Solo Ceesay, CEO and Co-Founder of Calaxy
There’s plenty of advice out there for aspiring negotiators, but none of it holds much resonance for the underdog. Harvard scholars will tell you to “control your emotions” and not appear anxious to the other party. Viral Twitter posts echo, “negotiations are won by whoever cares less” and “harness the power of detachment” - all of which is much easier said than done when entering negotiations with little bargaining power, specifically as a startup founder. The nascency of a startup means that one negotiation can make or break your company: the difference between taking off or packing it all in.
Game Theory in Negotiation
So, how do you overcome being the party with more to lose at the bargaining table? Game Theory is a theoretical framework that predicts human behavior in the context of cooperative dilemmas. Students of economics will remember that Game Theory teaches us the importance of trust in negotiation. In the classic thought experiment, the Prisoner’s Dilemma, two burglars are arrested by the police and held in separate interrogation rooms where they are pressured to confess to a crime. There are a number of possible outcomes in this “game”. If one player makes a deal with interrogators to confess, they will get a shorter sentence, and the other, who refuses, gets a longer sentence. If both players confess, they will both have to serve time, but if there's mutual silence regardless of the temptation, they will both walk free.
How does this relate to day-to-day business negotiations? After all, raising venture capital isn’t a crime, but the instincts for human cooperation are similar across all playing fields - whether it’s business, burglary, or getting your roommate to do the dishes.
The key to cooperation in the Prisoner’s Dilemma is communication. If both parties can effectively communicate their intentions to each other, they can coordinate a deal that is the best option for everyone. This is known as the “pareto efficient outcome” in economics jargon as there is no other possible outcome that sees one individual better or worse off. However, if communication breaks down, and either party is left with doubt of their partner’s intentions, they will choose the outcome which is most beneficial for themselves based on the assumption that the other will act in their own self-interest. By effectively communicating their position and intentions, a skilled negotiator can overcome the Prisoner’s Dilemma. Here are three tactics for effective communication:
1. Anticipate your weaknesses and turn them into strengths
Rookie negotiators may be tempted to bluff in order to win over potential investors or business partners, but the age-old “fake it till you make it” strategy likely won’t work here. An intelligent negotiator will sense when a person is overblowing their success. Bluffing tends to trigger alarm bells, warning that an individual is acting only in their own self-interest, and may lead you astray.
As learned from Game Theory, coordination cannot be achieved without trust, and trust requires honesty. To be honest, you must be self-aware. Evaluate your business plan, anticipate potential questions and criticisms, conduct adequate market research and brand analysis, and above all else, know your frailties. Only then can you effectively communicate the strengths and weaknesses of your business, and provide potential solutions in advance of any difficult questions. Empowering the other party with information is your strongest tactic as a rookie negotiator and the best way to foster long-lasting and mutually beneficial relationships.
2. Keep all communications brief and to the point
An effective communicator breaks complex topics down into brief and palatable information for others. Superfluous language will not save you at the bargaining table and that is why all businesses should have a finely-tuned mission statement and core messaging. These materials help founders to prepare and pitch their business in the most accurate way possible, leaving little to no confusion for the listening party. Key messaging, a mission statement, and the company’s vision all help to demonstrate how the company is filling a market gap and solving tangible, real-world problems.
3. Know when to push back and when to fall back
Flexible thinkers make good business partners, as it can be difficult to take criticism, especially when running a startup having sacrificed leisure time, job security, and sanity to pursue your calling. That said, receiving criticism is an opportunity to showcase your ability to adapt to new challenges. It can be tempting to write off harsh criticisms immediately, but denying what the other party believes to be true can make you seem naive and careless. Although they could be voicing things you may not want to hear, your investors, advisors, and other key stakeholders will prove to be your greatest support system in the long run. Instead, listening and providing solutions to the problems they identify makes for a more convincing argument and demonstrates that you are a solutions-oriented leader. The world is full of enough stubborn people–if you can manage to see things from another person’s perspective, you will stand out from the crowd. Instead of wishing that the deal came seamlessly, challenge yourself to find value in dissenting opinions.
Endgame
When you are building a project from the ground up, it can be difficult to find people who share your vision. Entering into negotiations with an investor or a business partner is an anxiety-inducing venture, and it can be tempting to overstate your strengths and reject criticism. However, the more you try to hide the challenges of your company, the more distrustful you will appear to potential collaborators, and the less likely you are to establish a working relationship with them. Following the logic of Game Theory, effective communication is the key to forging long-lasting business relationships and striking favorable deals. The next time you’re at the bargaining table, remember this: keep it honest, keep it short, and most importantly, keep it real.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.