Jan is a real estate investor who was trying desperately to get her expenses down. She’s always been passionate about providing high quality housing to the community at a reasonable price. Recently she has been experiencing cash flow issues and she needs to make some major repairs to one of her properties. She is very handy but simply doesn’t have the time to do all of the work herself. No matter how much she searched, she wasn’t able to find quality contractors within her price range. Then one day, out of sheer desperation, she decided to ask her contractors for a lower price. To her surprise, she got it.
Negotiation is undoubtedly one of the most important skills for entrepreneurs. It gives you the unique opportunity to increase your profit margins without increasing sales. Successful negotiators are not only able to get more for their business, they are also able to save more and, most importantly, they are able to strengthen the key relationships in their lives.
The beautiful thing about negotiation is that it is one of the few business skills that we can use every day. For example, my legal skills don’t make me a better husband but the dispute resolution and listening abilities that come with my negotiation skills do. Negotiation not only improves my bottom line, it also improves my overall quality of life.
If your goal is to build wealth and achieve financial freedom, you cannot afford to leave money on the table. However, that’s what many of us do every day when we fail to negotiate. There are countless opportunities to negotiate in our business and personal lives (click here for a list of goods and services that are negotiable). The money you are able to save and the extra money you are able to earn through this skill can easily result in hundreds of thousands of dollars of additional earnings over the course of your lifetime.
However, despite all of this, negotiation is arguably the most overlooked tool in the entrepreneur’s toolbox. Not only is it under utilized; entrepreneurs rarely take the time to invest in improving these critical skills.
Entrepreneurs often fall victim to what I call the expert’s fallacy of exceptionality. Most people become entrepreneurs because they have high-level skills or interest in a particular area. Furthermore, they believe that the best way to move their business forward is by continually honing that specific skill. For example, an artist may start an art gallery because of his passion for art. In an effort to improve the business he is likely to keep up with the current art trends and continue to hone his skills through training. Although these activities are important and they will make him a better artist, they don’t necessarily make him a better businessman. In order to have a successful company, he needs to develop his overall business acumen.
There are two main reasons why entrepreneurs fail to negotiate. First, entrepreneurs often fail to recognize there is an opportunity to negotiate. Like I mentioned earlier, negotiation is one of the few business skills that you can use every day. What is negotiation? It is a conversation where one or more of the participants want something. I prefer this broad definition of negotiation because it helps people to realize that negotiation is everywhere.
When you are able to recognize that you are in a negotiation, then you can implement the requisite skills to get what you want.
Second, even if people are able to recognize that there is an opportunity to negotiate, they have a fear of negotiation. The ask is the first step in any negotiation and, unfortunately, this is where most negotiations fail because the ask is never made. Cash flow is an ever-present issue in small businesses. Many entrepreneurs are afraid that negotiation can jeopardize the relationship with customers or clients. Because of that, although entrepreneurs are willing to take the risk to start a business, they are significantly less likely to take the perceived risk of losing business. However, if these entrepreneurs took the time to invest in developing this skill, they would see negotiation not as a potential risk, but as a potential opportunity to strengthen relationships with prospects. Good negotiators are able to create deals that leave both parties in a better position. These conversations give the entrepreneur the opportunity to craft creative solutions that better serve the client without jeopardizing the company’s financial situation.
Considering the fact that entrepreneurs rarely negotiate to get better business deals, it is not surprising that they rarely use negotiation to resolve conflict. Clients often come to me with a problem that they believe requires litigation. However, in the majority of circumstances I am able to talk to the other side and work something out before we even get to the point of filing. Leaning on negotiation rather than litigation saves significant amounts of time, energy, money and frustration.
A study from the US Chamber of Commerce shows that litigation costs small businesses approximately $105.4 billion annually. Litigation is a risky prospect because, win, lose, or draw, the final costs could easily cripple a small business, which would affect the livelihoods of everybody involved with the company.
An additional, and often overlooked, benefit of negotiation is the fact that the parties involved become the ultimate decision-makers. They are able to work together to craft a unique agreement. These kinds of agreements are narrowly tailored to address the key issues in dispute in a manner that works for both parties.
Negotiation and mediation create an atmosphere that is ultimately less damaging to the fractured relationship. These methods of dispute resolution put the parties in a position where it is more likely that the process will culminate in a workable relationship.
Negotiation is a potent skill that often lays in the blind spot of entrepreneurs. Don’t leave money on the table. Take the time to develop this skill and reap the personal and financial benefits.