Much of life is negotiation, and deal-making is a central piece to business. As a matter of fact, knowing how to negotiate deals is absolutely critical to becoming successful in business. But for that to happen, we must know some key ingredients that make negotiation successful or give power to making good deals. Here are a few of them:
Experience as Power: Lets’ look at how Kirk Kerkorian became one of the first richest American billionaires. After dropping out from high school, he started working as a laborer building roads and felling trees. Next, he tried a boxing career but was unsuccessful because he was too small, only 5.11 feet tall.
So, he moved on to working as an engine cleaner for a used-car dealer. While there, Kerkorian started a business and began to develop his deal-making skills. His technique was to buy old, damaged automobile parts, repair them, and sell the refurbished ones for a profit. He gained additional small-scale business experience by running a gasoline station. After some time, he wanted to take up flying, so he had to pay for flying lessons by milking cows and shoveling manure at his flight instructor’s ranch. To clear the next hurdle to his success, Kerkorian employed a not-so honest method: he induced a Los Angeles school district employee to fake a letter that he had completed high school. Somehow that credential enabled him to obtain a pilot’s license, which landed him as a civilian pilot for the British Air Force during World War II. With a savings of $12,000, he went into the business of buying damaged military planes. He would then repair and convert them into commercial aircraft. As a result, a damaged plane that cost him only $7,000 to $10,000 was able to fetch him as much as $60,000 apiece. Another key to Kerkorian’s success in trading was a technique he called “keeping the back door open.” If he could not resell a rebuilt plane at a profit, he would use it as a charter plane or return it to the manufacturing company at a previously agreed-upon price (something Kerkorian did before committing himself to buying things from sellers).
What can we learn from Kerkorian’s example? Perhaps, it is that one could amass a substantial fortune by buying and selling--- that is, negotiating favorable prices, both on the way in and on the way out of every transaction and by doing many transactions.
Knowledge as Power: Another titan who distinguished himself as a great deal-maker is Laurence Tisch. When Mr. Tisch was negotiating to buy the Traymore Hotel in Atlanta, U.S.A. in 1950, he studied the property so thoroughly, as usual, that the seller, Frank Gravett, began to fear that Tisch knew the value of his property better than he did. Frozen with indecision as the transaction was about to close, Gravett decided to make up his mind by flipping a coin. But reckoning that the odds were better if Gravett wouldn’t do that, Tisch continued to reason calmly with the seller and eventually got the signature on the contract.
John D. Rockefeller also exploited his facility with numbers to gain an edge in negotiations. On one occasion, he deliberately kept the seller talking for half an hour so that he could calculate in his head the costs of several alternative methods of paying interest on a transaction. By the end of the discussion, Rockefeller had won the other party’s consent to terms that saved him $30,000 in interest.
The point to make here is this: the more information you can learn about sellers and their properties, the better insight you will have into their real motivation for selling. And this knowledge could potentially lead to a creative win-win solution, or forging creative agreements, that will let you buy anything at wholesale prices or lower.
Options as Power: Wayne Huizenga, a founder of three Fortune 500 Corporations, would work out broad terms of transactions to make deals. In some instances, Huizenga would point out that if an owner of a property were to delay in selling, he might acquire from a competitor in the region and have less interest in buying. In fact, he would employ a “good cop - bad cop” approach to convince others that he was acting in the interest of the sellers. According to one of his close aides, Huizenga was famous for his approach of “do the deal now for $100, do it tomorrow for $90.”
So, here’s another rule in negotiating: Options give you power. If you say to the seller, “I have narrowed my choices down to your property and two others. Any one of these will serve my purpose. I just need to find the seller that will give me the best price and terms,” you are giving yourself power.
Another negotiating technique well-known to most of us is this: Projecting that you’re prepared to walk away if you can’t get what you want. But how do you give yourself walk-away power? Again, you do it by giving yourself options. So, always develop some options before going into a negotiation. For this, go find two other properties with which you’d be almost as happy. This doesn’t mean that you won’t get that the one you want, but it will make you a more powerful negotiator.
To make a good deal is, however, not all about money. Nor is it always about you “winning” and the other party “losing.” Ideally, you goal is to give away what is less important to you, but more important to them, and to get what is less important to them, but more important to you. Such a negotiated deal is the only sustainable way to do business, because it can produce the best long-term returns for everyone involved.
