The Power of No

By Steve Gutzman

It is important to be comfortable saying “no” in a negotiation. Not all terms need to be agreed with, not all best and final prices are best and final, and not all deals need to be done. Unfortunately, many inexperienced negotiators think they must hang on at all costs until a deal is done. For them, saying no to a deal is like saying no to a free lottery ticket … it just might be the winner, and they can’t afford to pass up the jackpot.

From the buying side, preparing for a negotiation requires an understanding of the best “no deal.” The value put on the best no-deal option sets a limit that any agreement must not exceed in order for the buyer to agree. It becomes the point that the buyer will not go above. From the selling side, the best no deal becomes the level that the seller will not go below.

William Ury, in his best-selling book Getting to Yes, calls this the BATNA, or best alternative to a negotiated agreement. According to Ury, “The BATNA is the only standard which can protect you from both accepting terms that are too unfavorable and from rejecting terms it would be in your interest to accept.” In its simplest form, this concept means that if the proposed agreement is better than the BATNA, accept it. If the agreement is not better than the BATNA, continue negotiating. If the agreement cannot be improved, consider withdrawing from the negotiations and pursuing an alternative proposal or walking away from the negotiations altogether. Each side typically knows its own limits, which must continually be assessed and reassessed as new information unfolds. The problem is that many negotiators have only a hazy sense of their own no-deal options or how to value them. At a very basic level, buyers are taught that unless they hear no at least once, they are leaving money on the table. It’s part of the process and can be an important tactic. But let’s explore the use of no from a strategic standpoint as well.

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Steve Gutzman is a senior advisor at ICN and a 33-year veteran of the high-tech


Ten Truths of Negotiations – Truths #9 & #10

This will conclude our “Ten Truths of Negotiations” piece.

Truth #9. Remedies are essential. In this instance, I’m referring to remedies in the contract, not remedies under law. Building on a previous truth—if it’s not in the contract, it’s not in the deal—if there are no remedies when a vendor doesn’t produce specified results, the contract probably isn’t worth the paper it’s written on. Sometimes the vendor will come through, but in most cases the remedies must be there…in writing.

There are different theories on remedies. In my opinion, two of those theories are wrong. Some people believe remedies should exist to punish the non-performer. That’s wrong. Some people believe remedies should exist to compensate the side that’s suffered the loss of performance. I believe that’s wrong, too. I believe remedies should motivate vendors to perform. When I say motivate, I’m not talking about paying extra for something the vendor should have done anyway. I’m talking about remedies you can exercise to motivate the vendor in the event of nonperformance.

My favorite question to a vendor when we’re negotiating remedies is, “How much confidence do you have in your ability to perform?” Most vendors respond with “One hundred percent! No problem!” Then what do you say? “One hundred percent? Then you should have no problem with these remedies. If you’re 100 percent sure you’re going to perform, these remedies could be ten times what they are, and you wouldn’t be bothered by them. Right?”  I go even further by saying, “The more you worry about these remedies, the more you scare me that you can’t do the job.” I believe that remedies are there as evidence of the vendor’s confidence in its ability to perform.

I also believe that remedies should be three tiered. The first level should be problem-solving remedies because that’s what you really want to accomplish. This level would include having to add more people, bring in different equipment and get the vendor and customer CEOs together.

The next level is attention-getting remedies. This might include running an ad in the Wall Street Journal or having the CEO of the company that manufactures a helicopter that crashed ride in that same model helicopter.

The third level of remedies is what we call the “global thermonuclear war” remedies. At this level you talk about getting out of the deal or getting your money back.

So remedies are essential. If you don’t have remedies in your contract and you suffer as the result of the vendor’s lack of performance, what are your alternatives? Live with it or what? You can go to court, or you can begin arbitration or mediation. These are not good alternatives.

Truth #10. Don’t select a vendor before you’ve negotiated the deals. This is a tough way to negotiate. It involves a situation where there are alternative vendors involved in a procurement or evaluation. Why would we select one vendor, tell them they have the business, tell the competitors “thanks but no thanks,” tell everyone in our organization that we’ve selected this supplier, disclose more information to that vendor—like how badly we need them, become more and more dependent on them and then try to negotiate with them? Why would we do that?

There’s only one reason I can think of—vendors have trained us how to negotiate. I’m reminded of a time when we went to a client on an outsourcing deal. We had met this client at an outsourcing seminar. About halfway through the workshop, one of the client’s people said, “We’re in a tough deal. You’ve got to come help us.”

A couple of us from ICN went to the client location, and we were briefed on the deal. They not only had selected the vendor, but that vendor had said that to get a negotiating team authorized, the customer had to put up $500,000 good faith money. Another vendor requirement was that the customer not talk to other suppliers. The customer complied with all of this. Exacerbating this was the fact that a date had been identified when employees hired by the outsourcing vendor would begin working. This was the situation when the customer asked us to help negotiate the deal.

At that point, we asked the client to pay the expenses for our trip and told them we wouldn’t charge a fee because the negotiations were over. They refused, saying that we didn’t understand—the negotiations had not yet started. We responded by telling them that they didn’t understand—the negotiations were over. How well can you negotiate under the circumstances I described? The moral of the story is, don’t select a supplier until the contract has been negotiated—with two or more vendors.

For more than 35 years, ICN has been using what we call the “Zone of Consideration,” a concept that involves negotiating with two or more suppliers. During that time, there have been clients who have said things like, “We won’t do that because Vendor A is a slam dunk. Everyone wants them.” We’ve encouraged these clients to negotiate with one or more other suppliers.

When our advice has been accepted, 25 to 30 percent of the time clients have selected a vendor other than the “slam-dunk” one. That was because things happened during negotiations that changed their minds. You learn extremely valuable things about a vendor during true negotiations. When multiple suppliers are being considered, negotiate the deal before any decision is made. Do this with two or three vendors. Negotiating with three is more fun because you can eliminate one and still have two in competition for the business.

Those are my ten truths—distilled from four decades in the business. I believe that if we focus on and implement these truths, we can do better deals and do them better than 98 percent of the people out there. Remember though, after you’ve done them, you have to manage them. By doing better deals and managing them better, you’ll be head and shoulders above the rest!

Ten Truths of Negotiations – Truth #1

          Now, more than ever, we need to focus on doing better deals and managing deals better. One reason, of course, is technology itself, which has become a huge part of organizations. We depend on technology like never before. A second reason for focusing on our deals is that we continue to face some challenging financial times. People who know how to do better deals and manage deals better are going to be essential, viable and in demand.

          In recent months, I’ve been reflecting on my 40 plus years in this business and I’ve come up with what I consider to be the ten most important truths of technology negotiation. Although it may be presumptuous to say, I believe that if you focus on these ten truths, you can do better deals than more than 90 percent of the people doing deals today. I know that seems like a high expectation, but I sincerely believe it to be a fact. Let me describe for you those ten truths.  I will be letting one or two truths out every now and then for the next few weeks.

          Truth #1. If it’s not part of the contract, it’s not part of the deal. Why is that a truth? Vendors have written in their contracts, right near the signature line, that if something is not in the contract, it’s not part of the deal. Period. Yet somehow we tend to forget this critical point. Our decisions on what supplier to do business with are based on things that are not in the contract. And we make plans for things that aren’t in the contract. Think about it…in many cases, the contract disclaims a lot of the things we are dependent on. Sometimes we bet our jobs on a deal going right, but we act naïve in the face of a legal document that says that if something isn’t part of the contract, it’s not part of the deal.

          Recently, I was reminded of something that International Computer Negotiations, Inc. (ICN) did some time ago that worked well. In fact, it worked so well that we’ve used that same concept many times. We held a vendors’ conference for a large electric utility. We told the vendors that we had reviewed all their documents, and that they all said that what’s not in the contract is not in the deal. So we said, “We’re going to give you a Request for Proposal (RFP) that talks about our requirements. And your response—your proposal—has to be your contract. This will hold true unless you’re willing to remove the provision, ‘If it’s not in the contract, it’s not part of the deal,’ from your contract right now. If you do take it out, then we’ll agree to consider things outside the contract. Is any vendor here willing to strike that provision from their contract?”

          How many vendors do you think raised their hands? You’re right…none. We then said, “We’re going to evaluate only your contract and base our decision on what’s in the contract. Feel free to include in your contract any representations and inducements—about your reliability, acceptance testing and what great results we’re going to get. But we’ll evaluate you based on only your contract.”

          We followed through on this and guess what? We got some wonderful contracts. Our ground rules eliminated a lot of the superfluous sales posturing, a lot of unrealistic user expectations and a lot of other unnecessary things. That experience and others like it have convinced me that the closer we can get to that type of situation in our procurement process, the better our results will be.

          The more we bring the contract and the issues related to it to the front of the deal, the better off we are. I would never even consider doing a Request for Proposal without a contract in it. That’s right, and I mean our contract in the RFP. I would make every vendor react to every provision in one of three ways: we fully accept that provision, we totally reject that provision or we accept this provision as modified. I would tell them their response to the contract is worth 35, 40 or even 50 percent of the evaluation. They’re being judged on their contractual willingness.

          In other words, why would we even consider making a decision without paying attention to how willing the vendors are to back up everything in their contracts? Just remember, if it’s not part of the contract, it’s not part of the deal.

Worldwide Software Negotiations Training Coming to the UK

(London, 15-6-2010) – Worldwide IT Contract Negotiations Training Company, International Computer Negotiations (ICN), is coming to the United Kingdom on July 1-2, 2010, for their highly acclaimed Software: Issues, Contracts, Negotiations training class.  For 35 years, ICN has been training Global 1000 companies on how to Do Better DealsICN’s Software Negotiations Training has taught over 1000 IT buyers how to do better licensing and development deals. Click here for more information.

“How Software is Protected, Key Licensing Ingredients, Software Development, Pricing Models and Strategies, Avoiding Litigation, Prioritizing Objectives are just some of the topics the business community will see,” says CEO Joe Auer Sr.  People looking to register for this 2-day event must do it in advance.  Training will take place at the headquarters of BP in London and sign-up is available through “Anybody that is involved with the acquisition of Software, including legal, IT, finance, procurement and contract or vendor management, needs to see this course,” says Auer.

Since 1975, Winter Park, FL based ICN has provided critical training and consulting in high tech procurement, vendor management, and negotiations, establishing a reputation that sets it apart from the competition.  Internationally, ICN has presented both public and customized on-site seminars in countries around the world including the United Kingdom, the Netherlands, Malaysia, Canada, Australia, New Zealand, Hong Kong and Singapore.