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The Guide to Entrepreneurship by Michael Szycher Ph.D

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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
154The 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 Negotiations155
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.

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