The Generator Accelerator

Negotiating & RiskTaking the lead!

Negotiating…

What is Negotiating?

“Negotiation is a process which takes place

when two or more interdependent parties who

have different needs and goals, work together

to find a mutually acceptable & beneficial

outcome”

‘Often involves both parties making concessions’

What is Negotiating?

3 Areas of Interest in Negotiation

Substance Process

Relationship

Traditional Negotiation

Commitment (extreme position)

Final offer

Last Offer

Final last offer

Commitment (extreme position)

Final offer

Last offer

Final last offer

Threat to walk

Threat to walk

Outcome

Alternatives to Negotiating?

PERSUASION ( convincing the other party )

GIVING IN

COERCION ( threatening )

PROBLEM SOLVING

INSTRUCTION ( employer / employee relationship )

ARBITRATION ( seeking fairest 3rd party ruling )

Alternatives to Negotiating?

Why do negotiations fail?

Getting too emotional

Focus on personalities, not issues

Not trying to understand the other person (too focused on

our own needs)

Wanting to win at all costs

Regard negotiations as confrontational

Why do negotiations fail?

A successful negotiator needs to be….

A successful negotiator needs to be….

• Professional

• Confident, Relaxed, at ease

• Open, honest, sincere & credible

• Respectful of other peoples values

• Show empathy, and understanding

• Committed to a WIN:WIN result

• Continually enhancing their skills

7 Elements of a Negotiation

• Interests – What do people really want?

• Options – What are the sources to be gained?

• Alternatives (BATNA) – What will I do if we do not agree?

• Legitimacy – Always ask yourself, is that true?

• Relationship – Can I separate people from the problem?

• Communication – Am I listening effectively?

• Commitments – Have we considered the steps to

implementation?

Definition Measure of Success Advice

Interests Needs, concerns, goals

Satisfies parties’interests

Probe for interests; ask Why/Why Not?

Alternatives BATNA Better than your BATNA Improve your alternative before negotiations begin; make their alternative less appealing

Options All possibilities Expands the pie Separate option generation from evaluation and commitment

Legitimacy External criteria Established standards Criteria = sword/shield

Communication Exchange of info and thought

Message sent = message received

Tone-match to audience; advocate AND inquire

Relationship Connection between parties

Relationship improves or is not harmed

Be constructive; problem vs. people

Commitment Agreement to will/will not

Specific, firm, implementable

Use both process and substance commitments; not too early

7 Elements of a Negotiation

4 outcomes of negotiation

• Lose-Lose

• Lose-Win

• Win-Lose

• Win-Win

A Successful Negotiation

• Meets our Interests well, theirs acceptably, and others tolerably enough to be durable.

• Is the best of many Options.

• Is better than our BATNA.

• Is Legitimate, supported by objective criteria.

• Improves, or at least does not damage the Relationship.

• Is based on clear Communication.

• Identifies Commitments that are specific, firm, & implementable.

The 4 stages of negotiation…

1. Preparation

2. Information Exchange

3. Bargaining

4. Close & Settle

The 4 stages of negotiation…

Preparation

Be briefed on the subject matter of the negotiation

Be clear about your objectives, what you are trying to achieve:

The LIM Model:

- Like to Achieve (most favoured option, ideal settlement)- Intend to Achieve (expected result, realistic settlement)- Must Achieve (fall back position, bottom line)

Work out your tactics and how best to put your case

Tryto figure out what the other parties objectives will be

Gather background information - personalities involved, power balance, attitudes etc.

Preparation Negotiators with high aspirations consistently outperform those with low

aspirations

By adopting a high aspiration base, negotiators create sufficient room to make and request the necessary concessions

High aspirations generate positive psychological energy and prevent a negotiator from being rigid and defensive

A high aspiration communicates confidence to the other party and generally prevents irrational negotiation behaviour

High aspirations require the other negotiating party to expend more energy in trying to lower these aspirations, thus not focusing on promoting its own aspiration

Preparation questions…

What is the reason?

What are the topics to be discussed?

What is my perception of the issue?

Perception on the other side?

What resources can I draw on?

What do I know about my company?

What do I know about the company negotiator?

Preparation questions…

What are our interests?

What are our common interests?

What are the opposing interests?

Why are they talking to me?

Why do they need something from me?

What prevents them doing it another way?

What is my baseline? What is an ideal win?

Prepare your baseline

Define your range

Starting position

Target – ideal scenario

Walkaway

BATNA*: your alternatives

*BATNA: Best Alternative To a Negotiated Agreement

Information Exchange

This is the single most important stage of negotiation. Both parties will be trying to find out and understand the other’s position and requirements

Successful negotiators ask twice the number of questions and spend over twice the amount of time acquiring and clarifying information than do average negotiators

Bargaining

Reject constructivelyDo not cause offence. “I’m afraid we can’t possibly agree to a reduction in the service charge, but there might be room for manoeuvre on the wording of clause16”.

Retain a constructive atmosphere

Note the moving base line: As each issue is agreed, acknowledge the fact, summarise it, and move on to the next point after you have noted the issue of agreement

Bargaining

Be firm on broad issues: Be flexible on specifics.

Look for the agreement signals: Certain words indicate that agreement is very close. -If….then….- Let’s put that in round numbers- Well, that’s hardly worth holding us up..

As soon as a number or term is mentioned by one party, you have begun to move out of information exchange and into bargaining....

Close & Settle

Your judgement…Is this the best and final offer? If yes…

List the agreement in detail

List the points of explanation, clarification and interpretation

Record agreed summary with all at the table

Re-start negotiations if any dispute over agreement

Negotiation styles

Hard or Soft types

Interpersonal behaviours

HARD…

…or soft

Tends to see negotiators as friends

Sees agreement as the goals prepared to make concessions to

cultivate the relationship

Is willing to trust the other side

Is willing to modify position at an early stage

Discloses “bottom line” early in discussions

Avoids contests of will on particular points

Concedes to pressure

Soft negotiator

Sees negotiators as opponents or adversaries

Sees victory as the goal

Demands concessions to establish a relationship

Tends to mistrust the other side

Is reluctant to alter position in any way

Misleads as to “bottom line”

Expects to win contests of wills

Applies pressure

Hard negotiator

Where do you sit…?

We all have certain tendencies influenced by our socialisation, our personalities, and above all by our managerial histories….

Do you rate yourself as ‘hard’; or ‘soft’?

Does your preference work for you?

Negotiator behaviours

The Avoider– Dislikes conflicts

The Compromiser– Fair-minded, interested in maintaining relationships

The Accommodator– Resolves interpersonal conflicts by resolving the other persons problem

The Competitor– Winning is all that matters

The Problem Solver– Seeks to find the underlying problem, brainstorms to solve

Negotiator types…

Question…

You are one of ten people at a board table, each person sitting across from one another

Someone comes in the room and says “I will give $1k to the first person who can persuade the person sitting across from them to come and stand behind his/her chair.”

How would you negotiate this situation?

Question…

The Avoider– I don’t want to play, look foolish

The Compromiser– Offers $500 to both and runs to the other side

The Accommodator– Runs to the other side, negotiates later

The Competitor– Sits tight, demands the other person moves

The Problem Solver– Suggests both get behind each others chair, thinks both can make $1k

The results…

Separate personality and issues: – don’t see the issues as necessarily reflecting in any way on your

personality – hard or soft. An important point should be made with conviction, and without fear as to the negotiator’s image

See the other side’s case unemotionally: – try to be objective about your case, and the case of your opponent. This is

the best way to serve your client.

Avoid confrontation: – confrontation is the weak point of hard and soft negotiators alike. The

hard negotiator will find that (s)he is required to lose face to accept a compromise, or allow negotiations to fail when it is not in client’s best interests that they should do so. The soft negotiator is more likely to succumb to pressure from a more aggressive counterpart. Stay calm!

The winning combination…

Advice

Be unconditionally constructive.

Approach a negotiation with this:

‘I accept you as an equal negotiating partner; I respect your right to differ; I will be receptive and open-

minded.’

Brainstorm 10 key skills that succesful negotiators need

List your key skills and note the reason why each of your 10 skills is crucial to you as a negotiator..

10 mins!

In groups of 3…

Key negotiator skills…

Planning skills

Integrity

Think under

pressure

Verbal clarity

Common sense

Gain respect Leadership

Tact

Open Mind Standards

Product knowledge

Confidence Persistence

Insight

List all your personal strengths as a negotiator.

List your personal areas for development.

10 mins!

Individually…

Body Language

Interpreting Body LanguageFaltering eye contactFaltering eye contact

• Boredom, fatigue or lying

Intense eye contactIntense eye contact• Fear, confrontation, anger or trying to intimidate

RockingRocking• Fear or nervousness

Still postureStill posture• Discomfort or nervousness

Prolonged silenceProlonged silence• Disinterest

FidgetingFidgeting• Disinterest or nervousness

Touching the faceTouching the face• Nervousness, lack of confidence or submission

NoddingNodding• Agreeing, willing to compromise

Shaking head or turning awayShaking head or turning away• Frustrated, in disbelief or disagrees

Interpreting Body Language

Some Top Tips….

Develop negotiation consciousness

Successful negotiators are

assertive and challenge

everything. They know that

everything is negotiable.

Become a good listener!

Negotiators are detectives.

They ask probing questions

and then remain silent. The

other negotiator will tell you

everything you need to know

– all you have to do is listen.

Be Prepared!

Gather as much pertinent information prior to the negotiation.

- What are their needs? - What pressures do they feel? - What options do they have?

Doing your homework is vital to successful negotiation.

Aim High!

People who aim higher do better.

If you expect more, you’ll get more. Successful negotiators are optimists.

A proven strategy for achieving higher results is opening with an extreme

position. Sellers should ask for more than they expect to receive and buyers

should offer less than they are prepared to pay.

Be Patient!

This is very difficult for some people.

We want to get it over with.

Whoever is more flexible about time has the advantage. Your patience can be devastating to the other negotiator if they are in a hurry

Never negotiate without options.

If you depend too much on the positive outcome

of a negotiation, you lose your ability to say “No”

Stay calm, confident and curious!

Stay calm at all times and

remember to use a positive

tone.

Emotion cause people to be subjective and can cloud a person's judgment.

Cultivating curiosity allows you to relax

the situation, focus on the important

issues.

Look the part!

You only get one chance to make a first impression

Risk

In Australia, only 44% of business survive 4+ years

Poor risk management is attributed to most failures

Some Fun Facts…

Risk is a chance of losses

Risk is the possibility of unfortunate occurrence

Unforeseen events, eventualities

Occurrence of economical loss

Unpredictability

The probability of an unwanted or unavoidable event

Risk may have a positive or negative impact on the business

What is Risk?

Question…

What types of risks should you consider within a startup or

commercialisation?

Question…

Strategic

Technical

Compliance and/or Regulatory and/or legal

Operational

Financial

Market and/or Competition

Career and/or People

Reputational

Systemic and/or Political

Types of Risk

Two Dimensions to Risk…

1. Likelihood of occurrence; and

2. Severity of potential consequences.

Risk Management…

…is the art and science of thinking about what could go wrong, and what should be done to mitigate those risks

in a cost-effective manner.

The formal process of identifying and controlling the risks

facing a business

The probability of an undesired event causing damage to an

asset

There are three steps to Risk Management:

1) Risk Identification

2) Risk Assessment

3) Risk Control (and/or mitigation)

What is Risk Management?

Once we know the severity and likelihood of a given risk, we can

answer the question:

Does the benefit of mitigating a risk outweigh

the cost of doing so?

A 4 quadrant framework will help us determine level of risk…

The Risk Framework

A• Ignored

B• Nuisance

C• Insurable

D• KILLER!

The Risk Framework

Minor Consequence

Major Consequence

Low Likelihood

High Likelihood

Quadrant A – Ignorable Risks

The Risk Framework

• Risks with relatively minor consequences…

• …with a relatively low likelihood of occurrence…

• …and a minor consequence as a result.

• Not worth spending a huge amount of time worrying about.

Example:

The possibility of getting a flat tyre on your way to a routine meeting. Assuming you service your car regularly and you drive on maintained roads, a

flat tyre might cause you to be late to a meeting once every 10 years.

Quadrant B – Nuisance Risks

The Risk Framework

• Little things that often seem to go wrong, simple solutions

• Impacts are easy to minimize through behaviour change

• Usually solved with common sense approachExamples:

o The printer runs out of toner while you’re preparing the proposal for the customer meeting that starts in 30 minutes. Solutions: don’t wait until the last minute, and always keep extra toner on hand

o Your lead engineer gets the flu three days before the scheduled release date of your first customer beta. Solutions: create a development process free of dependencies on any one person, and build in contingencies for the fact that almost everything seems to take twice as long and cost twice as much as you originally expect.

Quadrant C – Insurable Risks

The Risk Framework

• Risks that could have major consequences but are relatively

unlikely to happen are often insurable.Examples:

• Property & Casualty Insurance can mitigate losses from fire, theft, and natural disasters;

• Key Executive Insurance can mitigate losses from the death or incapacitation of a management team member;

• Liability Insurance can mitigate lawsuits resulting from product defects or on-site injuries to visitors;

• Errors & Omissions Insurance can mitigate lawsuits from disgruntled customers; and

• Directors & Officers Insurance can mitigate lawsuits in cases of negligence, harassment, or discrimination.

Quadrant D – Company Killer Risks

The Risk Framework

• Risks with both a relatively high likelihood of occurrence and

major consequences;

• These risks can sink startups and Fortune 500 companies alike;

• The survival of your venture depends on your ability to identify

and mitigate the company killers; and

• Individually, they may seem manageable, but collectively, they

represent a true challenge.

10 company killers…

…and the 90% rule!

Company Killers & The 90% Rule

The Risk Framework

1. There’s a 90% chance that you’ve identified a genuine market

need;

2. There’s a 90% chance that your addressable market is as big as

you think it is;

3. There’s a 90% chance that you can actually implement your

innovation;

4. There’s a 90% chance that you can figure out how to sell it for

more than it costs you to make it;

5. There’s a 90% chance that you have assembled the right

management team to do the job;

The Risk Framework

6. There’s a 90% chance that you manage to stay one step ahead

of the competition;

7. There’s a 90% chance that you don’t get sued into bankruptcy;

8. There’s a 90% chance that you won’t get buried in regulatory

red tape;

9. There’s a 90% chance that you don’t run out of money; and

10. There’s a 90% chance that nothing else goes wrong.

Company Killers & The 90% Rule

Identify and Mitigate…

…the “KILLER” risks!

Most startup killers fall into these categories:

Market Risks

Competitive Risks

Technology & Operational Risks

Financial Risks

People Risks

Legal and Regulatory Risks

Systemic Risks

Killer Risks

In your project groups, you are to identify one killer risk from each

category….

As a group we will mitigate the risk.

Question…

Market RisksRefers to whether or not there is sufficient demand for what you have to

offer at the price you set.

Many inventors have died penniless, clinging to the belief that the market would beat a path to their door if they designed a better mousetrap.

Write down your ‘killer’ market risk…

Competitive RisksEvery venture has more competitors and fewer competitive advantages

than it thinks.

Figure out what you do better than all of your competitors — whether it be price, features, quality, or some other advantage — and focus on

maintaining your leadership in that category

Write down your ‘killer’ competitive risk…

Technology & Operational RisksTechnology and operational risks broadly cover everything having to do with execution: • Can your team finalise the product design on a limited R&D budget?• Will your product work as intended? • Can you find reliable vendors? • Can you manufacture it? • Can you optimise the logistics of product distribution?• Can you create an effective product support infrastructure?

Write down your ‘killer’ technology or operational risk…

Financial RisksThe end of the road for any business is running out of cash

For startups, the biggest financial risk stems from not having a Plan B in case investors and lenders say no

If you do succeed at raising capital, the next trick is to figure out how to start generating enough revenues to cover your costs before you run out of

money.

Financial Risks

A number of things can affect the cash flows of operating ventures:

• Credit risk - customers can default on your invoices

• Commodity price risk - the cost of your raw materials could increase

• Interest rate risk – could raise the cost of working capital

• Asset price risk - a plunge in the value of stocks or real estate you

pledged as collateral could cause your bank to cut your credit lines

• Exchange rate risk -

• A strengthening dollar can reduce the net profits;

• A weakening dollar can increase costs of your offshore

manufacturing operations

Write down your ‘killer’ financial risk…

People RisksPeople are, at the same time, the most crucial and least predictable

element of any business

The right combination of experience, contacts, and temperament among the founding team can vastly increase a venture’s odds of success.

Failure to recruit, motivate, and retain the right partners can spell doom.

Companies fall apart when it develops major rifts: when one faction wants to move one way, while others seek a different result.

Write down your ‘killer’ people risk…

Legal & Regulatory RisksThe list of possible problems with legal or regulatory is almost endless: tax complications; disputes from poorly structured agreements; lawsuits filed

by a competitor for intellectual property dispute.

Retain the right lawyers, one for corporate matters and another for IP matters. You must keep your lawyers informed of what’s happening in the

business so that they can address potential problems

Write down your ‘killer’ legal or regulatory risk…

Systemic RisksSystemic risks are those that threaten the viability of entire markets, not

just a single firm within a market

Examples: A spike in the cost of fuel is squeezing the entire passenger airline industry. The availability of low-cost skilled labour in emerging

economies, a suspected case of mad cow disease can affect beef sales for months or years

Write down your ‘killer’ systemic risk…

Pragmatic Risk Plan

Risk Management PlanA pragmatic risk management plan is straightforward in concept

- 7 headings -

Risk Factor

Risk Type

Likelihood

Consequences

Mitigation Tactics

Mitigation Costs

Status

Risk Factor: List anything you can think of that could cause substantial harm to your business.

Type: e.g. market risk, competitive risk, technology & operational risk, etc. Assigning a type can suggest who might be best qualified to manage that particular risk

Likelihood: Think of the relative likelihood of manifesting this particular risk factor. Simple descriptors like high, medium, and low should be sufficient.

Consequences: Describe what would happen to the company if this risk factor manifests itself.

Mitigation Tactics: List the things you can do either reduce the likelihood or minimize the impact of the consequences if this risk factor manifests itself.

Mitigation Costs: For each mitigation tactic, think about the implementation cost.

Status: Once you have assembled the first six columns, you need to decide which mitigating tactics, if any, you need to implement.

Risk Management Plan

Some Top Tips….

Focus on a tough customer

problem rather than a fun

technology.

Investors hate technology solutions

looking for a problem, due to the

high risk of no customers. If the

customer need is obvious and

large, the calculated risk is in the

quality of your solution, your team,

and marketing. These are risks that

can be mitigated with the right

resources

Schedule frequent updates to your

solution to maintain growth.

Assuming that you can quickly

recover after competitors kill your

cash cow is not a smart risk. You

need a plan to regularly obsolete

your own offerings, with

continuous innovation, before

customers send you negative

messages. It’s hard to recover from

a tarnished image

Plan to deliver a family of products, rather than a one-hit wonder.

Even a great initial product, with no follow-on, won’t keep you ahead of competitors very long. A smarter risk is to build a plan, with associated greater resources, that will put you in position to expand your product line and keep one step ahead of competitors.

Implement a modern real business model.

Providing everything free, and growing users to the max for years is a high risk approach requiring deep pockets. Risk is more manageable with subscriptions and even freemium pricing. Even non-profits need revenue to cover their costs, and continue to

provide services.

Find a strategic partner to accelerate growth.

Everyone wants to forge ahead all alone, and kill every competitor in sight. Almost always, risks are more predictable when you use collaboration for access to new customers, economies of scale, and shared resources. Finding win-win deals is a manageable risk, versus a battle with one winner.

Use metrics to measure results of marketing initiatives.

Too many entrepreneurs put all their resources in one big

make-or-break effort they can’t measure, or they count on

word-of-mouth and viral marketing, which are totally

unpredictable. Prepare marketing plans that come

from both inside and outside the box, but have milestones

and measurements.”

Trying to save money by recruiting family members, or hiring only interns, is a bad risk. Great team members may take more time to find, and cost you stock options, but a qualified and highly motivated team that stretches your budget is a good calculated risk.

Recruit the best team members and provide

incentives

Build your business with minimum outside funding.

More money is not more likely to solve your problems or reduce your risk. Investors know that startups with too much money fail just as often as those

with not enough. Strategically, you need a plan to survive through organic growth, with outside funding to effectively accelerate scaling.

Don’t rely on conservative forecasts to reduce risk.

Investors don’t fund conservative forecasts, nor wildly optimistic ones, since both imply a lack of commitment or homework. Opportunity and revenue

projections based on deep market and customer analysis are a smarter risk. Measurements and business intelligence along the way also mitigate risk.

Be a leader rather than following in the footsteps

of another.

Many entrepreneurs think they can reduce and predict

risk by emulating previous winners. But stepping into a

crowded space to steal customers is more risky

than attracting new customers looking for a solution. Customers like

leaders, not followers.