T. Randolph Catanese, Esq. © 1999. All Rights Reserved.
In the first two segments in this series on negotiation techniques, preparation for a negotiation was discussed. This included the identification of goals and the use of situational analysis to attain a better deal for the entrepreneur. This article will focus on the right time to begin confirmation of an agreement or to confirm an agreement once it is reached following the negotiation process.
When one negotiates with another party it is very important to keep in mind that the other party’s perception is their reality. That means that what they perceive is going on in the transaction is just as real and true to them as if the same were actually occurring. What does this mean? When a negotiation is in process, signals are sent by both parties to the other. Some are overt and some are covert. Some are intended and some are unintended. Nonetheless, signals are being sent. One of those signals is the use of communication to confirm when the deal is getting close to being done. If the methodology for confirmation is done poorly or incorrectly, the other side may have the perception that you do not want the deal to happen or that the deal is not important to you. Clearly, if you want the agreement to occur, you do not want the other side to have this impression at all. Conversely, if you move too fast in an effort to confirm the deal, you may scare off the other side because they may conclude that you are too hungry or they believe that you are pushing because there is something they do not know. This negotiation paranoia sometimes acts to kill deals as well.
Given the two extremes discussed above, the entrepreneur and start-up company should always keep in mind that good communication will do much to avoid any misperceptions by your negotiating counterpart. Good negotiation begins with personal meetings, continues through telephone calls and usually ends by means of a written format through email, faxes and letters (formal agreements).
From the start of the negotiation until the end of the negotiation, be sure that you are clearly conveying your goals to be achieved and the negotiation points you wish to obtain in the agreement. Moreover, be consistent with your communication. If you receive a telephone call or an email from the other side, respond promptly. Delays in responding to telephone calls and emails can send the wrong signal (I don’t need your deal or I don’t want to do your deal). If the other side wants to meet to go over the negotiation details, do not put off the meeting no matter how busy you are with other matters. (If you delay the meeting too long you may lose the deal altogether.)
If it is you who wants to make the transaction occur, but you do not want to appear too pushy, there are some techniques given by a California business lawyer that you can employ to move the deal along. Use the telephone! Most people do not object to you contacting them by telephone and letting them know you want the deal to occur. As you begin your negotiation process and if you feel you’ve gotten far enough along to begin putting together a deal point memorandum, ask the opposing side if they have an objection to you sending them written confirmation of the deal points which have been identified or which have already been agreed to. If the other side consents, then send the written confirmation immediately. If they object, you know that there is trouble in the deal. The reason to ask them in advance before sending the memorandum setting forth your deal is the fact that if you fail to ask them in advance, they may perceive the early written overture as a set-up to make them stay in the deal even though an agreement has not yet been reached. On the other hand, if they send you a term sheet before you are ready to receive it, be sure to respond in writing that you are reserving all your rights vis a vis the negotiation even though you have received their term sheet. What you want to avoid is being pinned down to a particular set of points in the negotiation process before you have had the opportunity to go through your situational analysis and as part of your overall negotiating strategy.
Assuming that the negotiation process has moved forward, communication has been good and you have reached a tentative "meeting of the minds" then it makes sense to move forward to confirm the deal points which have been reached between the negotiating parties. The best way to do this is through a Memorandum of Understanding or through the use of a Letter of Intent. (The use of the LOI was addressed in previous articles - see the DSM archives.)
Remember that the other side’s perception is their reality. As an entrepreneur do your best to prepare for the negotiation and couple this with good communication to maintain reality as close as possible to the other side’s perception. By doing so, you should do much better in your negotiations.