It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong.Markets are designed to allow individuals to look after their private needs and to pursue profit. It's really a great invention and I wouldn't under-estimate the value of that, but they're not designed to take care of social needs.
Sid had done it. He had convinced the IRS agent to forgive the mistake my partner Joel and I had made. He had spent three weeks with the guy, working mornings, golfing with him in the afternoon, and taking him out to dinner.
If the IRS had stuck to their ridiculous position, it would have cost us $10 million. But Sid’s logic and diligence and charm had persuaded one of its bulldogs to do the right thing.
A month later, Sid’s bill crossed my desk. It was for $85,000. “That’s odd,” I thought. “I could have sworn Sid was billing us by the hour.”
Had he done so, the bill would probably not have exceeded $15,000. Still, $85,000 was a small price to pay for the service he had provided. I signed the invoice and sent it on to my partner.
The next day, Joel called me into his office.
“You saw his bill.”
“Yes, I signed it.”
“I saw that. But you know he was supposed to bill us by the hour.”
“Yes, I know. But what he did was worth a lot more than eighty-five grand.”
“Maybe so, but that wasn’t our deal.”
“We have to bring him in and negotiate his bill.”
“But we have to plan this thing. We have to rehearse.”
“Plan? Rehearse? I don’t get it. You are the best negotiator I know. Everyone in the business is afraid to negotiate with you. Why do we need to plan for Sid?”
He shook his head. “You don’t know Sid,” he said. “He taught me to negotiate.”
Three or four times over the following week, Joel and I rehearsed our lines. Joel was going to take the strong line. I was going to be the objective outsider.
When the day arrived, Joel had a small wooden stool placed in front of his desk.
“That’s where he’ll sit,” he told me.
The only thing missing was a spotlight.
Sid, 75 years old and about 110 pounds at the time, sauntered in wearing his tennis togs. His bony knees and skinny calves almost broke my heart.
“Have a seat,” Joel, said, motioning to the wooden stool.
Sid sat. And then we began our practiced pitch. First Joel. Then me. Then back to Joel again. All the while, Sid sat there like a deer caught in the headlights. His eyes were wide. His flesh was white. His hands seemed to tremble.
Surely we were killing the old man, I thought. This was the cruelest thing I had ever done. Surely I would burn in hell.
But we persisted. And Sid said nothing.
When it was all over, he just stared at us for a full 30 seconds. And then he said, “I have only one question for you, boys.”
We said, “What is that?”
And he said, “Did you think $85,000 was the entire bill?!”
I swear. That’s what he said.
We spent the next 45 minutes negotiating. And we settled at $115,000.
Sid taught Joel to negotiate and Joel taught me. Sid and Joel viewed negotiating as a contest of power. The object was to gain as much of an advantage as you could by using every means at your disposal.
And Then I Met Bill
I’ve read many books on negotiating that advocated that same approach. But it never felt comfortable to me. I didn’t understood why until I became a colleague of Bill Bonner.
Bill Bonner, as you probably know, is the founder and CEO of Agora Publishing. Agora has been my primary client now for more than 15 years. During that time, I’ve seen it grow from a handful of employees with revenues of $8 million to a worldwide publishing powerhouse with nearly a thousand employees and revenues in the $400 million range.
I have witnessed Bill negotiating at least two dozen times. But I have never seen him do any of the clever things Joel taught me. When you negotiate with Bill, you have one of two conversations:
Bill: Well, Frank, How much do you want for it?
Frank: Oh, I figure it’s worth about $X million.
Bill: Well, Frank, that seems reasonable to me.
Bill: Well, Frank, How much do you want for it?
Frank: Oh, I figure it’s worth about $X million.
Bill: Gee, Frank. I’m sorry but I don’t think I can pay that much.
End of conversation.
I’m not kidding.
The amazing thing about Bill’s low-key approach to negotiating is how well it works. People in the industry know that (a) he will never bully them, (b) he will never cheat them, and (c) he isn’t a fool.
The difference between Bill’s way and Joel’s way is the difference between yin and yang.
The Yin Negotiator wants to achieve a mutually beneficial relationship. He is looking for a long-term partner so he doesn’t care about short-term advantages.
The Yang Negotiator is not interested in the long-term. He sees his negotiating counterpart as an opponent, and believes that success comes one victory at a time.
How Much Yin and How Much Yang?
When negotiating a deal, how hard should you push for an advantage?
Should you play the competition game and get as much as you can? Or should you take a softer approach and “take care of” the other guy, even if he isn’t taking care of himself?
What should you do if you discover a benefit or cost in the deal that the other guy isn’t aware of? Do you bring it up? Or figure “If he’s too stupid to notice, he doesn’t deserve to know.”
Let’s answer these questions today.
When you think of business as a war and arm yourself accordingly, you can win plenty of battles. But as the years roll by and the battlefields change along with technology, all military approaches – however clever or powerful – fail.
Yes, you can fight your way to the top of the mountain when you are young and strong. But nobody stays on top forever.
Remember that old saw: Be nice to the people you meet on the way up, because they will be the same ones you meet on the way down.
So long as you maintain an edge, you can take advantage of it. But the minute you lose ground, you will slide onto a slippery downhill slope – greased by the bitterness of the many people who secretly resent you for past transgressions.
More important, perhaps, it takes a great deal of energy and cunning to do business as a Yang Negotiator. You must work just as hard for the next deal as you did for the last. However, when you negotiate with yin principles, you create trust. And trust makes it much easier to do good deals as time goes by.
The Yang Negotiator’s view of the world is based on at least two fundamentally faulty ideas. One is that power is static: He who is stronger now will be stronger in the future. Another is that wealth is a commodity: It is something limited as opposed to something organic that can grow.
Mother bakes an apple pie. She cuts it into four pieces, one for each of her children. Since Mom has not used a protractor along with her knife, the pieces are not exactly the same. “I will be better off if I get the largest piece,” the Yang Negotiator thinks. So he abandons his manners and grabs for it first. He gets the biggest piece but loses the trust of his siblings.
The Yang Negotiator thinks he is smart, but actually he is half-blind.
He doesn’t realize that Mom will be making lots more pies. And when she does, the other children will remember that he had the biggest piece the first time. If he is bigger and stronger than they are, he will keep “winning” for a while. But Mother Nature has a surprise in store for him. His peers are going to start to become faster than he is. And then he will get the little piece. Or he might even go hungry.
When I get into a deal, I don’t want the other guy to feel as if he’s been taken advantage of. I don’t want that to happen for three reasons – two of them practical and one philosophical.
First of all, I believe that someone who feels he’s been bested by me will quietly assign an emotional marker to my butt that says “You’ll get yours one day.”
Second, I believe that if I get known as a tough guy to do business with, the number of people who will bring me good deals will diminish and the pool will eventually dry up completely.
And, finally, I think that, in the great scheme of things, everything eventually balances out with interest. If I give you something today, I’ll get something back from someone – plus interest – some years hence. If I take something from you now, I’ll pay the price for it – with interest – in the future.
If you see things the way I do, you really, really don’t want to take advantage of anyone. You’d rather be the one taken advantage of.
From what I’ve said, you might conclude that I discount what Joel taught me in favor of Bill’s way. But the truth is that I have applied lessons from each of them. My overall strategy is definitely yin. But I do sometimes use yang tactics when I believe they will help create a fairer deal (fairer to both of us.)
For example, I never go into a negotiation unprepared. (Joel taught me that.) I always spend time thinking about what I want from the deal. But instead of simply imagining how much I can get, I think long-term. If this deal turns into a lifetime relationship, how much can I get from it?
I also spend as much time – sometimes more – thinking about what the other guy wants. I imagine what he may want in the short-term and what he could get if we had a relationship that lasted many years.
I make a mental note of all these things. Sometimes, when it is complicated, I write them down.
I also spend some time thinking about what would happen if the deal did not take place. I try to visualize it as clearly as I can. I try to imagine how I would feel.
If I sense that I will be very disappointed, I come up with a Plan B. (I’ve written about Plan Bs many times in the past, including last week.) By devising a Plan B, I can go into the discussion knowing that if we can’t agree I won’t care. Not caring is the most valuable asset one can have in negotiating. Joel taught me that.
Now back to the questions I posed before:
Question: When negotiating a deal, how hard should you push for an advantage?
Answer: Don’t push at all. Make your case as clearly as you can. Show your counterpart how the deal will benefit him. But if he doesn’t agree, walk away.
Question: Should you play the competition game and get as much as you can? Or should you take a softer approach and “take care of” the other guy, even if he isn’t taking care of himself?
Answer: See above.
Question: What should you do if you discover a benefit or cost in the deal that the other guy isn’t aware of? Do you bring it up? Or figure “If he’s too stupid to notice, he doesn’t deserve to know.”
Answer: You are interested in a long-term relationship. Tell him about his oversight. Reap the benefit of the trust that will engender.
Some of my friends tell me that I am too “nice” when it comes to making deals. When they hear that someone I’ve helped get rich does something chintzy to me, they scold me and tell me to get tough.
But none of these doubters have enjoyed as much success as I’ve had in business. And none of them have as many longstanding positive business relationships.
There is a way to negotiate well without being a bully. And there is a way to win without seeing the world as a contest over getting the biggest piece of a pie.
By taking a long-term approach to negotiating, wealth and success will come easier and easier. That seems to me to be a smart way to do business. Don’t you think?