The Art and Science of Negotiation

Hi, everyone. Welcome to the Art and Science of Negotiation. I'm Steve Pascucci, been with Cloudflare for over four years, and I have been in sales for over 20 years. I want to talk to you today about negotiation and some of the strategies and tactics that you can use in your daily life to create win-win outcomes. So first, let me start by saying we're born to negotiate. My four-year-old is a master negotiator already. He always wants more books at bedtime, certain desserts. He lumps in a certain dessert with fruit, different types of bedtime, times for bedtime. Did he learn this from me? Well, it's unlikely on the other things that I've actually tried to teach him. Most likely, it's operant conditioning. He's learned what works through iteration. Think about when you were a kid. We learn how to split things up, probably from other kids. You have one cookie, you want to split it. One person splits it, and the other person gets to choose. That goes back thousands of years. It's in the Bible, in the book of Genesis. Abraham and Lot come to the land of Canaan. Abraham suggested they divided among them. Then Abraham, coming from the south, says, okay, I would like the left, and you take the right, so the western and eastern part. So I'd like to think to yourself as we go through this, what are some of the things you've negotiated for in the last few years? A car, recently a bicycle, gym memberships, Facebook marketplace, a house, your salary, maybe what movie to watch or where to go on vacation. Is there something you're negotiating now or recently that has stuck with you? Think about that as we go through this. Also include disputes. Have you had an argument with a business or a person? Here at Cloudflare, of course, we're negotiating business-to-business sales or strategic partnerships. Internally, what products to build, what events to participate in. Before the pandemic, one of the things we often negotiated for was the ever-scarce conference room in our offices. So we're going to go through a couple of different things in the agenda today. Why people negotiate, some of the principles of negotiation, differences in negotiation across cultures. We're going to talk about negotiating as a seller, what to do when things go sideways on you. Some of the things to do is negotiating as a buyer, specific examples, and some key phrases and takeaways. And then if we have time, and I don't talk too long, we'll do some Q &A at the end. So why do people negotiate? First off, it's genuine. They have a certain budget or value that they're expecting. It's in their job description or mandate. This is even more prevalent during this pandemic. Harvard Business Review had an article about streamlining your business. And one of the things they told businesses to do is to beef up their procurement team and their negotiation skills. They have a fear of losing out. They want to impress others. And one of the main things is it works. They enjoy it. So there's a lot of different reasons. There's a lot of reasons also why people don't negotiate. It takes time. People want to get things done. It's too much of a hassle. They're uncomfortable. It feels adversarial to them. They feel awkward. It's embarrassing. They're not sure what to ask for or what's reasonable. Who do you negotiate with? What's on the table? What's not? There might be a minimal pain. This is an awful experience to negotiate versus the gain I'm going to get at the end. If I'm going to save $5 on something, do I really want to hassle with negotiating? Sometimes they feel like they're not deserving. And we'll talk a little bit about that. And then think to yourself, why are some reasons you don't negotiate? So let's talk about some of the principles in negotiation. First, the objective is to create a win-win environment for both parties. At the end, each of the people in the negotiation are going to feel that each other cared about each other's needs, that they each won, that they had their self-respect intact. And lastly, that both parties will abide by the agreement. It's important that at the end of the negotiation, both parties continue to abide by it. So this all makes sense, obviously. Business partners and studies show that business partners who trust each other spend less time and energy protecting themselves from being exploited, and both sides achieve better economic outcomes in negotiations. I got this from a book, a great book, Never Split the Difference. I start every negotiation by saying, I want you to feel like you're being treated fairly at all times. So please stop me if you feel I'm being unclear, and we'll talk through it. Again, the book is Never Split the Difference. It's a great book on negotiation. It's a good way to set the table that we're in this together. However, we need to keep in mind that this baseline doesn't always exist from the beginning. People all over the world have unique perspectives. So without a doubt, culture and customs and tradition are at play when negotiating. And this is certainly true internationally, but even here in North America, there's a difference between people, how people communicate in New York, let's say, or Minnesota. For example, when I start interviewing salespeople while opening a new office in a new region, I will always ask them, tell me, what don't I know about selling in this area? When I was interviewing to open our Chicago office a couple years ago, I learned about something called the Midwest smile, where you'll get a great smile, this looks good, and we'll be in touch. And that really means no. I'm from New York. In New York, people just say, hey, buddy, listen, I hate to tell you this, but it's not happening. So there's a big difference in how people communicate. I'm going to try and represent as much as I can of these differences, but as a New Yorker living in San Francisco for 20 years, I have a certain point of view. Internationally, there are books upon books and abstracts on differences in negotiation styles and principles. In other countries, there are certain cultural differences, and we're going to talk about those in a second, but we also need to consider there's different governmental oversight in the UK than in the US, let's say. There's different labor versus management influence in Germany, let's say. So there's a bunch of different things you have to take into consideration on top of cultural differences. There's a great deal written about Japanese approaches to negotiation and collisions between American and Japanese negotiators are legendary. In fact, there's a Japanese book called Negotiating with Americans, and it says American negotiators tend to be competitive, often come with a fallback position and begin with an unrealistic offer. They're energetic and confident and persistent, and they enjoy arguing their positions. So it's worth talking about how other cultures build trust. And as I mentioned earlier, trust is the social glue that holds business relationships together. An article from Harvard Business Review outlined research across different cultures, and according to the research, managers from Western cultures said they generally assumed the potential new business partner was going to be trustworthy. And what one of them said is, we operate under the principle that everyone can be trusted until proven otherwise. And in fact, what they'll do is they'll ask a question that they know the answer to ahead of time to see if the person answers truthfully. I paraphrase that as trust but verify. According to the study, East Asian managers describe a three-stage process to determine trustworthiness. First, they seek information about a potential business partner's reputation. They want the third -party introduction first, then they check for competency, and then they'll have a more social interaction. In Latin American cultures, the social relationship comes first and then the business comes after. Shared values are the primary criteria for judging trustworthiness. Harvard Law School has a great resource called the Program on Negotiation. There's lots of great articles there and information. A lot of it's free, so you can go and check out. And a lot of the research and statistics I'm giving in these studies are from either Harvard Business Review or the Harvard Law School Program on Negotiation. All right, so let's negotiate. Let's talk a little bit about this. All right, so here's some key principles. First, you want to make sure you do research. Everything I've read and everything I know throughout my years of experience is research and preparation is the big difference between everything. From there, there's a lot of different things you can do, but the research and preparation is the most important thing. All right, secondly, you want to analyze the situation to determine if you're in a position of strength or weakness. Consider the time frames when people want to get something done. Do you need to rent that house or buy that car right away, or do you have time to wait? Do they have time to wait? Build trust in the relationship like we talked about. You want to also think about how you can create more opportunity within the same conversation. An example of that is you might be buying two bicycles instead of one, or you need a helmet as well. Different little things like that. You can create more opportunity for both of you and the seller or buyer, depending on who you are. Are you going to spot and deal with bad behavior when someone's acting unreasonably? What are you going to do? Think about that ahead of time, not in the moment. Then what's your walkaway position? What will I concede? What could they? What won't I concede? This goes back to a book called Getting to Yes. It's just like, what's your goal? What's the minimal? Then what's your walkaway? You want to create multiple variables, but not too many. Then you need to practice. I've been in sales for 20 years. I still practice crucial conversations before getting into them. It's important to role play. All right. In more complex situations, you're going to need to do a little bit more than this. Skilled negotiators can follow the process I outlined and do the research, and in most cases, react appropriately to get a deal done. In other situations, deal can be very, very complex and more strategic approaches necessary. We're going to touch briefly on that. All right. In more complex negotiations, we'll start with the basics. Obviously, what business outcome or what outcome are we looking for? Who cares about these outcomes? Then it's obviously us and the other person, but is there competition that's involved? Is there another third or fourth parties? There's someone who also will be impacted by a deal potentially here. For example, large businesses have many business units. What benefits can we create in addition to the immediate deal? Who can do something about these outcomes and how should we engage those parties directly or indirectly? You want to re-scope the deal. Sometimes a smaller deal is a better deal or one that helps solve another business problem. For example, helpful financial terms or payment terms or delivery terms will allow the person you're negotiating with to accomplish other goals that they have or that might be better for you. For example, you might be a factory and producing t-shirts, let's say, and you can't deliver the t-shirts for 90 days and they can't pay for 90 days. Maybe there's a way to work that into the deal where later delivery and they can pay you later as well. All right. There's also something called positive leverage and negative leverage. Sometimes your position can be too strong and that the other party doesn't have a good enough walkaway plan. They can feel resentful or fearful and that can mess up the deal. Being between a rock and a hard place, it's important to want to reinforce their desire to want to do the deal versus have to do the deal. Both parties, again, need to abide by the agreement at the end. You don't want to be forced into something and then two or three days later, someone feels uncomfortable about it. Okay. All right. So here's some principles of negotiation when you're selling. You want to negotiate late in the process. Don't present initial terms that don't take into consideration changes in scope. You want to deal with the final and all decision makers when possible or people who you feel are capable of living up to the agreements they're making at the table. Okay. You don't want to make an agreement with someone who then comes back to you and says, I can't do that. Never give a concession without understanding the impact on the negotiation and getting something in return. Be patient. Be cool. It's business. It's not personal. You got to keep emotion out of the process. All right. So here's some fundamental points. You want to never negotiate. You never negotiate for only one thing. Only one thing means that someone concedes. Include what they want and what you want. Okay. So an example of that might be in buying a house. You want a certain price and they want no contingencies. They don't want you to do an inspection, let's say, or to wait for you to get a mortgage. You want a certain moving date. They need time to move out. So there's different things you can include. All right. The other thing you want to do is create alternatives. Creating alternatives is important. So I'll tell you a story here. Every year, my family, my East Coast family gathers in North Carolina. My mother looks forward to seeing all her children and grandchildren every year. Last year, I was out with my dad. We were the one time a year I golf. I was golfing with my dad and I was out of the house. And I got a call from my wife. She said, hey, there's a situation here. The rental agency wants to come and spray bug spray. And we don't want them to come to the house. Chemicals, bug spray. And she knew that being in sales that she thought that potentially I could handle this. So it turns out one of my sisters, the one that used to pay me 25 cents to relocate spiders from her room when we were kids, she spotted one water bug in the house. And this house is kind of on a marsh and water bugs is the is the North Carolina word for cockroach. And when I called the rental agent to talk about what the situation was, my sister had said that the house was infested. There were there were water bugs all over the house. And their reaction was we have we have a responsibility to the owner of the home to come out and spray immediately. We hear something like that. She, as the rental agent, had to spray the house. I did not want this to happen. So what we started doing is exploring alternatives. And what I asked her to do and what I started with, I just suggested that is there anything else we can do? We don't want you to spray in the house. What other options do we have? And the woman and I worked out a deal that they would just spray outside the house the next day. And if we saw any other bugs, that they would place traps. And if we continue to see bugs, they would come in and spray the house. So we were able to come to an agreement that helped the rental agent and helped my family. And it was because we explored alternatives. Okay. All right. Here's another fundamental point. The power of phantom anchors. There's been a lot of studies done on phantom anchors. And what the quote here says is our minds tend to give disproportionate weight to the first information we receive when we're required to make a decision. So in negotiations or in life, really, this means that our first impressions, estimates, or information strongly anchor subsequent thoughts and judgments. So think about this. Remember when we used to go out to restaurants? Well, we'd walk up to a restaurant and it's really busy and we want to get a nice table. And we walk up and they say, hey, the table will be ready in 15 minutes. So we're like, okay, 15 minutes, not so bad. And then it's ready in 30 minutes and you're frustrated. You're disappointed. In your head, you anchor that you'd be sitting down with your menu in 15 minutes. Now let's say the different scenario. You walk up and they say, look, it's really busy. We're going to try and fit you in as soon as possible. The table is going to be ready in 45 minutes. And they always look down to like they're doing some kind of calculation real quickly in their head. And they say 45 minutes and it's ready in 30 minutes. You're thrilled. So that is an example of anchoring. Same thing about salary. Let's say you're making $50,000 a year and the recruiter says, I think I can get you 75,000. And then it comes back with 65,000. You're disappointed even though you're making $15,000 more a year. So be very conscious of anchoring numbers in people's heads in just day-to-day life and in conversations. It's a very powerful subconscious at work. Okay. So when things go sideways and they always do, what do you do? And one of the things I learned doing this Cloudflare TV presentation is we needed to use images that were free to use. And so I had a great picture of Mike Tyson here and I had to use Mike Tyson's punch out instead, but Mike Tyson has a great quote. Everyone has a plan until they get punched in the mouth. So what do you do when things start to go wrong? All right. Why do people, you know, why do things go wrong? Well, people get afraid. They start stalling. You could tell from their body language that they're uncomfortable. They might stop returning messages. They might have a reluctance to meet or discuss the problem. They have an unrealistic demand and suddenly they don't need your service or they told you they have another buyer or a higher offer. So what causes these fears? Well, people are afraid of making a bad decision. Some of these decisions are really big. Some are really small. And depending upon where you are on the scale, you know, decision making could be something you embrace or something you just don't want to do. They have uncertainty, whether they want to make the decision at all, what they want to do. Change can be scary. Making a change to move to a different place, take a different job, you know, buy something, a service for your company, it can be scary. They might not want to lose. They might feel like they're getting a bad deal. They don't want to look foolish. They might have a legitimate change in business operations. Like, hey, things changed. We got acquired. I need to put everything on pause. These are all legitimate reasons. There's new information. So these are all, you know, legitimate. All right. So how do you handle fears? Well, the first thing you want to do is have a phrase that says something like this. Hey, it sounds like we were pretty close. What happened? That's it. It's just a very curious question. And again, you're trying to negotiate a win-win outcome that they're going to abide to and you're going to abide to. So it's fair to ask. Explore, clarify, and isolate the concerns. What I mean by explore is just what I said above. Sounds like we're pretty close. What happened? Clarify. Make sure you really understand. And you might say something like, what I'm hearing you say is. And then isolate. Besides the fact that, you know, you're concerned about the payment terms, is there anything else slowing you down here or that you're worried about? Make sure you're isolating it down to the one or two or three concerns that they have and that those are the concerns. And then you can go over each of them. You can ask, how can we minimize those concerns like I did with the rental agent in North Carolina? Talk about alternatives and solutions. All right. So when you get the answer you want, stop talking. Moneyball, Billy Bean, manager of the Oakland A's, trades a player, gets the answer he wants, hangs up on the other general manager and has the other people deal with the trade details. Great movie to watch. All right. So here's some key phrases you can use in your day-to-day life. All right. This is what I mentioned at the very beginning. Again, it comes from never split the difference. I want you to feel like you're being treated fairly at all times. So please stop me if you feel like I'm being unclear and we'll talk through it. It makes sure that things don't go sideways. It's a good way to set up the beginning of a conversation. When you get stuck, you can say something like, how would you like me to proceed from here? Or how can I make this better for us? And again, silence is golden when you ask these questions. You can't fill in the blanks. You could say, it seems like X is really important to you. Can you tell me why? Pricing, color of the vehicle, different things like that. Sounds like silver is a really important car color to you. Can you tell me why? One of the things you could say when negotiating, this is good at garage sales and things like that. When someone asks, how much is that painting over there? And they throw you a number, you can say that seems high or, oh, that's too high. And then silence, you'd be surprised people will come back and give you a different price. If a salesperson says to you, hey, this is a fair deal and the best you're going to get, you might say, okay, in that case, it seems like you're ready to provide the evidence that supports that and see what they say. All right. So with salary negotiation, something we always do and dread, but it has a pretty big impact on our life. How do you prepare for a salary negotiation? Well, you want to increase the pie. There's other things besides the yearly salary or hourly rate, depending upon what you're doing. Benefits, equity, time off, sabbatical, equity triggers, that type of stuff. Getting the feedback and support you need, mentors and champions. Getting resources, time, access to money, people that are going to help you. Creating a schedule that works for you. Oops. Getting the authority or support to lead change and getting that commitment ahead of time. All of these things are things that you can do to increase the pie when going through your salary negotiation. All right. So you want to frame the conversation. So early career, new job. If there's anybody listening in that's early career, new job, you might want to start off a negotiation by saying something like this. I don't know if it's typical for people in my level to negotiate, but I'm hopeful that you'll see my skill at negotiating as something important that I can bring to the job. Okay. When they ask your salary requirements, never give a number first. You might want to say something like this. A company as established as yours with an open role as important as this one must know the market and have a budget target as well as a description to the total compensation. At a professional respect for each other's time, I can't enter into the process or go forward in the process without knowing this information. Okay. You want to make sure that again, that anchor that happens is an anchor on their side. If you have to give a number, give a range with the lower number of your range being your aspirational high number. Now, a lot of people are afraid. What if I price myself out of this? You might price yourself out. You might not, but it's hopeful that if you're their first choice or second choice, that the company will come back and we'll say, Hey, you way out of the ballpark, you know, here's the range we're thinking of. Okay. But it's good to set that phantom anchor even if you backpedal very quickly after that. All right. Let's talk about some gender difference in negotiation style and some outcomes. So do you know that maybe this is not surprising? Men initiate negotiations four times as often and get 30% more. Not fair. Statistically though, women negotiate better than men when they're negotiating for others. So, and then, you know, 20% of women don't negotiate at all, even when they know they should. So how can we change this? Well, when preparing for negotiations, women should begin by framing the negotiation as if they're advocating for someone else. So in that preparation step that I talked about before, do all the preparation and insert someone that you're negotiating for. And then when you go in to have the crucial conversation, you obviously replace that person with yourself. And this is a way to get better outcomes in negotiation. Okay. All right. So negotiating for a car. I'm terrible at this. I'm going to tell you that right now. However, I have a friend that's great at it and has tried to coach me through this. And he's given me some great tips. So do your research, be prepared. It's okay to get no's. Be willing to walk away in a very nice, not obnoxious way, although he mentioned an obnoxious way to walk away, which is pretty funny, which I'll talk about. You want to out math your opponent. If you're financing the car, understand all the pricing and work it backwards. Invoice doesn't mean what we think it means. There's a 2% dealer hold back on the invoice and 2% with a room. So just a little information to arm yourself with. And then you want to walk in and you want to say something like this. I saw the car I wanted for $27,200. Anchor. And also an odd number, or not an odd number, but a not even number, a round number. I want to look around one last time before I made the decision. I specifically want this car. And you list the details. I've done my research. I have cash or I'm going to finance and I'm ready to buy. Let's save each other some time. Make me a fair offer and I'll buy the car from you. If you get an offer you don't like, here's some things you can say. You can say, I'm sorry, but I can't make that happen. Or, this is embarrassing, but that wouldn't work for me. One of the things, the funny thing he said is, look, I did the most basic research before walking into your dealership and I know that's not a good deal. I don't think this is a place I want to do business with and walk out. This is something he did when shopping for a car with his mom and the guy chased him down. All right. So buying some other things. It never hurts to ask when negotiating. Okay. There's the Steve discount or a good person discount or This American Life has a great podcast and they call it the good guy discount. They do a whole study about going out and saying, hey, I'm a good guy. You're a good guy. Is there a discount for a good guy or a good person? I'm a good person. You're a good person. Is there a discount for a good person? It works one out of every five times. You got to be comfortable enough doing it. And there's a lot of people who have a lot of discomfort and big chain stores don't necessarily have, might have policies. Okay. All right. Let's keep moving here. I'm running out of time. When someone counters an offer of yours, so you'll say, I'll give you $25 for that. And they say, how about 30? You can say, I have a better idea. And then you can come back with a better idea. All right. Don't forget to negotiate car repairs. Yes, you can negotiate a car repair, gym memberships, phone service, window replacements. I just did this. A couple of friends of mine all got our windows broken. We negotiated a deal. You can even negotiate at the dentist. All right. So negotiating starts with research and preparation. Stick to your principles, propose mutually beneficial solutions with multiple items. Think beyond the current engagement, use anchors, create win-win propositions where both sides can abide by the agreement. All right. Here's some suggested reading. And I think I'm going to run out of time as we come to the end for questions, unfortunately. Thank you so much. This is a lot of fun for me to go through. And have a great day. Thanks, everybody. Bye.