It is no longer a cliché to state that we live in a “global economy.” We do in fact live in a world where goods and services are traded right across the world. This network of trade creates a global economy of an estimated USD $74 trillion. By anyone's standards this is a lot of money. Trade means big business for everyone, regardless if they directly or indirectly tap into the global economy.
The state of business affects everyone in one way or another.
A healthy economy is one of the essentials of national economic management. Economic health is created by an active involvement with partners and suppliers and markets that are sometimes nearby, and sometimes across the other side of the world. It is essential that the individual components that make up any general healthy economy—the businesses—do the best possible job to ensure sustainable business benefits.
Good business is often long-term business, and good business is good for everyone.
To create healthy long-term business relationships, the entrepreneur needs to:
Understand the markets and people you are interacting with
Negotiate the best possible deal
Honor the promises that you make
Out of these three points, negotiation is the least well understood and therefore, potentially, the single greatest point of failure.
Negotiation is important. Some people are wary of it. Some people are frightened of it. Some people thrive on it. And yet, successful negotiation is at the core of commercial arrangements among different organizations/suppliers/partners. Therefore, by its nature it also defines the level of commercial success of the parties involved. It defines the sustainability of the relationship and the profitable health of the business, and therefore of the wider general economy.
Negotiation is important. Successful, clever negotiation is of paramount importance in any business relationship.
As has been stated, the best business runs on sustainable arrangements. Short-term wins usually result in repetitive, avoidable and so unacceptable cost. Where possible, To ensure the sustainability of business benefits and to ensure the continuance of long term strategic partnerships, corporate negotiation should be built on the basis of “win–win.” The best possible “win–win” outcome results in maximum profitability within the specific circumstances. The most successful commercial results are based on relationship building, not on just how much money can be made in the shortest time.
For example, if you want to buy good quality items from a seller and ensure the continuous supply of good quality items over a long period of time, one of the worst things to do is to drive the price down too low. The last thing you want is to create a situation where the seller finds it is not worth the time and cost to produce and sell at that quality. The end result will be either the quality will fall or supply will not be continuous. Forcing artificially low prices on a seller is bad practice and certainly bad business. For although there may be a short-term gain in agreeing on an initial low cost, if it is not sustainable for the seller to continuously provide, then the whole process will have to be gone through again when the business relationship collapses. Such a collapse is the unacceptable and avoidable cost of inappropriate negotiation.
We all negotiate through life. We make deals and compromises all the time without realizing it. It’s part of our nature. Yet to some people and within some cultures, the purposeful act of negotiation to create deal making is not only a scary prospect but can be highly embarrassing.
Is this why some parts of the world heavily lose out to other regions where there is a long established culture of negotiation? It certainly is possible.
Negotiation is not simply about bargaining over money to reach a deal. It’s about working out how to conduct the best business—and with whom. It’s about research. It’s about psychology and understanding behaviorisms. It’s about picking up on those tiny signals of body language. It’s about building a relationship so the next time around a deal is on the table with the same people, they are more likely to sign quickly on the dotted line without all that expensive run up of time and extra resources during the initial sale/trade.
It’s about the identification of opportunity.
The thing is, we’ve all sat in countless business meetings listening to a seemingly endless supply of facts and figures. Facts and figures and logic are all important in every walk of life, of course they are. However, when studying the history and dynamism of business, or of any human interaction, it soon becomes clear that the best business, the best of any interaction, is achieved by building relationships with people you trust … and who trust you.
Trust is highly subjective. This fact reaches to the core of every one of us, regardless of who we are. People like to think of themselves as logical and rational creatures, when in fact beneath the thin veneer of civilization we are all emotional and irrational creatures. We like to think that we make decisions based on logic and facts and figures. The truth is that we are heavily influenced by the emotional subconscious parts of ourselves. There is a wide range of complexity in human behavior. Objectivity plays its part. Subjectivity controls how we view the world and therefore also the relevance of any objectivity.
In the sometimes cut-throat world of business it may seem strange to talk about the importance of trust as a basis for sustainable profitability. But have you ever attempted to engage in far-reaching business with people you don’t trust? It is possible, but such arrangements come with a heavy load of inbuilt handicaps that reduce the potential business benefits … and ultimately reduce the longevity of the interaction.
In short, psychologically, trust equates to friendship or at least a state of being able to work together to create mutual benefit. Distrust equates to potential enmity and threat.
Business is often characterized by competition. However, co-operation and collaboration arguably plays a greater role in the sustainability of business as a major driving force. Strategic partnerships, and long term contracts, are built on belief. The age-old business philosophy of “maximizing profit at any cost,” where suppliers and partners and clients and even the consumer is drained of every available penny, is no longer appropriate for a world of finite resources, of increasing consumer power and increasing supplier importance.
Negotiation is important. Trust is the essence of negotiation.
This concept of trust is reinforced by clever negotiation. At the heart of clever negotiation is the drive for sustainability. Sustainability is not about negotiating hard to gain as much as possible, with the result being a total loss to the other party involved. This is unsustainable business. No. Clever negotiation is about negotiating hard to gain that all important “win–win” situation for both parties, creating a business relationship based on trust, mutual respect, a clear partnership and mutual benefit. This is sustainable business.
This is where business clearly benefits from cooperation.
This is extremely relevant in today's business world with a range of client / supplier / partner relationships that SHOULD be based on quality, but through poor business practice can mainly be based on cost. Reduced cost often has a negative impact on quality—which has been quite striking in the short history of outsourcing, for example.
So … what are the main steps for successful business negotiation that will help in returning and retaining some of that vast amount of money lost due to poor business practice?
Understand what you want—know what you need.
Understand who you are dealing with—and what they want/need.
Create a scale of activity which will show the range of your potential outcomes matched against the range of the other peoples potential outcomes. If there is an overlap, you’re in business. If there isn’t an overlap then one, or both, will need to compromise if there is to be a successful and sustainable outcome.
Don’t be afraid to walk away.
Create the relationship through frequent, meaningful communication.
Take your time. If you severely limit your time you will be forced to compromise and therefore needlessly give up areas you need or want. This will sour any relationship. .
Negotiating hard does not mean grinding the other party into the dust. Understand their strengths and weaknesses—and use these to create sustainability. Negotiating hard means a recognition of the win–win situation … and it is good practice to be open about the others' strengths and weaknesses and how you want to use these for mutual benefit. This creates the necessary trust.
Contracts do not mean volume after volume of lawyer induced paperwork. Contractual negotiations conducted by lawyers can often lead to extended time and other resource use that spiral costs upwards and go some way to undermine confidence and trust. Contracts should be as brief—but as relevant—as possible.
Contracts should include ALL relevant details. If it’s not in the contract, it won’t be in the work.
Continuous improvement with regard to the relationship (and the contractual obligations) should be a common thread running through all the interaction.
The point is … why waste those finite resources in fighting with everyone. Why waste those finite resources running to stand still. The point is … work smarter, not harder. This is good business.
If you would like to learn more about how to build a minimum viable business with as little out-of-pocket cost as possible, check out our other topics on Entrepreneur Startup Help. We offer great advice and tips that you can use to build your business and marketing funnel.