I was helping a client recently with some advice on negotiations to purchase another business. I asked them the question "How will you achieve your goals if this transaction doesn't go ahead?" The client looked at me and said, "Why are you being such a pessimist? We can make this deal go ahead. Why would we need to think about the deal failing?"
This is not an uncommon attitude from people in negotiations. They focus so much on getting the deal done, that they don't always stop to look at what will happen if it fails. Some call this pessimism. But in negotiation talk we call this assessing your alternatives - and it's essential!
In every negotiation, there is a risk that the negotiation won't succeed and you will be left to rely on other means to achieve your goals or meet your interests. It is important to know what these look like at the start of the negotiation because they set the boundary for where you should accept a deal.
In this case, my client was looking to acquire a business which owned machinery and a lease on a building where the machinery sat. The purchase of the business was important to the client because they wanted to grow their business in a particular space and having this manufacturing capacity in house would make it easier for them to win new clients.
When I drilled down into how they would achieve this benefit if they didn't buy this particular business, it became clear that the next best thing that they could do would be to buy brand new equipment themselves and rent premises to house the equipment. The client did not believe it would be difficult to find appropriate premises but was concerned that there could be a delay of up to nine months in being able to get machinery imported into the country.
Having this information assisted in the negotiation because we had a baseline for what the client could achieve by itself. The client knew what it would cost to get the new machinery, when that might be available and what rent might look like (taking on board that there may be rent incentives on a brand new lease that would not apply if taking over the old lease). We could also estimate the cost of the client of lost opportunities if they had to wait six to nine months for new equipment to arrive.
Without thinking about this information, it would have been easy for the client to make one of two mistakes.
It may get a deal done that actually cost more than setting up new premises with new equipment.
It might turn down a deal with the vendor that actually would have been better for it than having to wait the six-nine months to get it's manufacturing capacity.
So next time you negotiate. Don't be afraid to be a pessimist for just a few minutes to think about what might happen. If this deal doesn't get done.
If you want help getting the best outcome in your next negotiation, contact us to discuss your options.