I recently came across a commentary that goes along the lines of VCs know what to do with engineers but engineers don’t know how to deal with VCs. As with all good lists, and entrepreneurs like making lists, it centres around recurring issues for the inventor when dealing with a VC. Issues that are worth refreshing in this author’s opinion:

VC’s don’t sign non disclosure agreements – it affords them protection if they like your ideas, but they want to fund someone else to do them. How do you legislate against that when they have all the financial muscle and contatcts? The answer is it is not just about NDAs and patents but core competencies and brand, so approach with caution.

VC’s are sheep – they will either all fund something or none of them will, so if you have an idea that’s too new and too different you may struggle to find funding. Too right! It’s not just about self promotion, you have to promote your sector and hang a big sign over the exit..

VC’s aren’t technical – they dismiss what they don’t understand, your novel ideas, and they focus on what they know, usually irrelevant marketing terms or growth predictions. If your idea’s too new and different for the expert to understand then you may not get funding. BUT isn’t there much more to achieving commercial growth than building a great product? Have you considered treating your VC as your target customer? Maybe engineers should run the world but they don’t – Deepwater Horizon anyone?

VC’s don’t take risks – VC’s have a reputation as risk takers – they are not. They collect money from rich people to build investment funds. The rich investors take some risk, though their risk is spread across the fund’s investment and is often a tax benefit. Are they solely interested in making blockbusters and sequels? They certainly have a formula and like to stick with it, this is why you need to know A LOT about your investors and choose them carefully. You wouldn’t sell a Ferrarri in a Wal-mart, place your investment just as you place your product and pray you can find some like-minded people with influence and some discretion over the capital in play.

Venture funds are big – If your idea needs a lot of money, then you have a better chance of getting money than an idea that promises the same rate of return for much lower investment. This is because it’s easier for the VC to manage fewer big investments than many smaller ones. True, but most are transparent on deal size, the important thing isn’t how much your company is worth or how much you can spend, but that you spend it well and with purpose.

VCs collude – They price fix by discussing among themselves funding and pricing for candidate start-ups. They will probably between them only fund between two or three companies in an industry – this limits competition and makes success of the few more likely. Absolutely, they hate competition to fund good ideas and the worst thing is they are spoilt, so spoilt they invest next to nothing in enhancing dealflow, how many sponsor or educate & participate in conferences freely? Are they trying to innovate or harvest ideas?

With thanks to Nick Tredennick, Brian Shimamoto and Alan Barrell. To be continued…

On Monday we covered Positional Bargaining and followed up on Tuesday with Interest based bargaining techniques. Today we wrap up the “Art of Negotiation” series by comparing the two, delving into the psychology behind negotiation and talking about what you should do post negotiation and how this can help you become an all around better negotiator.

Positional vs’ Interest Based Negotiation Styles

Let’s start up by looking at both types of negotiation techniques and the process that each method passes through.

So what about the psychology of negotiation, where does that come into play. Well from the above we can identify that the mentality of a negotiator is based on the style of negotiation he will utilize to attain his goal. However, to strictly put this as a mentality from the side of the goal seeker is wrong. Mentality changes throughout the negotiations process, and is adversely affected by where the individual sees himself at any given moment.

For example an individual will always be more affected with what he will lose over what he will gain in any situation, people are afraid of losses, and these losses affect their psyche much more adversely than winnings. Therefore, it is necessary when negotiating to convince the opposite party that they are getting a better deal than they really are, a person with low self-esteem will trend to push negotiations too far and to allow his own ego to dictate the course of negotiations. In negotiations with such an individual there are basically two alternatives (other than giving in and getting a raw deal), firstly try and get rid of that individual, and the best method is to stand up to him (and his bullying) in such a way that he (and its not always a he) loses face in front of his colleagues, and the second way is to convince the individual that he has been given a much better deal than may strictly be the case, he can present this as a major victory. The weakness of such a person is that his colleagues probably do not like him and will not always give him the full support in negotiations that he needs.

Anyways, in any complex negotiation it is a necessity to understand the other party, their personality, their wants and needs, knowing these attributes one can use psychological knowledge to affect the course of the negotiation. One other thing that can be used in negotiations is neuro-linguistic programming, which allows the person skilled in it, to read the body language of the other and adjust his strategy based on the reactions of the other party.

This also coincides with the politics of negotiation where each party is looking for.

Post Negotiations Strategies

After the negotiation is completed it is important to sit back and reflect on what occurred during the negotiation phase. Some questions that a negotiator should ask himself are. What did I come into the deal wanting? What did I wind up at? What was my offer, and target? How close to the walk away was I? Did I bundle things correctly, use what I had intended to as leverage factors? All these questions are necessary to assess the negotiation between the two parties, and this is one of the most important steps in the negotiations process, reflection. It identifies where the negotiation went wrong, or positively, and what was it that made it turn in that direction.

But the above questions only reference the material outcome of the negotiation, it is also important to consider such attributes of the negotiation as psychology. Did I involve my feelings in the process? Is the outcome of the negotiation really what I wanted, or was I simply made to believe so? And, as a disputant were there occurrences where I would have been able to utilize the opposing party’s emotions to achieve a more favourable outcome. All these questions are pivotal to understanding the post negations outcome, and should be utilized as strategies for learning, for future use when negotiating.

If you missed it, yesterday we covered positional bargaining. To fully understand the entire concept and series, and to get a better understanding and get a getter grasp on Negotiation Techniques we highly recommend reading it. You can read it here.

The win/win negotiator’s approach or Interest Based Bargaining

Integrative bargaining (also called “interest-based bargaining,” “win-win bargaining”) is a negotiation strategy in which parties collaborate to find a “win-win” solution to their dispute. This strategy focuses on developing mutually beneficial agreements based on the interests of the disputants. Interests include the needs, desires, concerns, and fears important to each side. They are the underlying reasons why people become involved in a conflict.

Integrative refers to the potential for the parties’ interests to be [combined] in ways that create joint value or enlarge the pie. Potential for integration only exists when there are multiple issues involved in the negotiation. This is because the parties must be able to make trade-offs across issues in order for both sides to be satisfied with the outcome.

Why is Integrative Bargaining Important?

Integrative bargaining is important because it usually produces more satisfactory outcomes for the parties involved than does positional bargaining. Positional bargaining is based on fixed, opposing viewpoints (positions) and tends to result in compromise or no agreement at all. Oftentimes, compromises do not efficiently satisfy the true interests of the disputants. Instead, compromises simply split the difference between the two positions, giving each side half of what they want. Creative, integrative solutions, on the other hand, can potentially give everyone all of what they want.

There are often many interests behind any one position. If parties focus on identifying those interests, they will increase their ability to develop win-win solutions. The classic example of interest-based bargaining and creating joint value is that of a dispute between two little girls over an orange. Both girls take the position that they want the whole orange. Their mother serves as the moderator of the dispute and based on their positions, cuts the orange in half and gives each girl one half. This outcome represents a compromise. However, if the mother had asked each of the girls why she wanted the orange — what her interests were — there could have been a different, win-win outcome. This is because one girl wanted to eat the meat of the orange, but the other just wanted the peel to use in baking some cookies. If their mother had known their interests, they could have both gotten all of what they wanted, rather than just half.

Integrative solutions are generally more gratifying for all involved in negotiation, as the true needs and concerns of both sides will be met to some degree. It is a collaborative process and therefore the parties actually end up helping each other. This prevents ongoing ill will after the negotiation concludes. Instead, interest-based bargaining facilitates constructive, positive relationships between previous adversaries.

The first step in integrative bargaining is identifying each side’s interests. This will take some work by the negotiating parties, as interests are often less tangible than positions and are often not publicly revealed. A key approach to determining interests is asking “Why?” Why do you want that? Why do you need that? What are your concerns? Fears? Hopes? If you cannot ask these questions directly, get an intermediary to ask them.

The bottom line is you need to figure out why people feel the way they do, why they are demanding what they are demanding. Be sure to make it clear that you are asking these questions so you can understand their interests (needs, hopes, fears, or desires) better, not because you are challenging them or trying to figure out how to beat them.

Next you might ask yourself how the other side perceives your demands. What is standing in the way of them agreeing with you? Do they know your underlying interests? Do you know what your own underlying interests are? If you can figure out their interests as well as your own, you will be much more likely to find a solution that benefits both sides.

You must also analyze the potential consequences of an agreement you are advocating, as the other side would see them. This is essentially the process of weighing pros and cons, but you attempt to do it from the perspective of the other side. Carrying out an empathetic analysis will help you understand your adversary’s interests. Then you will be better equipped to negotiate an agreement that will be acceptable to both of you.

There are a few other points to remember about identifying interests. First, you must realize that each side will probably have multiple interests it is trying to satisfy. Not only will a single person have multiple interests, but if you are negotiating with a group, you must remember that each individual in the group may have differing interests. Also important is the fact that the most powerful interests are basic human needs – security, economic well being, a sense of belonging, recognition, and control over one’s life. If you can take care of the basic needs of both sides, then agreement will be easier. You should make a list of each side’s interests as they become apparent. This way you will be able to remember them and also to evaluate their relative importance.

What is it, this negotiation?

What is at stake some may ask. Basically everything, we negotiate every day, knowingly or not. Be it about the added sugar in your coffee, whether you can borrow a Euro from your friends, or if someone can lend you a pen. Negotiation encompasses all of that. Additionally, negotiation can act as a form of conflict resolution; it can involve striking deals, working things out with one or more parties. Negotiation is an integral part of everyday life. Negotiation occurs in business, non-profit organizations, and government branches, legal proceedings, among nations and in personal situations such as marriage, divorce and parenting.

In its basic form negotiation has two distinct strategies, these being the advocate’s approach and the win-win negotiators approach. From these then we have additional strategies. One One strategy is interest-based (or integrative, or cooperative) bargaining, while the other is positional (or distributive or competitive) bargaining.

The advocate’s approach, the win – lose.
A “successful” negotiation in the advocacy approach is when the negotiator is able to obtain all or most of the outcomes their party desires, but without driving the other party to permanently break off negotiations.

The win – win approach.
Suggests that agreement often can be reached if parties look not at their stated positions but rather at their underlying interests and requirements.

A Deeper Look at the advocate’s approach or positional bargaining

Positional bargaining is a negotiation strategy that involves holding on to a fixed idea, or position, of what you want and arguing for it and it alone, regardless of any underlying interests. The classic example of positional bargaining is the haggling that takes place between proprietor and customer over the price of an item. The customer has a maximum amount she will pay and the proprietor will only sell something over a certain minimum amount. Each side starts with an extreme position, which in this case is a monetary value, and proceed from there to negotiate and make concessions. Eventually a compromise may be reached. For example, a man offers a vendor at the flea market $10 for a rug he has for sale. The vendor asks for $30, so the customer offers $15. The merchant then says he will accept $25, but the customer says the highest he will go is $20. The vendor agrees that $20 is acceptable and the sale is made at $20. So the customer pays $10 more than he originally wanted and the vendor receives $10 less.

Why is Positional Bargaining Important?

Positional bargaining tends to be the first strategy people adopt when entering a negotiation. This is often problematic, because as the negotiation advances, the negotiators become more and more committed to their positions, continually restating and defending them. A strong commitment to defending a position usually leads to a lack of attention to both parties’ underlying interests. Therefore, any agreement that is reached will probably reflect a mechanical splitting of the difference between final positions rather than a solution carefully crafted to meet the legitimate interests of the parties.

Therefore, positional bargaining is often considered a less constructive and less efficient strategy for negotiation than integrative negotiation.  Positional bargaining is less likely to result in a win-win outcome and may also result in bad feelings between the parties, possibly arising out of the adversarial, “you vs. me” approach or simply a result of one side not being truly satisfied with their end of the outcome. Positional bargaining is inefficient in terms of the number of decisions that must be made. The example above demonstrates the back-and-forth nature of positional bargaining. The more extreme the opening positions are, the longer it will take to reach a compromise.

Can Positional Bargaining Be Good?

Despite criticism of positional bargaining, supporters of this negotiation strategy do exist.

It has been argued that consideration of all underlying interests in a negotiation process is unnecessary. In fact it may sometimes be counterproductive. This is because of the distinction and relationship between issues and interests. Issues are universal; they are shared between each party in a conflict. Interests, on the other hand, are specific to each party: what the buyer of the rug in the market wants is a bargain, what the seller wants is profit. This relationship is quite simple. The problem arises when the issue at hand stirs up dramatically opposing interests between the parties, a situation in which it would be very difficult to bring them into agreement. If this is the case, it may sometimes be better to negotiate in terms of positions and go for a compromise.

For example, two nations are in a dispute over water rights. However, they also differ on many other issues, including trade, immigration, religion, and politics. Broadening the debate to include these underlying interests will only polarize the sides further. In this case it may be much easier to reach agreement if the two sides focus on the smaller issue of water, and set aside their other concerns. This involves negotiating in terms of positions. This may help the sides reach a compromise without creating any larger, interest-based conflicts. So, for issues that involve extremely conflicting underlying interests, it may be best to just focus on positions and aim for compromise.

Tomorrow we cover in detail interest based bargaining.