The tech sector is booming, and new tech businesses are vying to get in on the rapidly growing industry, hoping their product can be the next big breakthrough. However, many who enter the industry without proper preparation for the capital intensive, fast-moving environment will fail quickly, even if their ideas are brilliant. It is worth the time, money and effort to invest in a proper business negotiation training to get prepared for the many negotiation challenges you will face from investors, employees, and suppliers alike. The following tips include negotiation skills that you can develop to avoid making critical mistakes that could hinder your growth.
Great negotiators are not always the loud, aggressive “wolves of Wall Street” that are portrayed in business lore – in fact, they rarely are. One of the best negotiation skills you can train yourself to practice is that of listening. This can be difficult for a tech founder who is full of ideas and visions for the future of his or her young business. Nevertheless, training yourself to ask “what does the other party really want?” in a negotiation can dramatically bolster your leverage. By hearing what is most important to the other party, you may be able to offer them terms that render them very satisfied and that don’t cost much to your company. Strategically, your silence while the other party talks can give you time to formulate a compelling response that represents your true position rather than rushing to a conclusion you’re not ready to make. Furthermore, when negotiating the terms of a long-term contract, respect and mutual understanding set the foundation for a healthy, well-functioning working relationship, which is at least as important as the terms of the contract itself.
One negotiation lesson that is crucial to a business negotiationis understanding which parties in the negotiation have the most leverage, and why. Conducting a full analysis of leverage points before and during the negotiation process will greatly impact the approach you take during the negotiation.
For example, in a negotiation with an investor, understand that trained investors will have significant leverage in knowing they can walk away with their money at any time. Frame your negotiation in terms of opportunity cost by tying their return to your success – if you can convince them that your company will take off, they will realize they actually have a lot to lose by not getting in on the ground floor.
Meanwhile, as the negotiation vendor or supplier, your company often has the upper-hand given that you can always take your product to another customer. The challenge is most tech businesses talk themselves into a corner, telling themselves that they need early adopters more than early adopters need their product. Demonstrate the leverage you have by establishing to your customer how much they have to gain from your breakthrough product and rapidly improving services.
Tip: To understand the power dynamics within the negotiation, make a list of the leverage points that each party has over the other and assign them point values to represent weight. Then, establish possible counterpoints. If you are going up against a party with significant leverage, you can ensure that you have enough counterweight to neutralize their leverage. If you are the party with leverage, you can anticipate and respond to potential counterpoints.
Use Pre-Sales For Cash Injections
For many young tech businesses, the biggest capital investment is at the front-end of product development. Once the product is fully developed, the company can deploy at relatively low cost. However, this creates a disparity between the outflows and inflows of cash. In order to rectify this cash-flow cycle, leadership should negotiate pre-sales of the product to maintain a steady inflow of cash while the product is being developed. When conducting a sales negotiation before their product is fully ready to launch, tech companies can entice customers with exclusive rates or priority services to encourage customers to buy sooner rather than later.
Negotiations consume time and energy, so it may be tempting to settle into a holding pattern with just one discussion. However, maintaining multiple negotiations at once will give you confidence and optionality that creates more value. For one thing, having multiple attractive offers can give you leverage on price points and terms. Additionally, one party may offer you a value proposition that you had not considered before, which you could then bring to the table in your other negotiations. You may walk into a negotiation heavily favoring one party, but after hearing the full breadth of what each party can offer, leave with a completely different preference. Advancedbusiness negotiation courseswill teach you how to play multiple competing offers to your advantage to walk away with the more value than you ever could have gotten from only holding one negotiation.
Considering several deals means being willing to walk away from a deal, even if you’ve invested time and resources negotiating it. Just remember – if you’re going to walk, make sure you’re prepared to take another option. Nothing destabilizes your position more than walking away only to crawl back.
When angel investors and venture capitalists buy into a tech start-up, it’s typically a reflection of their confidence in the company and desire for the product to succeed. The types of investors who are attracted to young, promising tech companies typically possess experience and training in growing tech businesses. Your investor’s experience can be particularly pivotal in determining how to plan for cash flow and investment rounds instead of flying blind. Negotiating a formal mentorship role into an investor’s stake can give your company the leadership it needs to get through rough patches and growing pains.
Tech businesseshave to withstand some of the toughest financial and operational pressure tests as they grow. Those that navigate these trials with business acumen and poise are the ones who come out as strong, sustainable businesses on the other side. Knowledge of your product and the finest engineering are never enough -business negotiationwill always play a crucial role in the success of a tech company.