Negotiating

I recently had an extremely rewarding experience negotiating with a client. We had reached the end of the agreed-upon budget for the project, but there was still work to do wrapping everything up. They came to us asking for two things: 1) an extremely aggressive timetable that would have given us one week to finish, and 2) that any work done beyond the agreed-upon budget not be billed. In similar past situations, I’ve struggled to negotiate our position with confidence. The result is often free work, or write-downs, which continues to be the number one threat to our business. This time, I was determined to handle things differently. I have to say, it went really well. Here are a few takeaways:

Know Your Position

First and foremost, we have to stick to our values and be confident in our position. Acting with integrity is absolutely critical. In most cases I believe this boils down to a simple concept: make and keep promises. Business relationships are built on contracts, which are just promises formalized in writing.

In almost every instance, our contracts at Aten can be summed up very, very simply: We promise to spend time on your behalf, in accordance with a certain set of documented principles and practices. You promise to pay us for our time, at an agreed-upon hourly rate. That’s it.

Generally speaking, our concessions when negotiating will be directly proportionate to the extent in which our clients believe we failed to keep our promise. This is an important but easily overlooked concept. Clients will only be able to expect us to make concessions when they feel we didn’t keep our end of the deal. We need to show up at the negotiating table with a clear understanding of our own position: did we do what we promised? If not, where did we miss? To what extent did we miss? We must be ready to clearly articulate our position, both in terms of how we kept and how we may have failed to keep our promises. We must also have some idea for what we are willing to concede. Did we miss a deadline? Were the requirements more complex than we thought? Were we clear about that when we learned it? Did we express concern, or did we let the client believe we were on track? Or was the missed deadline simply a matter of our team not being available, perhaps still stuck on another project? Each scenario will dictate a unique, commiserate response. Sometimes these are already spelled out in the contract (i.e. a financial penalty for a missed deadline). Usually, though, consequences are not clearly defined, and there is the need for some level of negotiating.

In the example at hand, our first course of action when we learned the client’s demands was to thoroughly discuss the sequence of events that had brought us to this point. I came away from those meetings with a clear picture of our position. The work was excellent. Our planning and execution were excellent. We had already expressed concern about both timeframe and budget, although perhaps not overtly enough. From my perspective, the one area we could have stuck closer to our contractual promise was in expectation management. We should have been even clearer about our concerns, earlier in the process. During working meetings, we said we were concerned about meeting their deadline. We should have put that in writing. Throughout the process, we said we were tracking closely to their stated budget. We should have expressed that in terms of being concerned we might finish just over their budget, and again put that in writing. We left a little too much to their interpretation, and to everyone’s memory of what was said. Outside of that, it seemed to me that we delivered as promised.

We were confident in our position. The work was solid. The team was bending over backwards, doing everything possible to satisfy complex, evolving requirements. From our perspective, there was one area in which we could have performed better: we should have been clearer, and more transparent about how complexities were impacting timeframe and budget. That was our position going in.

Understand the Client’s Position

“Seek First to Understand, Then to Be Understood” – Stephen Covey, The Seven Habits of Highly Effective People

While clearly understanding our position when entering a negotiation is absolutely imperative and completely necessary as a price of entry, our first move when actually negotiating is not to explain our perspective. Rather, the first move is asking our client to articulate their concern. Start with a simple question or statement acknowledging the client’s concerns and asking the client to describe them in detail. Something like: “I’ve read your email. I want to make sure I understand you perfectly. Can you walk me through this?” Or in some cases, simply saying: “We take this seriously. Tell me what’s going on.”

Then just listen, for as long as it takes, until they stop talking.

Along the way, ask clarifying questions. This isn’t a ploy or a tactic to appear empathetic, or to trip up the other person. Your questions should be genuine and purposeful, geared only at getting to a full and thorough understanding of the client’s position. Be ready to learn something new. Our projects are largely grant-funded; when the money’s gone, it’s gone. Has the funding run dry? Maybe there’s a grant requirement for launching at a particular time. Perhaps a donor may be insisting it be done before Christmas. Or our main point of contact might be getting pressure from his/her boss, someone insisting they “play hard ball”.

It is useful to use “No” questions at this stage. Ask a question the client can say “no” to. It’s counterintuitive, but asking questions that your counterpart will answer with “no” is an extremely effective negotiating tool. Asking “no” questions is empowering for the other party. It keeps them in the driver seat, builds confidence and instills trust. (Chris Vos describe this concept at length in his book, Never Split the Difference.) Further, it clarifies your understanding of exactly where they are coming from – similar to the “This But Not That” exercise we often use in digital strategy. Find a question the client can say “no” to; you’ll be surprised how quickly that moves your perspectives closer together.  In the example at hand, the client was saying both how happy they were with the work, but also (vaguely) how our mistakes had led us to this point. I said something like: “It sounds like you are unhappy with the work. Do you feel like the team made mistakes?” This both gives the client an opportunity to maintain control by saying “no”, and also helps clarify exactly how they are feeling. “No, it’s not that. We appreciate the work. We just feel we were clear about our deadline.”

Before moving on from understanding the client’s position, summarize what you’ve heard in the shortest statement possible. Call out the emotion the client is feeling. Something like: “I’m hearing that you thought this deadline was clear all along; so clear, in fact, that you broadcasted it to your entire mailing list, and informed your board. Missing that must have been embarrassing. I can see how that caused a lot of frustration.”

You’ll likely get a lot of head-nodding from the client, possibly elaboration. They’ll clarify that they’re not just frustrated: they are disappointed. They may even feel misled. Just listen, and continue stating back what you’ve heard. “I hear you: you’re disappointed.” At some point, they’ll stop elaborating and it will be clear that they have said everything they needed to, and you have heard them. Pause for a few seconds; long enough to be uncomfortable, making sure they are really done explaining the situation.

At this point, you should know exactly where the client is coming from. You may have learned new information. Perhaps the client felt there were missteps several months ago that led us to where we are. Perhaps they feel they are not a priority for us. Or, you may have heard more-or-less what you expected, which is more the situation for the example at hand. Either way, take a few seconds and decide how to move forward.

If the client has introduced some completely new concept, a concern you were not expecting, or something that makes your position no longer relevant, you may need to just wrap up the call and postpone any action or recommendation. This is completely fine. Saying something like, “Wow. I hear you – that’s really challenging, and honestly a surprise. We absolutely want to make this right. Let me talk with others on the team and get back to you with our thoughts about next steps.” Be reassuring: “We’re 100% committed to this project being successful,” is a true statement, and will provide assurance without obligating us to a specific recourse.

On the other hand, if your position is still relevant and you feel confident in our perspective and have clarity about next steps, continue.

Clearly Articulate Our Position

Once you have fully understood the client, communicate our team’s position. “I hear you about the deadline, and I completely understand how this has put you in an embarrassing situation. Our intent was to be clear and transparent about our uncertainty, which is why we started talking about our concerns several weeks ago.” Often, leaders will be out-of-touch with the particulars of the project. Did the client miss a deadline? Are they still working on entering content? Say so. “Honestly, I’m surprised your team was still thinking this was possible. We’re still getting feedback, and your team is still working on content.”

Point out where we should have done better. This is a little tricky; if you feel you have to wander far from your original understanding of our position, we will need to discuss internally before you make any significant new admission. If you’re still in the conversation, though, it means what you have learned hasn’t changed your position significantly. So be transparent and direct. If you came to the discussion feeling like we should have been clearer about missing a deadline, and still feel that way, say so: “In hindsight, I should have said there is no way we were going to make this deadline without a miracle.”

Talk through each aspect of the client’s expressed concern and articulate our position and interpretation. Again, ask a lot of questions, this time in the spirit of “Does that make sense?” By the end, the client should clearly understand where we are coming from. Wrap up by asking a final clarifying question. Make sure there is absolutely nothing left to assumption. “You understand that we thought we were being clear about the deadline, right?” Keep going until your position is crystal clear. Don’t be afraid to be annoying. The client might get impatient and say something like, “Ok we get it. You thought the risks were clear. Where do we go from here?” Better to be annoying and clearly understood than to leave anything to the imagination.

Reset Expectations

Once you clearly understand the client’s position, and they clearly understand ours, propose a course of action. It is important to realize that your proposal for next steps will likely be radically different than what they were hoping. Embrace this. Don’t try to alleviate frustration or concern at this point. Be direct. Carry the tone of someone who has bad news to share. Remember that we got into this situation because we see things differently, and that hasn’t changed. We understand each other’s positions more clearly, but our positions are not the same. Something like: “I know you guys want to see this go live in a week. Unfortunately, that’s just not possible. We recommend pushing out 45 days.”

Another way to say this that invites discussion and sets an “extreme marker” (more on this below) while maintaining a spirit of collaboration is by posing the suggestion as a question. Don’t start by declaring “We recommend.” Rather, start by asking, “What’s the downside?” Example: “What’s the downside of launching in 45 days instead of 7?” This both radically resets expectations and gets everyone focused on problem-solving. What is the downside? Is it real or imagined? Can we help mitigate in some other way? Perhaps a demo for the board, or a slide deck previewing new features for members? Asking “what’s the downside of [extreme marker]” helps reset expectations while maintaining a high level of empathy and focus on problem-solving.

Optimism and unrealistic thinking is what got us into this situation – we need to end it abruptly and reset to a promise we can actually deliver on. Use an “extreme marker” (read more about this in Never Split the Difference, by Chris Vos) to disrupt overly optimistic thinking. If the client wants us to go live in a week, and our team thinks we can do it in two weeks, suggest a month. If the client is afraid it’s going to cost them more money at all, and we’re pretty sure it’s going to cost them $10,000 more, say it might cost $25,000. Be ready, willing and even eager to disappoint at this stage. It’ll pay dividends later.

Find a Win-Win Solution

The client will likely want to “split the difference” with what we have recommended. They don’t want to spend more money, we say it’s going to cost $25,000, and they ask us to only bill $12,500. We’ll split the difference. We both take a hit. Fair, right? No. Splitting the difference isn’t fair, and it isn’t a solution.

I recently read two books that helped a lot with understanding the faulty logic behind “splitting the difference” in negotiations. The first is aptly named: Never Split the Difference, by Chris Vos. The second is a self-help classic: The Seven Habits of Highly Effective People, by Stephen Covey. I highly recommend both as tools to help explore the issues at play in human interactions, and negotiations specifically. For brevity, though, I’ll jump to two important concepts.

The first is simple: except in the most extreme situations when faced with a complete impasse, we don’t split the difference. Equalizing our losses isn’t the goal. Splitting the difference is  just two parties suffering to the maximum extent they are willing, for the sake of moving forward – usually, grudgingly. Splitting the difference offers an unsatisfactory experience. It sets bad expectations. It’s focused on reparations or retribution – not solutions.

The second is a concept Steve Covey explores at length in his book, The Seven Habits of Highly Effective People: go for the win-win. It is always more satisfactory to find a win-win solution than to simply capitulate, or (even worse) dig in with one-sided demands.

Here’s a simple illustration. In the example at hand, we clarified our position, we took pains to understand our client’s position, and we committed to a creative win-win alternative to splitting the difference.

Our position:

• We’re running a business and must be paid for our work.
• Requirements were complex and evolving. At every turn, the client chose the more complicated option.
• The work was solid. We hadn’t made any material mistakes that contributed to the client’s concerns.
• We believed we were transparent about budget and timeline, but could have been even clearer (and documented our concerns).

The client’s position:

• The work was solid
• Our team’s expertise was clear and unrefuted.
• They want a long-term, productive relationship with our team.
• Their requirements are complex; the result of 20 years of customizations on a complex technology system.
• We had missed a deadline that was causing a number of real problems for their organization.
• We were over-budget, and the client didn’t feel they should have to pay for work beyond the stated budget range for the project

We listened until we thoroughly understood the client’s position. Then we carefully explained ours. At this stage, after almost two hours of discussion, it was clear we were not going to find a solution without more time. We all verbalized our commitment to a strong finish and a highly satisfactory solution, and ended the call to think through the possibilities. This is really hard – especially for solutions-driven people who want to quickly solve the problem and move on (i.e. me). But it’s absolutely worth it.

We looked hard at the realities of the project and its evolving complexities. We came back with an offer that we believed represented the intersect of our needs, what we hoped would be a win-win solution.

Elements of Win-Win:

• We must be paid for our work.
• They want a revised deadline they can clearly plan for.
• They want some relief from budget overages.
• We both want a productive, long-term business relationship.

In the end, our offer was simple.

First, we proposed a clear, specific deadline we can all plan for. We set an extreme marker (45 days instead of 7) to reset expectations, asked “what’s the downside” to explore options with empathy, and ultimately agreed to a date just shy of the initial marker (week of Jan 28th instead of Jan 31).

Second, we offered a discounted rate in return for a long-term contract. The discount represents our understanding that we should have been clearer about our concerns, earlier in the process. It demonstrates empathy. But we still get paid for our work. The discount, especially when ameratized over a year, offers relief for budget overages. Further, this deal solidifies our mutual desire for a long-term relationship. We all get a satisfactory result.

Wrapping Up

Ultimately our proposal, which we believed to represent a win-win alternative, was accepted. There was some back and forth, and a few important tactics are worth pointing out at this final stage of the negotiating process:

• Stand your ground. Being willing to hear and committed to understanding the client’s perspective does not mean compromising your own.
• Be patient. We can afford to wait in order to get things right. Don’t rush the process. Steven Covey says human interactions should be “effective, not efficient.” I completely agree. Let that last email sit a while before replying. Take time to think through the options and discuss with the team.
• Use odd numbers. At one point in the final negotiations I proposed a discounted rate of $147 per hour (the client was asking for $120). I informed the client that $147 was as  low as we can go. The underlying issue is that we simply cannot afford to significantly cut our already competitive rates. Countering with $147 – instead of $145, or $140 – carries an air of solidarity. It helps set a concrete bedrock in what might otherwise be an endless digging expedition. We’re obviously considering our value down to the single digit, which relates a level of seriousness that round numbers simply do not. (Chris Vos explains this concept in detail in Never Split the Difference). Note that this is not a gimmick or a ploy. There is an absolute limit to the extent we can negotiate. Using odd numbers simply helps establish and communicate the solidarity of that limit.

This time, the client accepted our offer. It wasn’t easy, and it wasn’t fast, but it ultimately secured what both parties needed. I’m excited to continue exploring these dynamics. Let’s never split the difference. Let’s commit to win-win.

For Reference

• Use extreme markers
• Seek first to understand, then to be understood.
• Ask questions they can answer with, “no.”
• Use round numbers.
• Be patient. Sleep on it. Don’t rush the solution.
• We don’t split the difference.
• Insist on a win-win solution.