When Someone Asks You to Take Less

Circumstances and the general environment can change your negotiation strategy because they can change your relative judgment of value. Those who run their own businesses have probably had clients crying poor and asking for discounts on goods and services. In theory, this is something to avoid for a few reasons:

• When you drop prices, it's difficult to bring them back up again.
• It can signal other clients to ask for similar discounts, lowering your revenue and profitability.
• By unilaterally lowering prices and maintaining the same level of service or product, you undercut your value equation. If you are suddenly able to drop your price this much, why did you wait so long, and why not more?

Notice that I put this in the context of theory. That is because we are in an economic condition that is crippling earnings for many companies, sending millions out of work, cutting wages for many who are still employed, and drying up credit. You may not be able to keep business going as usual. I found this myself recently with one client that had to drastically cut back on production because revenue had essentially dropped to half of its former level. That transcends a negotiation ploy and is a full-out emergency.

I had protected myself by building up other areas of business as soon as I noticed that the economic climate was getting bad at least a year ago. (Negotiating well from strength does require thinking and planning ahead -- often far ahead.) So, if necessary, I could let the client go, and the client representative knew that when he said he understood from his own periods of self-employment how distasteful pay rollbacks were.

But I already knew their difficulties (keeping tabs on the well-being of clients is another important form of preparation) when he proposed a cut for the time being of over 14 percent, saying that he might be able to do a little better with future assignments. Because I work hard to deliver above average value, I've always been comfortable in charging above average rates, which gave me some room to move if I really wanted to. Furthermore, the client had been a steady source of reasonable revenue for a couple of years. So I sent the following email to agree to a temporary change in pay:

Normally I wouldn’t agree to a pay cut because I do need to keep a reasonable level of profitability and I can’t in good conscience cut back on the work I put into pieces in a tit-for-tat response. But X has been a good client for a while and I know that you have been pretty hard-pressed on the revenue front. So let’s give it a shot; as things improve, we can revisit the pay level. I’m willing to be flexible – I just want to make sure that we’re clear on this being temporary to help you through the drought. If you can do better in the future, I’d appreciate it.

There are a number of principles I employed in my response that you can also use with a client that cannot pay as much or a vendor that cannot offer as much:

1. I tacitly stated that I was in a position of strength and that normally I'd have to decline the request.
2. I recognized the value of them as a client, bolstering the value equation by indicating that it was about more than short-term money.
3. I sympathized with their situation and indicated that while I didn't need to keep the work at all costs, I was in a position to help them and wanted to.
4. I stressed that I was not permanently dropping my rates, only temporarily lowering them to help the client out of a tight spot.
5. I explicitly stated that I was counting on them to act honorably, and subtly communicating that I would not put up with less.
6. I also indicated that I was seeing if this would work, which underscored that it was not a permanent arrangement.

To me, negotiation is never about how I can get the most at any one point. My value equation represents the complex set of my requirements, including pay, interesting work, and people I like to deal with. There are some trade-offs I can make, and if I can reasonably help someone, I will. But I let them know -- not to look for a resentful thank you, but to maintain the visibility of my value equation and to preserve flexibility in future negotiation.

Of course, there is only so much you can trade off without putting your livelihood into danger, so there will be requests for discounts that you'll have to let fall to the wayside and replace those clients. For example, if a company is on shaky-enough financial footing that payment is questionable, you're being asked for a degree of flexibility that is probably out of the question. But in more reasonable circumstances, this is a principled approach that should let you continue working with clients while not devaluing your own work.

I almost called this post When You Have To Take Less, but didn't because of a critical point: You must always be able to say no. Even when you feel that you cannot say no, you must leave the other party with the impression that you could. Only then can you ensure a negotiation of relative equals and not assume the position of an indentured servant.

AIG Bonuses: Negotiation Done Badly

Hearing the displeasure among politicians over AIG's plans for millions in executive bonuses was easy this last week. But much of the finger pointing and blame were off base. The problem was not with AIG management. Rather, it was with federal officials who repeatedly flubbed basic negotiation principles when previously talking with the insolvent insurer:

1. Before you get into negotiation, you must understand the value proposition - what you have, what the other party has, what value each offers to the other, and what value each needs. Either federal officials clearly didn't do the basic research into the other's position, or they wanted to ignore what would have been obvious to financially savvy types like Paulson. An obvious question should have been raised concerning AIG's contractual obligations, particularly in the area of compensation. Instead, they blundered ahead.
   
2. The feds put off the tough decisions. Negotiation isn't always pleasant and relaxing, but you minimize the problems. One of the ways is to consider what might happen during the negotiation process and then plan accordingly and stick to your plan. It's much easier to make hard decisions before the conditions demand it. That way you aren't facing the waves of emotion that can accompany undesirable circumstances. In part this is a natural result of skipping the basic research. But it also indicates that officials were operating on wishful thinking - perhaps the biggest blunder you can make in a negotiation.
   
3. Federal officials let themselves be so driven by fear of what would happen should AIG fail that they created a mental and emotional scenario in which they allowed themselves no alternative (often known as the best alternative to a negotiated agreement, or BATNA). Notice that I say allowed themselves. This was a condition of their own manufacture. Certainly they had concern over the potential of a boulder being dropped into the world's financial gears. But was that really the only other possibility? What if officials had demanded that the most important aspects of the business be sold to competitors with federal guarantees, much as happened with Bear Stearns? What if Congress had created a specialized equivalent of the FDIC to help calm market turmoil? Then the money would not have been turned over directly to AIG and management would have had to make due. The important point is not what specific alternatives they could have found, but that there were almost certainly other choices.
   
4. Officials looked at the negotiations out of the context of the circumstances. Any experienced negotiator should have known that AIG was in one of those situations where weakness actually becomes a mighty strength because the party has nothing to lose. What were officials going to do, fire the AIG execs? No one else in the industry who could do the necessary tasks would want to work there, and, more importantly, the government has no immediate and direct power over AIG management. Yes, the government is the majority stockholder, but taking any action would mean enough time to call a special stockholder meeting and the proxy process, which would take months after the bonus checks were cashed.

Ironically, although not being done particularly smoothly, the one thing that officials are doing correctly is remembering that a negotiation is never over until after the smoke clears. If you do work for someone under contract and the company then stretches out payment far beyond what the agreement called for, that company is renegotiating. It just made its move after you were committed. AIG is as saddled with the federal government as the government is with AIG. What the government needs to do now is head back to the negotiation table and hammer out more of the details ... and remember next time that it's far better to put protections and alternatives into place in the beginning than trying to find a way to force them in after.

Image courtesy of morgueFile.com user woodsy.

The Fundamental Law of Negotiation

The most essential key to negotiation is what I call the value equation. To make it simple, in a negotiation, two parties agree to exchange things. They may be talking about services, goods, monetary value, promises (hopefully to be kept), or anything else. With me so far?

But the most important thing is that there is a balance of values for each party in the negotiation:

value given must be greater than or equal to value received

If you think about it, this is pretty obvious. I'm not going to want a deal where I think I'm giving away more than I'm getting, and neither are you. What about those times when you feel that you've had your arm twisted in a negotiation and you were forced to accept an arrangement that you didn't like? This may surprise you, but that still falls under the fundamental rule of negotiation. You were convinced that what you had was of such low inherent value that you would have to give up a lot to get what you wanted ... and you thought that what you received was so important that you were willing to give up all that you did so you could get it.

That formulation often makes people who don't like to negotiate scratch their heads. "But I felt pressured to take the deal." Yes, you did, because you talked yourself into it. Look at some of these scenarios:

• You take a first low offer for taking a job. Why? You've scared to ask for more because you think they'll give the job to someone else and you don't think you could get another job.


• You start dating someone dicey because it is your "last chance" of finding companionship -- i.e., you're convinced that you aren't good enough to interest someone better. (Or, in some cases, you've got yourself set on a group of characteristics in someone else that may not reliably deliver what it is that you really want to value.)


• You give in to your child on something because you don't want to hear the whining or complaining. In other words, having short-term peace is more important to you in that moment of decision than setting a better precedent.


• Your boss asks for an impossible task in a ridiculous time frame. Fearing for your job, you agree and then work days, nights, and weekends, feeling miserable in the process, when a simple question of whether it would be possible to have some more time (giving the explanation of why that would make sense) might have changed the situation. You think you have so little value that your employer is ready to dump you, even though, in today's economy, were that the case, it might have already happened.


• You're making a purchase but think that the item is expensive and you pay more than you wanted to. In this case, you were assuming that the item had such tremendous value for the seller that he or she wouldn't have come down in price. Now, to be fair, the person might not have. But do you really think that this is the only place to purchase the item? And in today's economy, there are a lot of places that value any business that comes in.

A lot of fear of negotiation is tied up in wrong perception of value, particularly in the value you think someone else has for what you offer. Next time you feel that you're being forced into a bad deal of any kind -- job-related, interpersonal relationship, or purchase -- ask yourself how important you might be to the other party. If they didn't say, "Sorry, you I don't have anything I want badly enough to give up what I have," it's because they do want what you can offer. And just maybe they're asking for more than they're willing to accept to see if they can get it. Why not try a little of the same yourself?