Brutally Effective Negotiation Tactics | Ep 874

0:00Over my career acquiring and scaling businesses for acquisition.com, I've done a lot of deals. I want to put the five most brutally effective tactics that I know in one video for you. A lot of these things I didn't actually learn from books. I learned them from mentors and actually seeing them do it and learning it like in the streets, in the real world. Most itty bitty tactics like don't actually drive the needle, but these five actually have gotten deals done and improve my situation or standing in the deal. So let's dive in. There's three contexts that you're going to use each of these skills with.

0:29The first is with employees, and this goes both ways. If you're an employee trying to negotiate with an employer, then that applies. The second is going to be vendors. Now, this also applies if you're a vendor who's dealing with customers. And then third, you've got what I would consider partners. This is when you do deals, M &A, things like that, investment. So these are kind of the three big vectors that all of this stuff applies to. So if you're like, I'm not sure if this will work for me, you for sure, even if you don't have a business, you are an employee. and if you are an employee and you don't want to use that, you certainly have vendors that come to your house and do things for you.

1:02Like, this is the fruit of life. You have to negotiate and you get what you negotiate, not what you deserve. That may sound not fair, but it's also the truth. Number one, this is actually from a Harvard Business School thing that I learned from Sharon Servata. It's called BATNA. Now, I didn't know the fancy term for it, but it means best alternative to a negotiated agreement. So what does this really mean? Research has shown that having strong BATNA, basically a strong alternative, gives you significant leverage in negotiations. Negotiation is all about leverage. London Business School did a study, and they found that negotiators who know their alternatives set higher aspirations, so they ask for more, they make more aggressive first offers, and they negotiate ultimately better outcomes.

1:44So your BATNA serves as almost like an anchor, a counter-anchor that you have in the back of your mind of what you're negotiating with. It's kind of like a source of power. It's a decision standard that you only accept deals that are better than your best alternative. You can think about this in any setting. So if you're with a girl and you know that you can only date tens, if a seven comes along, you're like, well, my alternative is a 10, so I'm only dealing with tens. If someone says, hey, I'll be willing to buy all of your inventory for$10 a piece, and somebody else comes along and says, I'll do it for$9, instead of just saying no, you're like, I'll do it for$10.50 or I'll do it for$11.

2:16You can edge them up, but if you know that it's not going to matter, then it doesn't matter. So I'll tell you something that recently happened. I'm right now negotiating to buy a home. It's something that Layla wants and it's aggressive. We already have a home that we like a lot. I really like the house we have. My best alternative to buying this house is doing nothing and just enjoying the home that I already have. They're in a terrible position because right now I know that they haven't had anyone else who's bid on the property because it's aggressively priced, I'll put it that way. It's them versus me and it's who wants it less.

2:50The reason bad is so important is you're like, okay, I get that. How do I have a best alternative to a negotiated agreement? You win negotiations, and I'm starting with this one because I think it's all five or six ones that I'm going to show you are going to be so important. But this one is probably the greatest source of psychological power. And you do this before you sit down to the table. Me going to look at these homes, I know I don't have to buy the homes. When I was selling Gym Launch and Prestige Labs, I was like, I can just keep the businesses and they'll just keep making me money. I don't need to sell them.

3:17And from negotiating for that position, you only want to sell when you don't want to sell. You want to buy when you don't want to buy because you have something else. If you're looking for jobs as an employee, you want to negotiate when you already have another offer. So if you're going to your existing employer, get another offer and then negotiate with that. You can only do that so many times before you start losing goodwill. So you have to make sure that you're balancing that well. If you're dealing with a vendor, then you're like, okay, I'm going to get multiple bids before I'm going to decide to work with you.

3:43Because these are what I'm considering. You'll get so educated from actually negotiating four, five, six of these vendor agreements that you'll learn other terms that other people include that you can use, which is a later strategy that I'll explain. Getting multiple offers before you sit down increases your bet. So for sure, don't take the first offer because even if you have first offer within the negotiation with one guy, but then you have that offer compared to all the other offers you're ultimately going to get to do the work. On the vendor side, it's reversed. What's my best alternative?

4:09What are my other customers? If I've got 20 other customers, I've got people banging on the door, it's a supply-demand thing. So I've got more demand for my services than I have supply. And so if you don't want it, don't worry, I've got another customer behind you. And so this is the leverage that we go back and forth in negotiations. And then finally, with partnerships, the same idea. How can I get multiple offers from people wanting to buy my business? And to the same degree for me, if I'm trying to buy a business, then I want to not have to buy the business because I've got other businesses I'm looking at.

4:34So no matter what, all of this is one before you sit down at the table. Right now, if you sit down and you need this deal and you have no other offers, all the little tactics that you can try, sure, you can try to do it. But the thing is that it's just trying to win at poker only on bluffing. It's a bad position to be in. I would rather have pocket aces. If you have other offers, there's two different ways of thinking about this. So one is you can be overt about it and say, listen, this is the counteroffer. If you can beat the offer, beat it. If you can't, no worries. We don't want to waste time.

5:03The other way is that you just have it in the back of your mind and then you just see what you can get. because the thing is, somebody else is giving you a$10 offer. If you say, hey, I've got a$10 offer, maybe this person will just beat it by$10.25. But if you have the confidence that you know you're going to sell the inventory no matter what for a profit, shoot for$11. Shoot for$12. Shoot for$15. Like, you can shoot way higher because you know your plan B is not bad. And so when you show it, they're just going to basically marginally edge it versus you having the confidence to basically swing big.

5:28Real quick, if you're a business owner and you are not growing as fast as you'd like, I'd like to give you a free gift. So my team and I put together the$100 million scaling roadmap, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through, and more importantly, where they got stuck and how they got past it. And so we broke it into these 10 stages, and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of the functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources, and finance.

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6:29Now, the second is a big one. And a lot of negotiation books and courses and stuff talk about this. And people are like, hey, I'm not trying to anchor here. It doesn't matter if you say I'm not trying to anchor here. It's an anchor. An anchor is the first number that is set in a negotiation. If you're like, hey, what do you think you'd be willing to do this for? And someone's like, ah, I was thinking I could maybe do it for$2 ,000. That's now the anchor. You want to get less than that? And you were like, shoot, I was hoping for$500. Well, you should have said$500 first because now their$2 ,000 seems ridiculous.

6:56There is a strategy called counter anchoring, but it's typically not as effective as anchoring. but it's the only move you have left. Now, the flip side is, the reason a lot of people don't want to put the anchor out is because they don't want to shortchange. If someone was going to say yes to 5 ,000, you put 2 ,000 out there, you're like, damn. Because whatever happens, if someone gives you a fast yes, you're like, no, I left so much money on the table. So I'll give you a little pro tip that I've learned being on the other side of this. If I have somebody who comes to me and says, hey, I'll do it for$2 ,000, and I would have paid five, and I say, yeah,$2 ,000 works, the next thing I do is I say, hey, and if you were curious of whether I would do it for$2 ,500, I wouldn't have done.

7:31And the thing is that it puts them at ease that like, you know what, you wouldn't have done more. And what happened is I bought a super expensive penthouse a few years ago. And after I bought it, the guy who sold it to me, obviously a wealthy guy too, he said, hey, we accepted your first offer. And you're probably wondering if we would have done it for less. He said, I wouldn't have sold it for a penny less. It felt so classy. Maybe he would have sold it for a penny less. I have no idea. But in the moment, actually, like I was like, okay, it just made me feel a lot better. So if you're in the reverse situation, I would put someone at ease by just saying, hey, I wouldn't have done it for any less.

8:02I wouldn't have done it for any more, whatever. What's interesting is that Daniel, Nobel's prize winner, figured out that people give excessive weight to the initial information and make insufficient adjustments from that starting point. It's a psychological bias. Basically, it's like you want to anchor as high as possible. That's why I'm a big avid of getting the gas. You put the big number out there because it completely shifts the whole negotiation numbers to way, way higher. And the things people think in different increments. And that's what we want to change. If you say, I'll do this work for$100 ,000, whatever, you're in construction.

8:30If someone was thinking 10, their increments now become the entirety of what they were willing to pay. They're going to be like, can you do it for 80? All of a sudden, we're thinking in$20 ,000 increments. As a side note, you can also incur increments. So explain what that means. I'll actually walk you through the house negotiation that I'm actively in right now. The house was listed at$25 million. Then they dropped it to$20 million because the market's changed and things like that. Okay, so now they're at$20 million. So I made an offer for$15 million. they countered and said we'll do it for 16.9 so big move on their part right they're moving aggressively they're trying to sell the house they moved a lot towards me because they're trying to get a deal done the natural thing that some people might think is okay they're at 17 you're at 15 counter with 16 here so what i did is i counted with 15.25 so they moved 3 million i moved up 250 grand things that there's this idea of like movement of you make an offer i make an offer So if I say 15.25, what am I indicating?

9:25I'm not willing to move very much. I'm going to, out of reciprocity, which we'll cover later, I'm willing to move a little bit. I'm going to make some counteroffer, but I'm not going to give a lot. Then I can stack in other terms that make it more ameliorable for them. My initial offer, I had two other things that I was like, okay, I can offer cash. My first offer is not going to be cash. I can also say, hey, it has furnishings in the house, which are super expensive. I don't want to have to deal with refurnishing the house. What I did was when I moved up to 15.25, I sweetened the deal by making it all cash.

9:54But then I also said, I also want the$4 million of furniture that's in the house. Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Layla and I spent probably an entire quarter putting together our Scaling Roadmap. It's breaking scaling into 10 stages and across all eight functions of the business. So you've got marketing, you've got sales, you've got product, you've got customer success, you've got IT, you've got recruiting, you've got HR, you've got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level.

10:26It's all free and you can get it personalized to you. So it's about 30-ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have to watch the part that's relevant to you, which will probably be about 90 minutes. And so if that's at all interesting, you can go to acquisition.com forward slash roadmap. R-O-A-D map. Roadmap. Which is technically a worse second offer than my first offer. But the thing is that I moved the number up. And a lot of people are always way too fixated on the price and not enough on the terms.

11:01One is we anchor with our original price and also in the increments that we move in. And this was something that took me actually a while to figure out. And so let me tell you a story about this one. So one of my partners at my gym, way back in the day, I learned this from him. He had to get this big custom front desk built. So it had like multiple cutouts. We had multiple salespeople. Big, impressive thing. You get a custom built. The guy came out. They built this whole thing. He was like, hey, when we went to do like the final inspection, we noticed that they had kind of like nicked a corner of it just from moving it around or whatever happened, right?

11:26It was a small nick, but it was noticeable. My partner goes to the guy and he says, hey, how much would it cost you to replace this? And the guy, of course, because he doesn't want to rebuild the whole thing. He's, oh my God, it would be a huge deal for us to have to like just this little thing. We'd have to go back to the shop. We have to do those stuff. It would probably cost us$1 ,500 just to replace that. And he says, that sounds like a pretty good place to start it for a discount. Nasty. I was like, oh, I'm going to use that. If there's ever someone who messes something up, instead of saying, hey, what can you knock off the price?

11:55Ask them what the big inconvenience would be for them. Ascribe a price to it. And then they have a hard time backing down from that because they just said that's how much it would cost them to fix it. Then you should probably discount us by that much because that was the size of the mess up. So you get them bidding for themselves and then you flip it. So number three, I learned this from a different mentor. They call it MISOs, but basically multiple equivalent simultaneous offers. So what does that mean? That means that I present offer A, offer B, and offer C. Or just offer A and B. It doesn't really matter.

12:27You're going to have two offers. You're going to have three offers. And each of these have different prices and terms associated with them. And so what happens is when you make multiple equivalent offers, it's like embedding reciprocity. It's like, hey, I'm trying to be reasonable. I just want to figure out what works best for you because all three of these work for me, but which one's better? This is a way of actually teasing out what someone else's priorities are if they're not willing to tell you. Because a lot of times you want to hold your card close and not say, what are the things that are most valuable to you?

12:49Now, over time, you build some trust, you build some rapport, and you will be able to share. Because ideally, something that's important to you is not important to them. And they give you this one. And something that's important to them that's not important to you, you give to them. And that's fundamentally a good negotiation. And one of the big things that I misunderstood in the beginning is that I assumed negotiation was a zero-sum game. And it's never a zero-sum game. Because you're a different person. You have different needs. You're always going to have some things that will be more important to you than other people.

13:10And in that situation, it's like you want to just interlock the things that matter most to each person. That's where it becomes a positive. Both parties are better off from basically giving and taking in places that are less meaningful to them and more meaningful to the other person. Journal of Personality and Socialistology showed that presenting multiple equivalent offers simultaneously increases the likelihood of finding mutually beneficial solutions. This approach demonstrates flexibility while also maintaining your core interest because you're the one who's presenting all the offers. It's almost like a reverse assumed close.

13:39hey, I'll do any of these three things and you just pick the one that works for you. And then the thing is they're picking all any of these I said already worked for me. Let me give you like a real world example. So let's say option A is lower monthly fee with a longer commitment. Option B is a higher monthly fee but has premium support. And then option C is kind of like a pay as you go with slightly higher rates but maximum flexibility. Right, so all three options will give you similar overall value, but you might look at them and be like, I just want to know which one meets your needs better.

14:09From their answers, you'll be able to understand their motivations. Now, let me tell you some knowledge from the street. If someone gives you multiple offers, if you're on the other side of the table, what I like to do is say, I like the best part of this one, and I like the best part of this one, and I like the best part of this one, and why don't we make an offer that is the best of all three? And I learned this from my friend, Charon. Guy's done more deals than anyone I know. I was like, ooh, that's good. So the flip side is you could ask someone, hey, can you give me two or three versions of what this deal might look like?

14:41And then they come up with their versions of the deals and then you say, great, I like this piece. How about we do option D? And what's nice about this is it also shows some active listing for you. You countering with something like this or even taking two of the three components, two of those components might be meaningful for you and not for them. Again, because they put them in the different deals. You might find out that you can get more of the things that you want just by asking. So number four, reciprocity. Now, reciprocity is key in all sorts of persuasion. And I'll say this one caveat that I believe.

15:09Reciprocity only matters in cultures where reciprocity matters. There are cultures where reciprocity is not nearly as important. This is where sometimes when cultures mix, people take advantage of systems because that's not as important in the culture they came from. And so the culture where the person is giving first in order because they expect something back, the other culture will just take advantage and be like, look at this idiot. He just gave me some free stuff. And so you have to make sure that basically you're within a culture or society that reciprocity is the norm. But if it is the norm, there's huge amounts of things that you can use from a persuasion perspective.

15:40So the beauty with how we structure reciprocity is that people are more sensitive to the fact that they gave something and you give something. What's more difficult is ascribing the relative value. So let me give you an extreme example. Let's say that I take someone's order from the counter and I bring it to the table where we're both eating lunch. The person might say thank you for doing that. If I then said, hey, can you pick me up and drop me off from the airport tomorrow? I mean, I did get you your lunch yesterday. The thing is that it poses, it looks like, it smells like reciprocity, but the value of those two concessions are wildly different.

16:15And so the idea is that we're trying to trade concessions in a way that is still advantageous to us. What I like to do in terms of my thinking, like the example that I gave in terms of multiple simultaneous offers, which is why I think this works well post that, is that I try and break each of my things into as many different pieces as possible so I can trade more times. So like this house example that I gave you earlier, if I have 15 million, but this thing is gonna be financed, can I go cash or financed? I can do closing period. I can say it's a 90-day close or a 30-day close. That's gonna be significantly more valuable.

16:45I could say furniture versus not. There's other terms that we can basically weave into the deal that I'm not gonna play all those cards at once. Now, this one is a real estate tax. This is much more straightforward. But a transaction like this, it's like you want to think, what are all the variables? We want to use all the value equation variables. Speed, how can I deliver this faster? How can I do it slower? We've got the actual price, obviously. On top of that, we have the risk associated. So who's going to be taking on more risk in this situation? And what are the different types of risk that someone's taking on?

17:17Then we have ease. How can we make this easier or harder for the other person? For each of these components, you want to take whatever you're offering, whether it's an employee or whether it's a vendor or whether it's a deal. I want to look through each of these lenses and think, how can I have more variables at my disposal so that when it comes to the horse trading, I can make a small concession in ease and they only have two variables and I've got five. And when I have five, I can give without changing my price and say, hey, I'll do 15 with ease. They'll come down from 17 to 16. And I say, cool, I'll do 15 with ease and risk.

17:53And then they come down from 16 to 15.5. And I say, cool, I'll do 15 with ease, risk, and speed. And so when we do it like that, then all of a sudden it's like, I'm still keeping the reciprocity, but I just have more arrows in my quiver. When you're sitting down at the table, you want to think through all of these different variables that you have at your disposal. For me, I have this big deal sheet that has 80 different things that I can change about a deal so that when I go into the conversation, I have so many things that I can move flexibly to make my offers more compelling without the unstated assumptions that people all have.

18:27Because they're assuming the deal just has these two things and everything else is the way they want. And for you, you have 80 other variables that you're like, oh, I can change this one, I can change this one, I can change this one. And that allows you to stay in reciprocity with the other person. that ultimately gets you a better deal long term. So as we're thinking through this, if we sit down at the table and we have one or multiple other offers that we think are really compelling and interesting, and we use that as our psychological power so we can anchor super high and we anchor low in terms of our counters, right?

18:57Anchor high in terms of our initial, anchor low in terms of our counter offers. And then we have multiple simultaneous offers that are either presented to us or that we can present to somebody else using more variables. And then horse trade with reciprocity so we can stay in the pocket but still more or less stayed at the same initial offer, then we're probably going to increase the likelihood that we get a good deal done. Number five is framing. I would say this is most important, especially for employees and vendors, less so for partnership type or like M &A type stuff. But it can probably also be important here too.

19:26But I'll just give more use cases in these two right now. So if we're talking about framing, then how we position something is going to matter a lot. So if I'm an employee selling to an employer, which is fundamentally what you're doing, I would probably say something to the extent of, we want to make investments in these places, and I see me coming in as an investment, not a cost. And ideally, if we frame this as, how am I going to get a return on this investment, then I'm no longer a cost center in the business at all because I'm just a percentage commission, essentially, on what I'm bringing in the business.

19:56If I'm a vendor to the same degree, I'm going to try and frame something as an investment. I'm going to frame it based on return, not based on overhead. On the flip side, you always want to reframe the other way, which is you want to reframe this as cost. You want to reframe this as overhead so that ultimately you have more basically negotiating power because you're pushing them down. They're aching themselves up. A lot of times people don't even understand framing, and so they'll just accept the frame that you present. So rather than saying, hey, this is going to cost you$5 ,000, we should say like for$5 ,000 investment, you can see$15 ,000 in maintenance cost savings.