Never Make the First Offer (Except When You Should) Wisdom from a Master Dealmaker

1. Build Trust and Relationships: The Foundation of Successful Dealmaking

"If you remember nothing else from this course other than two words, then I will feel I've done my job. Those two words are 'relationships' and 'trust.'"

Cultivate genuine connections. Building long-lasting relationships is fundamental to good business. Focus on treating people with decency and dignity, turning them into friends. This approach can lead to unexpected opportunities and successful deals.

Demonstrate trustworthiness. Honesty and integrity are crucial in dealmaking. Do what you say you're going to do, be fair-minded, and see beyond your own self-interest. Once trust is lost, it's almost impossible to regain, so prioritize maintaining your reputation for honesty.

Network strategically. Develop a robust network by:

• Making friends of your contacts' friends
• Finding mentors
• Giving advice carefully
• Not keeping score of favors
• Regularly maintaining your network through communication
• Doing good works and participating in charitable endeavors

2. Prepare Thoroughly and Leverage Knowledge

"I honestly believe that negotiations are often won and lost based on the knowledge and preparation that someone brings to the table."

Do your homework. Gather as much relevant information as possible about the deal, the company, and the people involved. This includes:

• Company history
• Similar past deals
• Personal backgrounds of negotiators
• Industry trends and statistics

Utilize targeted knowledge. Focus on information that will be most useful during negotiations, such as:

• Potential future value of the deal
• Long-term implications
• Competitor information

Stay informed. Continuously build on your knowledge base, as the business landscape is always changing. Be proactive about learning and adapting to new information and trends in your industry.

3. Read People and Situations Accurately

"Reading people—understanding their thought processes and their emotional makeup—that is what gives you the ability to predict the future."

Observe carefully. Pay close attention to body language, tone of voice, and how these match or mismatch with what you already know about the person. This can provide valuable insights into their true thoughts and feelings.

Identify personality types. Recognize common negotiator personalities, such as:

• The smiling assassin
• The absentminded professor
• The people person
• The confrontational type

Assess the room. Evaluate how personalities interact with one another and gauge the overall atmosphere. This can help you anticipate potential conflicts or opportunities for collaboration.

4. Create Leverage and Stack the Deck in Your Favor

"Probably the grandest gesture I ever made happened so long ago that the National Basketball Association (NBA) and the American Basketball Association (ABA) had yet to merge."

Manufacture advantages. Look for ways to create an edge for yourself when you don't naturally have one. This can include:

• Offering unique value propositions
• Leveraging personal connections
• Using creative deal structures

Exploit information asymmetry. If you have knowledge that the other party doesn't, use it to your advantage. However, be careful not to cross ethical boundaries.

Create artificial deadlines. Impose time constraints to increase pressure and motivate decision-making. This can help move negotiations forward more quickly.

5. Make Your Words Count and Communicate Effectively

"Words matter. I like to negotiate a deal in person if possible and rarely agree to negotiate over the phone and never via email, because I need to see the other person, read his body language, watch his eyes, and listen to his inflection."

Choose words carefully. The way you phrase things can significantly impact negotiations. Consider using softer language like "I would argue that..." instead of "I disagree" to maintain a positive atmosphere.

Use humor judiciously. Appropriate humor can break tension and build rapport, but be careful not to overdo it or use it inappropriately.

Ask powerful questions. Use questions to gather information, clarify positions, and guide the conversation. For example, "Do you have the authority to make this deal?" can be a game-changer in negotiations.

6. Never Make the First Offer (Except When You Should)

"Why do you want them to make the first offer? Because you are really not seeking an offer at all; you are seeking information."

Let them speak first. By allowing the other party to make the first offer, you gain valuable insights into their thought process and priorities. This information can help you adjust your strategy accordingly.

Exception: Anticipate lowball offers. If you suspect the other party will make an unreasonably low offer, consider making the first offer to set a higher anchor point for negotiations.

Counter strategically. When countering an offer, aim higher than your actual target. This gives you room to compromise while still achieving your desired outcome.

7. Stay Balanced and Trust Your Instincts

"Don't get too high and don't get too low. Don't be afraid to show your enthusiasm or your desire to make the deal, but don't let your emotions get the best of you and end up saying something you might regret."

Maintain emotional control. Practice stepping back and slowing down when tensions rise. This allows you to make more rational decisions and avoid regrettable actions.

Trust your gut. While it's important to be logical and restrained, don't ignore your instincts. Your subconscious mind often picks up on subtle cues that your conscious mind might miss.

Find inner calm. Strive to achieve a balance between competitive drive and inner peace. This state of mind can inspire trust and admiration from others.

8. Be Creative and Adaptable in Negotiations

"When you start thinking creatively but practically, many new doors will open for you."

Think outside the box. Look for unconventional solutions to overcome obstacles in negotiations. This might involve:

• Exploring alternative deal structures
• Identifying non-monetary value exchanges
• Considering partnerships or collaborations

Adapt to changing circumstances. Be prepared to pivot your strategy as new information emerges or situations change. Flexibility can often lead to better outcomes than rigidly sticking to a predetermined plan.

Solve problems creatively. When faced with seemingly insurmountable challenges, brainstorm innovative solutions. Sometimes, the most unexpected ideas can lead to breakthrough agreements.

9. Always Be Prepared to Walk Away

"The other side needs to believe you are prepared to walk away so that you don't have to."

Know your bottom line. Have a clear understanding of what you need from the deal and be willing to walk away if those requirements aren't met.

Maintain alternatives. Always have a backup plan or alternative options. This gives you the confidence to walk away if necessary and can also provide leverage in negotiations.

Communicate your willingness to walk. Make it clear to the other party that you're prepared to walk away if the deal doesn't meet your needs. This can often motivate them to improve their offer.

Last updated: October 3, 2024