EP31 Negotiation tools that work

In this conversation, Mike shares practical tips and tools for negotiation. He emphasizes the importance of finding leverage and using it to create a win-win outcome. He discusses the power of anchoring, where starting with a higher price or set of terms can reposition the negotiation in your favor. He also suggests using the phrase 'Is there any flexibility on this?' to negotiate better terms. Lastly, he recommends using the question 'How am I supposed to do that?' to challenge unreasonable requests. These practical techniques can be applied in various negotiation scenarios.

Takeaways

• Negotiation is about finding leverage and creating a win-win outcome.
• Anchoring is a powerful technique where starting with a higher price or set of terms can reposition the negotiation in your favor.
• Asking 'Is there any flexibility on this?' can lead to better terms in a negotiation.
• Using the question 'How am I supposed to do that?' can challenge unreasonable requests and shift the negotiation in your favor.

Chapters

00:00
Introduction to Negotiation

02:33
Understanding Leverage

10:56
The Power of Anchoring

15:17
Flexibility

Find out more about working with me. mike@smbmastery.com.au or https://www.linkedin.com/in/mikeadamscott/

Transcript

Mike Scott (00:04.526)
Hey guys and girls, good to be back. So today I thought I wanted to get into a little bit about negotiating, like some very, very practical things that can help you to frame up your negotiation, actual phrases and tools that you can use in a negotiation. And while I don't consider myself a negotiation expert, I've done a lot of it as most of you would have if you are an entrepreneur or an owner operator and of varying degrees from

Negotiating the acquisition of Nona, which is probably the largest negotiation I've ever done. And that was a very interesting one because actually I was the, the lead of that negotiation. So it was a bit of a unconventional setup where ordinarily there would be an intermediary. We didn't have an intermediary for various reasons. So it was like me dealing directly with the principles of, of the acquiring business, which was unique, but an amazing experience. So that's sort of on the, on the top side, which was.

high seven figures value all the way down to, you know, everyday sales and getting my two year old to have a bath, right? It's, everything is negotiation. And I'll mention a few books today. In fact, I'll just get them out the way right up front. So number one is To Sell is Human by Daniel Pink. Second one is Pricing Creativity by Blair Enns. If you're in the services industry is particularly in an agency style model that pricing creativity book is absolute gold.

The third one is Influence by Robert Cialdini, which is kind of one of the foundational books of all of this kind of psychology. And then of course, like my favorite resource by far in terms of negotiating is a book by Chris Voss called Never Split the Difference. So I'm not going to go super deep today. I'm going to try and make this super practical as I always like to do, give you a couple of tools. And all of these tools, as with everything that I generally share, are not mine. They are copied, borrowed, emulated from other people.

And then really my focus is on execution. So that's always an overarching thing that I bring you guys is that, you know, you don't have to figure everything out for the first time every time. A lot of what you do, in fact, I would go so far as to say most of the vast majority of what you do and ever will do in your business. Many people have done before you probably better, probably more times. So find what excellent looks like and get really, really good at execution and emulation rather than spending all this time and energy trying to figure everything out for the first time every time.

Mike Scott (02:33.678)
Cool. So let's get into negotiation. So what is negotiation, right? It's all about leverage. It really is at the end of the day. Finding that leverage, making the other party acknowledge and respect and feel that leverage, and then ultimately getting a better result.

I'm of the firm belief, and I need to say this right up front, that it's not about trying to get the better of the other party. I've had many clients in the past that did not feel like they had got a good outcome until they had kind of got one over us, suppliers, other people. I do not subscribe to that. But negotiation is often required in my experience just to get to a fair result. I don't think that you should take advantage of people.

Oftentimes you have the ability to take advantage of people. I don't think that's what negotiation is. So when I talk about leverage, I don't talk about leverage to really stick it to or screw over a supplier or a client or anything like that. No, that's not what I'm talking about. I'm talking about creating leverage to get a good result for both parties. Right? So that's important. When you're reading books like Never Spit the Difference, when you're reading books like Influence or you're reading books like 48 Laws of Power,

there's the ability to really take advantage of these things and use them in the wrong way. That is not what I'm trying to do here. I need to be very clear about that. Okay. So it's about finding your leverage. So what do I mean by this? I want to just sort of speak about two examples that I've sort of reasonably recently experienced. The first one is with a client that was negotiating a pretty significant deal.

They're a specialist in their industry. They're very, very good at what they do. There are not many people that can do what they do. And they had a massive job, millions and millions and millions of dollars. And the client was also significantly, it was a massive client with lots of power and influence on all of these things. And something came up in the negotiation that really shifted the deal from what would have been a great deal to actually a pretty terrible deal. And the clients and I had sort of worked through this and

Mike Scott (04:43.118)
One of the things that I got this client to do was, and I'm gonna say this to you as a sort of instructive thing, so I'll talk to you about this now rather than hypothetically. In that situation, it's a really useful exercise to sit down and go, okay, where's my leverage? And what I mean by this is, if you're negotiating with a client, to sit down and go, what is at risk of this client not going with us?

What is at risk of this client using another provider that could mess this up or another provider that doesn't have our expertise or another provider that doesn't do what we do and get real with yourself. Like what is at risk if they don't go with us? If the true answer is nothing, well, then you don't have leverage there. You just don't, but you need to know that oftentimes if you're a specialist, especially in like a service industry, if you're a specialist in a niche industry,

Sometimes you'll look at this and go, hang on, this is interesting. There's actually a significant risk to the client if they don't go with us. And then it's important to make them understand that and to figure out how to communicate that. That's an example of trying to figure out your leverage beyond just simply saying, well, we don't need you. Therefore we have leverage. Sure, that's fine. But if you take the time to go, what is at risk of this person not doing this thing? Or what does this person gain if they do do this thing? Or what?

is at risk of this person not gaining if they don't do this thing. This is how you can figure out what your leverage is in this situation. Like I said, sometimes you're going to realize you do not have leverage and then you need to know that going into this, right? You might choose to bluff or do something like that. Fine. To me, that's playing games, but I'm talking about actual leverage and then it's not about sticking it to the other party. It's about figuring out how to communicate this in a respectful, decent manner to highlight what is at risk if they don't.

go with you in the way that you're creating. So that's number one. Figure out your leverage.

Mike Scott (06:37.55)
Another example that I want to talk to you about is sometimes the leverage that you have is not that obvious and actually quite subtle. And I want to share a story from many years ago. We had a client back in the Nona days who was a tough negotiator. And this particular client had done very, very well in his career. He was sort of independently very wealthy. This was a startup that he was working on that we were building the tech for.

I happened to know someone who knew him very well and we were in this sort of very difficult negotiation. It was a really uncomfortable and pleasant situation. And I couldn't quite figure out what to do anymore because it sort of felt like no matter what I did, he just wanted more or he was being more unreasonable. It was just a kind of never ending game. And this guy that I knew that knew this guy said to me, let's call this guy Mark. No, it was not his name, but let's call him Mark. My buddy said to me, listen, Mike.

Mark just needs to feel like he's won. It's very, very important to him that he feels like he's won. So just do something to make him feel like he's won and you'll get the result you want. And I was like, it can't be that simple. Without going into too much detail, we conceded on a thing that we knew was important to him. It was completely immaterial to us. We didn't even think it was worth doing it, but we framed it around this whole thing around making him feel like he had won. To my absolute

surprise and to be honest, almost horror, everything was fine. I understood the leverage. The leverage there was this guy needs to feel like he's one. So stop trying to be right and actually figure out how to make him feel like he's one. And then we can progress. And we did. And that was a massive lesson for me. So in that case, the leverage was knowing that this guy needed to feel like he had won, not actually necessarily one, just feel like he had won and we could move on.

The last one I want to explain is a little bit more nuanced and not always in a negotiation, but maybe just in a sort of people management sense, it sort of crosses these two things. Sometimes you're dealing with people that are in a power position that need significant stroking of their ego, that are often very insecure and that plays out in bravado.

Mike Scott (08:59.246)
talking about themselves, unsolicited, sort of telling you about achievements and awards and whatever the case may be. And that can be really annoying and really difficult to actually deal with these people because there's not a whole lot of room to actually have, let's say, meaningful discussions and meaningful movement and conversations. I found with these kinds of people, it actually becomes really simple. The leverage is basically to stroke their ego. The leverage is to basically make them feel like it was their idea or make them feel like they're getting what they want.

to play into that very high ego trait or that slightly narcissistic behavior can actually be a really, really strong form of leverage to move the negotiation further. Now, again, this is not about getting the better of the person, but I found with people like this, often you get stuck because it becomes less about the actual deal or the terms and more about an ego -stroking game and right versus sort of moving forward. So when you sort of notice that...

Stop trying to convince, stop trying to sort of logic through this and shift the conversation to what is going to appease that person's insecurity and that person's ego. And then you can often unlock the negotiation and you can keep moving and progress the deal. That one's a bit more nuanced, but I'm sure if you're listening to this and you've done a fair amount of negotiating in your life, you'll know what I'm talking about. These people exist all over the place and it can be a great unlock. So really this first point is about

sit down and think about where do you have leverage in the negotiation. Get clear about that, get real about that, because if you don't have leverage, you also need to know that and know what comes with that. Cool. So now we move on to three very, very practical things. The first one is probably the most important and the thing that I just cannot believe works time and time again, both for me and on me. It's got different names. I'm going to refer to it as anchoring.

Anchoring is a very, very powerful technique in negotiating and selling. And anchoring is basically, it's an absolutely incredible phenomenon. Even if you know it's happening to you, it still works. Even if I say to you, I'm about to anchor you and then I anchor you, it still works as a psychological process. It's unreal. And I'll model it in an experience that I had literally last week. And this is actually a common example used. I wanted to buy a

Mike Scott (11:26.414)
nice but not ridiculous sports jacket, you know, like a, like a formalish sort of jacket that I would wear in a work environment. And I had a price in mind. I think I wanted to spend, I can't even remember. I think my upper limit price was like $400 or $500 or something. So I went into a department store that sells a very large range of these sorts of things. Anything from like a hundred dollars up to like $3 ,000. Really, really good sales guy came over to me.

wasn't pushy at all and he anchored me. What do I mean by this? I said to him, Hey, I always struggle with these kinds of things because I'm really tall. So usually like when I find things that fit lengthwise and they're too wide for me. And we had this whole conversation, tried on a few jackets. He said, what are you looking to spend? I said, look, I don't have a tight budget, but probably somewhere between three or $400, something like that. He was like, no problem. The next thing I find myself with him walking over and he says, look, don't worry about the price of this thing. I just want to try it on for size.

picks up a jacket, puts it on me, fits pretty well. He takes it off. He goes, this thing's $2 ,400. Doesn't try to sell it to me. Doesn't push it at all. Just mentions the price, shows me the price. Says, let me see if I can get a better price on this. Go to the computer. He says, no, no, no, I can't actually get a better price on this. Let me just put it back. And he puts it back. I've been anchored. I've now been anchored at $2 ,400. Even though I know and knew at the time that this was happening to me, I've been anchored.

Now what happens is all of a sudden I've anchored, he's anchored me at $2 ,400. So anything below that seems a lot more reasonable, seems a lot cheaper. Cut a long story short, I spent $800 on a jacket. Cut a longer story short, I spent $800 on a jacket and I bought another longer coat for another $700, I think it was. So I walked into that store wanting to spend about $400, effectively walked out of that store.

I don't know the exact amounts, but about $1 ,600 for two things. And it didn't feel like I was paying a lot. It felt, even though I knew this was happening to me, like this was a completely reasonable amount of money. That concept works everywhere. And the crazy thing about it is it works even when you know it's being done to you. So in a negotiation, when we're talking about price, for example, if I say to you, hey, my coaching costs anywhere from $15 ,000

Mike Scott (13:52.302)
down to $1 ,000 a month. I've anchored you at $15 ,000. Now if I come back to you and say, but listen, actually we can put something together for $5 ,000 a month, that feels a lot more reasonable than if I just said to you, this is $5 ,000 a month. This anchoring technique is unbelievably powerful and unbelievably effective. So anything from doing a large negotiation for an acquisition where you throw out a number and you say,

you know, let's start the negotiations at $100 million for my business and you only intend selling it for 20, it still works as a positioning technique and as an anchoring technique. So the first highly practical thing is anchor way beyond what you're actually expecting to get and work backwards from there. It works even when people know it's working on them. It's ludicrously effective. Number two, align, and I think this comes, I think the next two come from Chris Voss's work.

This is a line that is so simple, I cannot actually believe that it works just about every time. It's literally most recently worked. My wife wanted to get some irrigation automation done at our house. She loves veggie gardens and gardening and what have you. And it blew my mind how expensive this stuff is. And I use this line with this chap and I use it all the time. And the line is really, really simple. The line goes like this. Is there any flexibility on this?

Or is there any flexibility on the price? Or is there any flexibility on the terms? It is amazing again, how effective this work. You don't say, can I have a better price? You don't say, can you do better on the terms? You don't say that. You say, is there any flexibility on this thing? This has worked for me from, wow, through the nono acquisition. Most recently when I bought somebody drove into my car and wrote off my vehicle and I bought a car, I think I got a percentage point off, a full percent, a hundred basis points off.

the portion that I was financing through the business. And this is in a market where there's like year and a half long waiting lists for the vehicle that I bought. I got that off. Recently today, as I said, with the irrigation chap, we got a few hundred dollars off a few thousand dollar job. Simply by asking that one question, is there any flexibility on this? Amazingly useful, can be used for a term, can be used for a price, can be used for anything, anything at all, right? Very, very valuable line.

Mike Scott (16:16.846)
Thank you, Chris Voss from Never Split the Difference for sharing that with us. The last one, as I said, I think this is also from Chris Voss. I use this all the time. This one maybe requires a bit more explanation, but this is a line where, particularly where the other party is saying something that is a little bit unreasonable and that you actually just can't do. It's just not really possible, but they're being serious about it. The line goes like this.

How am I supposed to do that? You don't say it in an antagonistic way. You don't say it in a threatening way. You don't throw your hands up and say, how am I supposed to do that? You very calmly, very measured repeat back whatever it is that they want you to do that you're just absolutely not prepared to do. You calmly say to them, how am I supposed to do that? And then you keep quiet. Often what will happen after that is there'll be a pretty significant awkward silence.

sometimes a very long awkward silence, but again, it is remarkable how that question can often completely turn the negotiations. Sometimes even the other party will talk themselves out of what they've said to you and back towards what you've originally asked themselves without you saying anything. So that line is really simple. How am I supposed to do that? And then you resist all temptation to talk if there's an awkward silence, you just keep quiet.

Remarkably effective. So these three tools, really, really simple things. Anchoring, where you start with a much higher price or set of terms or whatever it is than you actually expect and you work your way backwards because of what happens from a psychological perspective. It's repositioning the psychology of whatever it is that you're asking for. Number two, is there any flexibility on this? Could be a price, could be a term in a contract.

could be a duration, could be anything. And the last one, how am I supposed to do that without antagonism, without attitude, and then you keep quiet for as long as it takes? I'm not an expert negotiator, but I've used these a hell of a lot and I've coached quite a few founders through this kind of thing. Quite recently, I won't give too much information, but some of these things used pretty much how I've described them today with a little bit of coaching.

Mike Scott (18:39.822)
basically shifted a $9 million contract from effectively lost to not only one, but one plus an additional half a billion value in the deal without changing anything other than effectively this process and this strategy. Now, this particular CEO executed this really well. And this particular CEO is a fantastic negotiator and communicator in his own right. But it's effectively the same process that was used in the same tools.

So I think negotiating has got a, I don't know if it's got a bad rap, but to me, when I hear negotiation, I get a little bit almost triggered that it's somebody trying to get the better of somebody else. I think a lot of people do feel like that. I think a lot of procurement departments, especially in my experience in the sort of agency style world, maybe do have that view.

It's been a while since I've worked in that sort of space. So maybe it's changed and maybe that's an unfair statement to make as a blanket statement, which is why I'm not actually making it as a blanket statement. I'm saying in my experience within that agency world, but I don't view negotiation like that. I think it's incredibly important to become a good negotiator because as Dan Pink says, to sell is human. You're selling all day, every day, getting your kids to do something, getting someone to marry you, getting someone to, I don't know, buy from you.

buying from somebody else, getting a business partner to join you, getting a business partner to leave you, selling your business, buying a business. You just were selling all the time. And if we can get really good at negotiating and we throw our ethics and values on top of that, negotiation can be used as an incredibly powerful tool to get good outcomes, fair outcomes, mutually beneficial outcomes. So, you know, as always, I'm not a theoretical dude. I'm a highly practical guy. These three things are extremely practical.

tools, phrases that I've used many times to great effect. As always, none of the stuff comes from me, but I have got a lot of experience with these things. So like I mentioned, if you want to go deep and nerd out on these things, there were four references that I made today. Robert Cialdini's influence, Chris Voss's Never Split the Difference, Blair Enns' Pricing Creativity, and Daniel Pink's To Sell This Human. Really hope this was valuable, and as always, reach out to me.

Mike Scott (20:54.446)
if you think they'll be valuable discussing it further.