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Anatomy of a Deal-Maker By WILLIAM DEVINE |
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A landlord recently proposed a lease that called for the tenant to dismantle a prior occupant’s manufacturing operation, clean up soil contamination caused by that occupant, take the space without a warranty that the building’s systems would work, perform elaborate ADA upgrades, and increase the security deposit half way through the lease term, from $140,000 to $190,000. The prospect countered. The landlord rejected the counter, except that, in response to the prospect’s desire for a non-increasing security deposit, the landlord announced that he would accept a security deposit of $190,000 upon lease execution. Amused by the landlord’s closefisted style, especially in a market sporting 30 million square feet of available space, the prospect replied by locating in a building owned by a more informed individual. So--diving to the bottom of the bay and holding your breath until the other side meets your demands will prove that you are tough, but it won’t help you close a real estate deal. What skills must you cultivate to claim virtuosity as a deal-maker? Great negotiators prepare. They understand that in most cases, nothing overcomes a failure in preparedness, not even clever tactics or a spiffy curriculum vitae. A managing director demurred when his partner suggested planning their presentation to a global software company that had requested a proposal for services. The engagement had the potential to generate hundreds of thousands of dollars in leasing fees. “I invented this market,” the director claimed. “We can talk about the presentation on the way there, show them our new brochures, and we’ll be fine.” Five vice presidents from the software company attended the presentation, which took place almost two years ago. The managing director and his partner have not heard from the company since then. A vice president negotiating a lease buy-out agreed to pay eighty cents for each dollar of rent owed. On the day she was to execute the termination agreement, knowing that the owner was set to sign a new six-year lease with a prized tenant, she told the owner that her boss would not pay more than seventy-five cents on the dollar. The owner complained, then modified the termination agreement and signed it, not really all that unhappy: from the outset of the negotiation, the vice president had overestimated her company’s remaining rental obligation by 22%, and she failed to incorporate the return of her company’s security deposit into the termination agreement. She closed a deal, but not the one she thinks she made. Before commencing any negotiation, take lots of time to prepare. Who are these people you are about to deal with? What do they say they want? What do you think they really want? What do you want? Where will the deal be made, in your estimation? What unusual turns might the negotiation take? Are your numbers right? Figuring out answers to questions such as these before the bargaining begins will give you the insights that can bend the flow of the negotiation in your favor. Another attribute of deal-making mastery is poise. I learned this by accident years ago while representing a client on a land purchase. The owner and I spent two hours on the phone horse-trading contract issues, then turned to the price. We were $100,000 apart. “The price your client proposes will leave us well short of our projections,” he said. “That makes it very tough on us.” The line went silent. My impulse was to say something in response to the silence, and I started to speak, then stopped. As I hesitated, I sensed that if I said, “My client can pay all cash,” or “It’s still a good deal for you,” then the owner would take my comment as an invitation to joust, we would battle over the hundred grand, and my client would end up having to pay some or all of that sum. The owner had not asked a question or proposed a compromise, so no response was required from me at that moment. I decided to remain silent. After what felt like days but was probably less than thirty seconds, I heard, “But I guess it’s good for us [i.e., his company] to just get this deal done, so we’ll do it.” The significance of this incident was instantly apparent to me: I had just saved a client $100,000 by doing nothing. Poise is essential when a deal takes an unexpected turn, and it is also indispensable at routine junctures. Once you make a proposal to the other side, give them the space to respond. Rather than trying to harangue or cajole them into submission, let them be with their thoughts and let them see that they want to do the deal. Give them the opportunity to complete their sentences. You may be surprised by what they say.
Many pay homage to non-economic values, then let their actions be guided solely by money, but that bottom-line focus often backfires. Executives at Enron and Worldcom conducted their dealings with a bottom-line focus that turned into fixation and caused them to lose track of the balance of their lives. At first their performances looked stellar, but today that sheen is gone, their careers are destroyed, their families are disgraced, and one of them is dead. Thinking that a deal is all about money is easy. Remembering that there’s more to life than money can be hard. Those who achieve long-term greatness as negotiators usually recognize at an early stage the value of making deals you can live with. |
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WilliamDevineEsquire |
© 2006 by William Devine Esquire. All rights reserved worldwide. Disclaimer. |
re you a masterful negotiator? You want to answer, “Yes,” but by what standard do you appraise your skill? One company’s general counsel, sensing a need for added negotiating power during contentious acquisition talks, suggested finding a former Navy Seal to install as interim CEO. The suggestion highlights a common belief about negotiating: many equate being good with being tough. But in fact being tough often detonates your deal.