromises. Achieve the targets or loose the deal. Achieve the targets and his principles undertook to see if they would grant him a medium term duration contract. Prove yourself first!

Today we are working together to turn his business around. After the 14th supply deal into the chains on margins that were ridiculous, the principles entered the market directly. After all, the market had been developed, Europe is a mess and new margins and growth opportunities sans-middleman were being sought! Low WAQ, one-sided deal, bad business.

An alternative strategy to build WAQ

Besides finding an alternative brand (of which there are many with principles more reasonable), could he have not started by building the brand into his distributed small store retailer network? He argues that he could have done that with ease. It would have taken time. Had he done so and built up momentum behind the brand, he would have faced two opportunities. The first being to spread his supply risk. His principles would never enter into a market that has a diverse, distributed and fragmented customer chain. To do so efficiently, the option of buying his business and hence the database, relationships, staff and reps would have been the most efficient route. Going straight to the chains allowed them an option to simply step into one or two established relationships meeting a mass market adoption of their brand.

This strategy would also have spread his buy-risk. In proving market take-up, adoption of the brand, distribution capability (all the arguments used by chain stores to systematically beat margin down and secure price), he would have negotiated a somewhat better deal with his first chain store customer. They after all want a product that will “fall off their shelves into the basket” and how best to demonstrate this on a product already being bought by the market.

As entrepreneurs we are always wanting to rush into deals that seem on the face of it, attractive. Taking a step back and considering this one attribute, your WAQ, will pay big dividends in the medium and long term. Doing a deal because it’s in front of you is no reason to do a deal at all. Doing the right deal because you have prepared the ground to negotiate value is the best time you could spend or not spend at all.

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.
NEXT ON NEWS24X

AB praises selfless skipper

2010-11-21 18:15

Inside News24

 
/News
 

Keep your family and pets safe from rabies

The recent outbreak of rabies in South Africa has brought to light how terrible this disease is and how as pet parents we need to be vigilant to keep our families safe.

 

Paws

5 scientific benefits of owning a cat
Why we love cats
8 great natural remedies for your pet
How to clean your dog’s eyes
Traffic Alerts
Traffic
There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.




Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.