Lifetime Business Relationships

IT IS THE SAME in almost any business. You begin working with a company or an individual, usually at a lower level, and over time, that business relationship can grow into one of the most important parts of your financial and personal life.

Gerard Nierenberg, a past master at professional negotiating, once said the purpose of negotiation is “to reach an agreement such that all parties have their needs satisfied to the degree that they are internally motivated to fulfill their commitments and to enter into subsequent negotiations and transactions with the same party.”

Let us break down this definition into its constituent parts. First, “to reach an agreement …” means that the purpose of an ongoing negotiation is not to win or lose, not to defeat the opponent, but to reach an agreement of some kind. When both parties begin the negotiating process with a sincere desire to find a way to reach agreement, the behaviors of the two parties are quite different from the onetime negotiating style, and the results are usually far better.

The second part of the definition, “… such that all parties have their needs satisfied …,” recognizes that each party to a negotiation has wants and needs that are different from the other party’s. That is why the negotiation or discussion is happening in the first place. For a long-term arrangement, it is essential that both parties look for ways to make sure that the other party’s essential needs are satisfied.

Both Parties Must Be Happy

The third part of the definition, “… to the degree that they are internally motivated to fulfill their commitments …,” means that both parties are so happy with the results of the negotiation that they want the ensuing business arrangement to be successful and are more than willing to fulfill the promises they made in the negotiation so that they can enjoy the benefits of the agreement. Once I was having a conversation with a senior executive of a large learning organization. He told me, quite proudly, that he had negotiated an extremely good deal for his company with a publishing company. He had “ground them down” so much that they finally agreed to advances and royalty terms that were well in excess of what that company was paying its other authors and program
developers.

I just happened to be one of this publisher’s product developers, and I was surprised to learn that this gentleman had gotten a far better deal in negotiating than I had ever received in working with this same publisher over the years. When I called the president of the company, he explained to me that the other party was quite aggressive and demanding during the negotiation. There was no flexibility or willingness to compromise. Either the publisher agreed to pay the higher rates or this party would not only walk away, but badmouth the publisher to others.

The president said, “We did not want any unfriendly people out there in the marketplace, so we politely agreed to their terms and conditions. We now have the exclusive rights to produce and distribute their product, but not the obligation. We have no intention of doing so. Their product will remain on our shelves indefinitely until they come and ask for it back. At that point, we will give it to them and then end our relationship with them permanently.”

This senior executive had extracted what appeared to be an excellent, above- market price for his product. But because he lost sight of the importance of the long-term relationship, he and his company ended up with nothing but a contract with a set of prices and terms that the other company had no commitment or motivation to fulfilling.

The Law of Indirect Effort

In negotiating, there is a principle called the Law of Indirect Effort. It says that you achieve more when you act indirectly rather than directly. For example, the harder you try to achieve your own goals in a negotiation, the less successful you will be. When you are clearly striving to achieve the things you want, other people feel compelled to push back to protect and defend themselves.

But the harder you seem to be working to find a way to satisfy the other party (the indirect approach), the more open the other person will be to working to achieve an agreement that is satisfactory to you.
Ralph Waldo Emerson said, “To have a friend, you must first be a friend.” By using the Law of Indirect Effort, when you focus on reaching an accord that is in the best interests of the people you are negotiating with, they will relax and start to look for ways to enter into a deal that is satisfactory to you as well.

This is why I always say, “Whatever we decide here today, I want you to be happy. I am open to any ideas and suggestions you have that will ensure you are happy at the end of our discussions, and happy later on as well. Of course, I want to be happy also, but I find that if I focus on your being happy, it will usually work out satisfactorily for me.”

This approach almost invariably disarms my negotiating counterpart, and almost invariably we reach an agreement that is satisfactory to both parties. We both walk away happy.

Think About the Future

The fourth and final part of Nierenberg’s definition is “…and to enter into subsequent negotiations and transactions with the same party.” This is the most important part of all in a long-term business arrangement. It means that both parties are so happy with the way that the deal turned out that they are both willing and eager to enter into subsequent agreements over and over again.

Today, the best businesses position themselves as “partners” with their customers, vendors, and suppliers. Instead of spreading their business over a large number of other companies, they consolidate their business with a single supplier with whom they work closely to develop high-quality relationships that lead to better quality, greater efficiency, and eventually, lower prices and higher profits for both parties. This is the strategy used by almost all business leaders in all industries today.

Type II negotiating is a process that has no real beginning, middle, or end, because it goes on continuously. The starting point of this type of negotiation is building quality relationships that are based on trust and credibility. The best business relationships you will ever enter into, whether for sales, purchases, employment, financing, or anything else, will be those based on a contract with which everyone is happy, and that continues in different forms indefinitely.
The worst type of negotiation is one where, when it ends, neither party is satisfied. Neither party wants to negotiate again with the other party. And both parties feel uncomfortable and unmotivated about fulfilling their commitments under the agreement.