153
Chapter 8
Power Negotiations
“He who pays the piper calls the tunes.”
The word negotiation is derived from the Latin “negotiatus,” which is past
participle of “negotiare,” meaning “to carry on business.” It is also related to
“negotium” or “necotium” literally meaning “without leisure.” A negotiation is a
dialogue between parties, intended to reach an understanding, resolve a point
of difference, or gain an advantage, to produce an agreement upon courses
of action, or to satisfy various interests of parties involved in the process.
Negotiation is a process where each party involved in negotiating tries to gain
an advantage for themselves by the end of the process. Negotiation aims at a
suitable compromise, in which parties can resolve their opposing interests.
Unlike litigation, business negotiation requires the consent of both par-
ties. For this reason, negotiating involves the management of expectations.
Both parties need to undertake negotiations with realistic expectations—not
outcomes, but expectations. In mathematical terms, we can express this
negotiation principle thusly:
Negotiation Expectations = Satisfaction = Δ (anticipation – reality)
8.1 Business Negotiations 101
“You can get much further with a kind word and a gun than you
can with a kind word alone.” —Al Capone
The term “negotiating in good faith” is more of a legal principle than a fac-
tual case. Negotiations occur primarily for three main reasons: (1) the need
154 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
to agree on how to share or divide a limited resource, (2) to create some-
thing new that neither party could attain on their own, and (3) to resolve a
problem or dispute between the parties.
Negotiation should be contrasted with mediation, where a neutral third
party evaluates each side’s arguments and attempts to reach a “suitable” or
“fair” agreement between the parties. Negotiation should also be contrasted
with arbitration, which resembles a legal proceeding. In arbitration, both
sides make an argument as to the merits of their case and the arbitrator
alone imposes the outcome.
1
Closely related to negotiation is bargaining. Bargaining is a type of
negotiation in which the buyer and seller of a good or service dispute the
price or value that will be paid and the exact nature of the transaction, and
eventually come to an agreement.
2
8.1.1 Negotiation Wheel
When dealing with potential investors, as a founder you have more
power than you think. Remember that like beauty, power is in the eyes
of the beholder. Investors depend on you to come up with the innova-
tions that will turn a prot for them. Without you, all they have is money.
And they must invest that money or lose value as a result of yearly
money devaluation.
Figure8.1 depicts the negotiation wheel from a founder’s perspective.
The wheel assumes that this is your rst “ofcial” negotiation with an
established investment consortium such as an Angel group. Notice that
your individual objectives are at the center of the negotiating wheel. These
objectives were the main reason why you undertook the risk of starting a
edgling company.
8.1.2 Negotiation Strategies
“You got to know when to hold ’em and when to fold
’em.” —Kenny Rogers
Negotiation theorists generally recognize two types of strategies: distribu-
tive and integrative (Figure8.2).
3, 4, 5
Three basic kinds of negotiators have been identied by researchers
involved in The Harvard Negotiation Project.
6
These three types of negotia-
tors are soft bargainers, hard bargainers, and principled bargainers.
Power Negotiations ◾ 155
◾ Soft. These people see negotiation as too close to competition, so they
choose a gentle style of bargaining. The offers they make are not in
their best interests, they yield to others’ demands, avoid confrontation,
and they maintain good relations with fellow negotiators. Their percep-
tion of others is one of friendship, and their goal is agreement. They do
not separate the people from the problem, but are soft on both. They
avoid contests of wills and insist on agreement, offering solutions and
easily trusting others and changing their opinions.
Objectives
Autonomy
Status
Financial
Independence
Founder’s Negotiation Wheel
Goals +
Aspirations
Power +
Influence
Leadership +
Recognition
Strategic
Planning
Organization
Tactical
Planning
Corporate
Governance
Innovation
Initial
Valuation
Figure 8.1 Founder’s negotiation wheel—State your objectives clearly and
numerically.
eoretical Negotiation Strategies
(most negotiations are a mixture of the two)
Distributive (hard)
Win-lose
Zero sum
Fixed pie
Take it or leave it
My way or the highway
Fixed time to agree
Confrontational
Integrative (soft)
Win-win
Non zero sum
Expanding pie
Find common ground
Satisfy both parties
Allocate time needed
Accommodating
Figure 8.2 Theoretical negotiation—The two negotiation strategies at your disposal.
156 ◾ The Guide to Entrepreneurship: How to Create Wealth for Your Company
◾ Hard. These people use contentious strategies to inuence, utilizing
phrases such as “this is my nal offer,” “my way or the highway,” and
“take it or leave it.” They make threats, are distrustful of others, insist
on their position, and apply pressure to negotiate. They see others as
adversaries and their ultimate goal is victory. Additionally, they search
for one single answer, and insist you agree on it. They do not separate
the people from the problem (as with soft bargainers), but they are hard
on both the people involved and the problem.
◾ Principled. Individuals who bargain this way seek integrative
solutions, and do so by sidestepping commitment to specic posi-
tions. They focus on the problem rather than the intentions, motives,
and needs of the people involved. They separate the people from the
problem, explore interests, avoid bottom lines, and reach results based
on standards (which are independent of personal will). They base their
choices on objective criteria rather than power, pressure, self-interest,
or an arbitrary decisional procedure. These criteria may be drawn
from moral standards, principles of fairness, professional standards,
tradition, etc.
We will discuss distributive and integrative strategies at length in the
subsequent paragraphs.
8.1.3 Distributive Negotiation
7
Distributive negotiation is also sometimes called positional or hard-
bargaining negotiation. It tends to approach negotiation on the model of
haggling in a bazaar market. In a distributive negotiation, each side often
adopts an extreme position, knowing that it will not be accepted, and
then employs a combination of guile, blufng, and brinksmanship in order
to cede as little as possible before reaching a deal. Distributive bargainers
conceive of negotiation as a process of distributing a xed amount of
value.
The term distributive implies that there is a nite amount of the thing
being distributed or divided among the people involved. Sometimes this
type of negotiation is referred to as the distribution of a “xed pie.” There
is only so much to go around, but the proportion to be distributed is vari-
able. Distributive negotiation is also sometimes called win-lose because
Power Negotiations ◾ 157
of the assumption that one person’s gain results in another person’s loss. A
distributive negotiation often does not involve people with a previous inter-
active relationship, nor are they likely to do so again in the near future.
8.1.4 Integrative Negotiation
8
Integrative negotiation is also sometimes called interest-based or principled
negotiation. It is a set of techniques that attempts to improve the quality and
likelihood of negotiated agreement by providing an alternative to traditional
distributive negotiation techniques. While distributive negotiation assumes
there is a xed amount of value (a “xed pie”) to be divided between the
parties, integrative negotiation often attempts to create value in the course
of the negotiation (“expand the size of the pie”). It focuses on the under-
lying interests of the parties rather than their arbitrary starting positions,
approaches negotiation as a shared problem rather than a personalized
battle, and insists upon adherence to objective, principled criteria as the
basis for agreement.
9
The word integrative implies some cooperation. Integrative negotiation
often involves a higher degree of trust and the forming of a long-term rela-
tionship. It can also involve creative problem solving that aims to achieve
mutual gains. It is also sometimes called win-win negotiation.
8.2 The Entrepreneur as Chief Negotiator
“Wanting to be treated fairly because you are fair is like expecting
the bull not to charge because you are a vegetarian.”
Whether you want it, whether you fear it, the founder/entrepreneur is the
startup chief negotiator. You will be up against much larger and stronger
organizations, and so you must employ power negotiation. You operate a
small startup and they are the largest Angel group in your state. However,
contrary to popular fantasy, power is not dirty pool. Power is like weather: it
can be either good or bad.
Power is the source of pressure you can exert to advocate your interests
during a negotiation. Negotiating power provides you with the advantage/
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