Regardless of whether you are trying to sell a share in your company to a prospective investor, seal the deal with your new software development team, or looking to rent a new office for your employees, contract negotiations can be frustrating and time-consuming.
What are the potential problems? Well, the first (and most common) is entering into contract negotiations without a clear vision of desired goals and priorities. The lack of focus leads to unnecessary negotiation cycles, misunderstandings, and poor outcomes.
The good news is that with a clear goal and vision of action steps, as well as with appropriate preparation, you can transform potential negotiation weaknesses into competitive advantages. If you’re not familiar with the flow of the contract negotiations or how you can improve your position, start here.
Don’t forget – you don’t get what you deserve, you get what you negotiate.
1. Let your lawyer be the “bad cop”
From the beginning of negotiations and through the conclusion of the deal, specific knowledge and expertise brought to the negotiation table by consultants and lawyers is priceless.
During this exhaustive process, it is necessary to have the appropriate assistance and support from the experienced individuals who can help you:
- separate commercial from the legal aspects of the deal,
- align your goals with legal standards and your strategic goals, and
- set the comprehensive and efficient framework for the agreement.
For instance, if you are selling a share in your company to an investor, you will probably immediately start negotiating the main terms of the agreement to be concluded, such as the price, the payment dynamics, etc. Of course, they are the most important commercial aspects and should definitely be considered in detail. However, the excitement for the prospective transaction to come true might cause you to drift away from some of the most sensitive topics such as the voting right in the company after the sale, the distribution of the future profit, mutual expectations regarding the work in the company, etc.
Having the lawyer on your side from the beginning prevents any misunderstandings and might save you from the risks which you might not even be aware of. With adequate legal help on your side, the likelihood of minimizing risks and maximizing revenues significantly grows.
Moreover, your legal representative will vigorously advocate for your rights in every encounter with the opposing party, adeptly assuming the role of a ‘bad cop’ on your behalf, sparing you from the need to do so.
2. Be ready to listen
Contract negotiation is a two-way street, so being inflexible rarely leads to the desired result. Being ready to listen, understand, and accept the other party’s opinions, and then providing adequate response or feedback is an undoubted sign of a good negotiator. With that in mind, be sure to give the chance to the other party to explain their essential needs, perceptions, goals and intentions they wish to achieve by entering into cooperation with you.
- If you are negotiating with the client engaging you for the provision of a service, make sure you understand the outcome they hope to receive. The other party’s explanation of the goal they are aiming to achieve will tell you more about them and help you tailor an appropriate strategy for the negotiations.
- If you are aiming to rent your business offices to another company, listen to their explanation of the nature of the activities they are going to perform there. In case their business requires certain adjustments being made in your offices, you might be open to allowing it and successfully entering into the contract with them as long as you are familiar with their reasons and intentions.
- If you receive an offer from the tech startup providing a license on their cutting-edge software, obtain all the information on the features you will get and different pricing models, in order to detect the one most suitable for you. You might discover some aspects you were initially not aware of, and which you might have missed if you did not listen carefully.
Some negotiators believe that dominating a conversation is always a good tactic, but more often than not, the truth is completely different. The cornerstone of successful contract negotiations lies in the skill of active listening. This approach not only demonstrates respect but also sets the foundation for trust and collaboration – a crucial cornerstone for successful negotiations.
3. Be the best-prepared person in the conference room (next to your lawyer)
Besides the necessity to listen to the things the other party says, don’t lose sight of the things they do not say. Before going into negotiations, it is advisable to make a list of the core questions you need the other party to answer in order for you to have all the information you need to make the decision on whether to proceed with the deal or not. In addition to raising the questions directly with the other party, do not hesitate to do your own research (alone or with the help of your legal team) to gather as much information as you can. When it comes to negotiations, being informed is the best insurance policy.
In case you are negotiating the commercial lease for your new business offices, make sure you check the legal status of the real estate. Is it registered in the real estate cadaster as the ownership of the party you are negotiating with? If not, who is the owner? What is the relationship between the owner and your opposing party? These are all the questions you need to answer before you decide if the property suits you.
Although this step will enable you to make the informed final decision, this deep level of preparation is not only a tactical advantage; it’s also a demonstration of commitment to the negotiation process and a proactive stance towards ensuring a favourable outcome. The party with more information typically has stronger leverage.
4. Offer your version of the agreement and prepare the first draft
There is one crucial rule when negotiating a contract: be proactive. In complex and long discussions, the initiative is a game-changer. Instead of waiting for the other party to set the terms, be first to present the proposal of the contract draft. This not only demonstrates your commitment but also allows you to shape the initial framework and lay the foundations of future cooperation as you see fit. Otherwise, lying low can easily be recognized as lack of interest on your side resulting in failure of your negotiations.
By proactively proposing your terms, you set the tone for the negotiation, influencing the further discussions. In practice, the other party will highly likely refrain from extensively modifying your draft, unless it sets some obviously unfair terms.
This rule does not apply only to the text of the contract but also to other documents drafted in the negotiations, such as the letter of intent, timeline, statement of work, etc.
For example, if you wish to sell a share in your company to an interested investor, you should draft the letter of intent summarizing:
- the desired targets of the future agreement,
- all the relevant deadlines,
- financial aspects such as the price to be paid and payment terms,
- preconditions that need to be fulfilled for the cooperation to come into being,
- confidentiality obligations,
- restricting covenants such as the non-compete and non-solicitation clause, if needed.
By undertaking the first step and delivering your draft to the other party, you make your statement on the terms of the agreement and how you prefer them, thus automatically taking the leading position in further negotiations.
5. Efficiency is the desired and expected
Negotiations are a delicate dance, and mastering the steps includes knowing when to make your move and to focus on the necessities. Once the groundwork is done, shift your focus to closing the deal without unnecessary delays. You would not want to miss the chance and lose the deal because you got stuck on a detail not even crucial for the deal.
Imagine you are discussing the possibility of working on a new software development project with your new cooperation team. At the beginning of the negotiations, you should define the moment when the development must commence (at latest) and align accordingly to ensure that your timeline is fulfilled. Start by agreeing on the crucial aspects of the deal:
- If you are a provider, you want to ensure that you will be adequately paid (in terms of the amount and timing) for your work.
- If you are a client, it is crucial to define which services should your development team provide, what results you expect to receive, and your rights in case you are not satisfied with the quality and/or quantity of the outcomes.
In other words, if your cooperation is time-sensitive, before you start discussing other topics to be covered by the agreement, set some ground rules which are absolute “must” for factually starting the joint work.
In the contract negotiations, time is more than a mere ticking clock; it’s a valuable currency. Effective negotiation requires not just timely responses but a commitment to maintaining high-level communication throughout the process. Maintaining the flow of the negotiations and actively moving forward will make the entire deal more efficient and thus keep the motivation of both parties at the highest level.
However, although it is usually beneficial to create a mild urgency in the negotiation process, one should not go to extremes by unreasonably rushing the flow of the deal. Balance is the key here. Remember, the art of negotiation lies not just in reaching an agreement but in reaching the right agreement—one that aligns with your priorities and sets the stage for mutual success.
6. Be ready to walk away when needed
Although we are focused on closing the deal here, it is also important to be aware of the fact that some deals are just not meant to be, in which case the wisest decision is to let them go and find something better instead.
If during the entire negotiations your potential contractor refuses to comply with the non-compete obligation, which is a non-negotiable for you in order to protect your business and product, maybe it is the time you reconsider and start looking for another partner who will be ready to accept your terms and thus be a potential for long-term cooperation.
Although this rule might not be applicable in each and every scenario, in the majority of cases you will have several alternatives in front of you. During most of the negotiations, the mindset of “never putting all your eggs in one basket” keeps you safe and gives you an advantage of not having to settle for the terms you find unfavorable, just because you have nowhere else to go. Until you reach an understanding on the crucial elements of the agreement, be open to other opportunities and compare the offered terms, so you end up closing the deal best suiting your needs.
To sum up, the key to successful negotiations is to understand the needs and concerns of the other party, fostering a collaborative and pleasant environment that sets the foundation for a successful partnership. Effective and transparent communication, as well as the willingness to find common ground are essential elements in reaching a contract that meets the interests of everyone involved.
Mastering the art of negotiating usually requires a strategic mindset, active engagement, and the ability to find the golden mean between being overly adamant and too flexible. If done properly, negotiations can help you establish long-term, successful cooperation with your business partners. For that reason, the skill of negotiating is a necessity for any ambitious business owner looking to surround themselves with quality allies and enhance their business.
