9 Rules of Negotiating from the High Ground

Negotiations

9 Rules of Negotiating

After enlisting in the Marines Ken Marlin worked his way up to become a captain and infantry commander. After the Marines, Ken has led a technology company and finally an investment bank on Wall Street.

What I really appreciate about Ken is that he has taken his variety of experiences from the battlefield to the corporate boardroom and distilled his leadership principles in a way that can help all of us. His new book, The Marine Corps Way to Win on Wall Street: 11 Key Principles from Battlefield to Boardroom, is full of his candid advice on leadership.

 

“Prior preparation prevents poor performance.” –Ken Marlin

 

And I highly recommend the read.

There was one section of the book that focused on an aspect of leadership that I wanted to ask him more about. That was the section on negotiation, on deal-making, on getting to agreement.

I had the opportunity to ask Ken about his 9 rules of negotiations.

 

Negotiation Tip: negotiate big things before little things.

 

Be Ready to Walk

Be prepared to walk away from the table. This is a great place to start. Do you have an example of when someone wasn’t willing to walk away and how that hurt them?

I have many examples both positive and negative. That’s because negotiating is much more about psychology than logic – and it has very little to do with finance.  The negative examples aren’t fun to talk about.  But we have had clients who simply weren’t willing to walk away from a prospective deal. Inevitably the other side took advantage.  One that comes to mind resulted in a sale that I strongly advised against.  Our client was a seller.  The price offered seemed quite strong, on the surface.  It was significantly higher in total value than those we received from other bidders – but a significant portion of the price was to be paid over three years based on the company’s future earnings.  We’ve worked with so-called “earn-out” structures before and often they are fine.  But, in this particular case, I believed that the upfront portion of the purchase price was much too low and the protections for my client post-deal were too weak.  We pushed back of course, but the buyer touted the total value of the potential deal and was unwilling to move.  I advised my client to walk away and negotiate with one of the other bidders – leaving the door open for the first one to get more reasonable.  But my client was also focused on the total theoretical value and – perhaps – a bit too sure of himself and his own abilities.  He was not willing to negotiate hard – and take the risk of losing this deal.  He took the deal.  The results were predictable.  Within a year the senior management of my client’s company were out – and the sellers never received most of the earn-out.  There were lawsuits.  But the lawyers are about the only ones who came out ahead.

 

“Discipline is critical to proper preparation.” –Ken Marlin

 

There must be less depressing examples of the where the approach did work. 

Sure, there are lots.  For example, a few years ago, we had a VC-controlled client that had been negotiating the sale of their company for months with a very qualified buyer before they came to us for help.  The offer was all-cash at a fair price by any measure.  At the same time, it was clear that the buyer would merge the organizations and fire at least half of my client’s personnel.  The VCs were mostly interested in the money, but they were sympathetic to the CEO’s desire to protect his people.  The CEO had tried to negotiate, but the buyer said that their offer was “best and final” and would expire in 3 weeks.  Further, the buyer said that if there were any solicitation of other bidders, they would walk from the table.  The buyer was using their leverage better than my client. They assumed that the VCs would not risk losing a high all-cash offer.Ken Marlin Headshot

I told my client that they could not negotiate if the other side perceived that they were unwilling to walk from the table. Otherwise we would just be begging.  We knew that if we solicited other bids we might lose the first buyer, but that was a risk we had to take to improve the terms.  My client agreed to take the risk. Once we had other bids coming in and the first buyer saw that they might lose the deal, they materially improved the cash portion of their offer.  But they put even more emphasis on cost reductions.  Fortunately, we had identified another interested bidder, and we were able to use our leverage – including the specter of sale to the original buyer – to obtain an offer for more money and protections for the employees.  That was win-win.

About a year ago we had a similar experience internally, as the lease on our office space was expiring.  We were the sole occupant of the top floor of a prestigious New York office tower.  It had terraces, great light and views, and it was all built to our specifications.  We were willing to stay.  But the landlord asked for a rent increase that was clearly above market.  He may have assumed that we would not walk away.  We pushed back. We showed him that rent for comparable spaces was lower.  But logic did not work.  He declined to offer more than a pittance.  So we went out and found another great space and used the specter of staying in the original space as leverage to negotiate great terms with the new building.  When the first landlord saw that we were willing to walk from the table, he finally got reasonable.  But it was too late.  We moved to the new space.  We love it.

 

“Staying safely at your home port is narrow thinking.” –Ken Marlin

 

Tell the Truth

Tell the truth. I love this one as part of your rules. What’s the Marine definition of lying?

I’m not saying that you can’t lie to an enemy who is trying to kill you or your friends.  This is about negotiating in normal business environments – or in Marine environments when you are negotiating with so-called “friendlies” (such as local villagers).  In this context, the Marine definition of lying goes beyond the standard definition of asserting something as fact that you know to be otherwise.  It includes making statements – or failing to make statements – as part of an express intent to deceive. It’s an extension of the concept that my word is my bond – with a focus on being honest with those who expect that of you.  Reputations are built over time and will outlast the negotiations at hand.  A reputation as a liar will eventually catch up to you.

 

Negotiation Tip: don’t make promises that will be challenging to keep.

 

So in that context, how do you bluff in negotiating?  Doesn’t everyone bluff?

It’s true that, in my business, many people bluff.  And more than a few lie.  Lying is always bad.  Bluffing usually is.  It is also dangerous if your bluff is called.  It can cost the loss of major negotiating points – and sometimes kill the deal.  That’s why I prefer the truth.

 

“Discipline can help ensure successful execution.” –Ken Marlin

 

Understand Leverage

Recognize when you have leverage-and when you don’t. How do you know what the leverage each side has? How does this impact your deal making?

Ken Marlin holding a rifle at OCS Quantico VA @ 1972In the Marines, leverage comes from a combination of superior force combined with moral certainty.  Moral certainty was one of the key ingredients in how Americans won the Revolution against the superior forces of the British Empire.  It was key to winning World War II, and it was also key to the US losing the War in Vietnam.  Sure, there are many exceptions where superior force trumped all.  See the Russians in Chechnya.  But 150 years later, that war isn’t completely over yet.  In deal making, the best leverage comes from a combination of being on the moral high ground and being willing to walk from the table.  That leverage increases the more the other side wants to get the deal done.  It’s usually not hard to recognize.  In the book I relay a vignette about the CEO of a very large firm that had made an offer to acquire our client’s company.  After we shook hands on what appeared to be a very fair purchase price, he began to dictate deal terms – and even to change some that had previously been agreed. The CEO acted as if he had all the leverage, when actually, by his bullying tactics, he had squandered the moral high ground.  He was then left with the assumption that my client was desperate to complete the deal.  They weren’t that desperate.  The CEO was surprised when we walked from the table.

 

“If you know the enemy and know yourself, you need not fear the result of a hundred battles.” –Sun Tzu

 

Remember the Peace

Remember the peace. Most non-military experts will pause on this one. What does it mean and why is it so important?

Most statesman learned long ago that after most wars end, there is wisdom in finding a way for the formerly warring parties to live with each other.  After the Civil War came what was supposed to be reconstruction.  After WWII came the Marshall plan.  When people forget that basic rule of remembering the peace, it can be bad.  That’s what the allies did after World War I, forcing impossible reparations on the Germans.  The result was resentment that fermented and eventually boiled over.  And then we got World War II.  The consequences of scorched earth policies in business negotiations may not be quite as dire.  But still, the smart move is to recognize that the completion of a transaction is usually not the end of anything. It is a phase point, after which it is better if the formerly battling parties (buyer and seller) can continue to work and live with each other in peace and harmony.  Otherwise, life is long, resentment ferments, and bad things may happen.

 

9 Negotiation Rules from Ken Marlin

Rule 1: Be prepared to walk away from the table.

Rule 2: Know where you are going.

Rule 3: Recognize when you have leverage—and when you don’t.

Rule 4: Tell the truth.

Rule 5: Remember the peace.

Rule 6: Negotiate big things before little things.

Rule 7: Don’t bully.

Rule 8: It is personal.

Rule 9: Take reasonable, defensible positions.

 

Negotiate Big Things First

How to Achieve Execution Excellence

Balanced Scorecard

What’s the best way to drive individual performance?

How does a leader assure enterprise success?

Is it possible to close performance gaps to improve execution?

 

Making Strategy Work

In Execution Excellence: Making Strategy Work Using the Balanced Scorecard  Sanjiv Anand answers these and other questions.

Sanjiv Anand has 30 years of global experience in consulting, helping CEOs and boards develop transformational strategies. Currently the Chairman of Cedar Management Consulting International, his book is full of his operational and strategic insight on how to manage human capital. He is an expert on the Balanced Scorecard.

I recently asked Sanjiv to share some of his experience about what does and doesn’t work in implementing strategy.

 

“If you can’t execute the strategy, it’s not worth having.” –Sanjiv Anand

 

Why is strategy more relevant than ever before?

While the world continues to provide opportunities to grow, it is not without challenges. First, customer expectations around product, relationship, and brand have risen over years driven by extremely high levels of competitiveness. This has resulted in the need for firms to develop multiple strategies that address different customer segments. Additionally, competition is now local, regional, national, and global. This requires a more nuanced and complex competitive strategy. All of this also drives complexity in process and people. Global organizations or markets require processes to work well in a centralized and decentralized manner. Lastly organizations have become complex as even medium-sized enterprises can have employees across the world. All of this has made strategy, and more importantly the execution of strategy, more relevant than ever before.

 

“Strategy is about execution.” –Sanjiv Anand

 

What are the elements of a strategy that works?

Never build a strategy that can’t be executed. The problem starts there. Most organizations build strategies that are complex, difficult to understand, and hard to execute. A strategy that works needs to be balanced. It needs to focus on the drivers of financial performance rather than just the financial outcome. People and technology help drive process excellence. Process excellence helps meet or exceed customer expectations. And meeting customer expectations delivers financial performance. Therefore, all of these elements are critical for strategy that works—combined with a clear sense of ownership across the leadership team, a set of performance measures that are lead indicators to performance, and a set of targets that focus performance and don’t overwhelm. Focus, balance, ownership, measurement, and the right targets are the elements that make strategy work.

 

“Parallel processing is key to a successful strategy.” –Sanjiv Anand

 

Understand Cultural Differences

What are the cultural differences to be aware of in terms of measurement?

Execution Excellence by Sanjiv AnandIn the U.S., measurement motivates. In many parts of the world, measurement scares. Why? The U.S. has a culture that celebrates individual performance. This is also reflected in how organizations assess and reward people. Drive individual performance to drive enterprise performance is the typical formula; therefore, most executives in U.S. corporations are used to the idea of being measured and being held accountable individually.

Many parts of the world are different. In Japan it’s about team performance, and therefore team measurement is more important. In many parts of Asia, especially India, measurement is generally not part of the culture. Individual performance, or rather lack of it, is not something for public display or discussion. In Europe, the role of the corporation transcends the objective of only meeting shareholder expectations to also focusing on the greater good of society, so measurement of individual performance gets more complicated.

The broader point here is not to suggest that measurement should not be attempted, but the approach to measurement needs to be customized to motivate, not demotivate’ which is the objective in the first place.

 

“A positive strategy should focus on innovation.” –Sanjiv Anand

 

Don’t Make these Mistakes In Setting Targets

How Leveraging the Network Can Help Your Business Grow

The Network Imperative

How to Survive & Grow in the Digital Age

 

How do you create value today?

What’s the best way to scale an enterprise?

How do you grow a company faster than ever and scale with lower cost?

 

It’s all possible if you leverage the network.

 

That’s how companies like Amazon, Airbnb, and Uber have succeeded against the odds.

 

“Entrepreneurial business favors the open mind.” –Richard Branson

 

In The Network Imperative: How to Survive and Grow in the Age of Digital Business Models , authors Barry Libert, Megan Beck and Jerry Wind argue that it is the way companies create value. And today, the best way to create value is through scalable and digitally networked business models – like Amazon, Google, Uber, Airbnb – that leverage networks of employees, customers, and suppliers.

 

Create a Virtual Network

For those not yet familiar with your work, what’s the network imperative?

The network imperative is recognizing that today’s most valuable companies are virtual networks that rely on digital platforms. This leading edge, new business model is emerging in every industry: Amazon and Alibaba in the retail industry, Match.com and Tinder in dating, Facebook and Instagram in Social Media, LinkedIn in professional resumes, Airbnb and Homeaway in room rentals, Uber and Lyft in shared car services, as well as the NYSE and NASDAQ in the financial sector.

 

What did your research show in terms of the financial results of “network orchestrators” versus the other 3 business models?

These business models – which we call Network Orchestrators – are more about orchestrating resources, be it insights, relationships, cars, homes, and skills rather than owning them. In addition, they scale based on the a flywheel effect , e.g. the more people, services and interactions there are on the network, the more others will join and make available their assets – whether that’s friends, photos, resumes, cars or homes.

 

“What’s dangerous is not to evolve.” –Jeff Bezos

 

5 Steps to Become Network Centric

Would you briefly describe the PIVOT model?

Our research indicates that all organizations have dormant, virtual networks of either employees, customers, prospects, suppliers, investors or alumni that, when combined with a digital platform and a clear incentive system to share what they have, what they know and who they know with others, can apply network orchestration to their business model. To help incumbents transition from firm centered (where they focus on what they make, market and sell) to network centric (where they orchestrate what others have and create peer-to-peer connections), we created a 5 step process called PIVOT.  The 5 steps are:

  1. Pinpoint your current business model (e.g. which of the 4 business models are you? Asset builder, service provider, technology creator or network orchestrator?)
  2. Inventory all your assets both tangible (e.g. plant, property and equipment as well as money) and intangible (brand, intellectual capital and relationships as well as interactions and big data).
  3. Visualize your future digital platform that connects your network of people or things.
  4. Operate your new digital network and virtual platform alongside your existing business and protect it while it grows, experimenting along the way to find the sweet spot that insures its success.
  5. Track using new big data metrics such as engagement, sentiment or interaction along with traditional financial measures to see how your network is doing and the value it creates.

 

“Show me your budget and I’ll tell you what you value.” –Joe Biden

How Companies Can Overcome the Pitfalls of Globalization

Global Vision

Overcome the Pitfalls of Globalization

Does your company have global aspirations?

How do you determine which countries to pursue and which to avoid?

 

When growth stalls, many managers decide that the answer to the slowing metrics is in going global. In many instances, managers don’t appreciate the inherent risks, miss the cultural nuances, and miscalculate the legal costs of the lofty goals globalization requires.

Robert Salomon is a professor of International Management and Faculty Scholar at NYU’s Stern School of Business and has been teaching and studying the effects of globalization for nearly 20 years. His new book, Global Vision: How Companies Can Overcome the Pitfalls of Globalization, is a guide to successfully navigating the global marketplace.

As the CEO of a global business myself, I was intrigued by the lessons in the book and reached out to Robert to share some of his findings with you.

 

The Problem of Unbridled Optimism

Global Vision . CoverIn your book, you say that one of the biggest problems with globalization is managers and their unbridled optimistic attitude. How does this increase risk?

The problem is that managers systematically overestimate the benefits of globalization and underestimate its costs. They tend to believe that globalization is relatively easy, and they therefore overlook the economic, political, and cultural risks involved.

Many people cite Thomas Friedman’s book “The World is Flat” as an urgent call toward globalization. What’s usually wrong with this thinking?

More and more research suggests that the world is less global than Friedman suggests, and not just by a little, but by a lot. And so if managers base their views of globalization on Friedman’s work, they will end up making very dangerous assumptions about globalization’s risks and challenges.

Why is overestimating market potential so prevalent?

It is prevalent because managers tend to think that consumers will respond to their company’s products similarly in every market. They therefore believe that they can simply port their existing business model to global markets with little change. In this respect, they fail to recognize the challenges that culture—in the form of different consumer cultures—can place on their business model.

 

Strategic Mistake: Porting existing business models to global markets with little change.

 

Understanding the Importance of Culture

Your research led you to the conclusion that “culture is probably the least understood.” Tell us more about the importance of culture and its role.

Culture is the least well understood of all of globalization’s challenges because culture is difficult to define and measure. Is culture about language differences? Yes. Is culture about religious differences? Yes. Is culture about differences in behaviors, norms, customs, and social structure? Yes. But even if we recognize these differences across countries, they are difficult to quantify and measure. Because culture is difficult to quantify and measure, managers end up discounting its effect on globalization. In my book, Global Vision, I discuss how culture impacts globalization and also how managers can quantify the impact of culture on global companies.

 

Culture is the least understood of the challenges of global expansion.

Break the Rules and Upend Business As Usual

Under New Management

Upend Business As Usual

 

Should salaries be public?

Is it possible to eliminate the performance review process?

Should customers come second?

Do open offices work?

 

Most businesses have rules and practices that have developed over many years. Whether inherited from long ago practices or invented by the company, these rules often continue unquestioned.

My friend Dr. David Burkus is a business school professor and author who questions many common business practices. His research reveals that many of the rules are outdated, misguided, and possibly counterproductive. His research looks at the contrarian practices of companies such as Zappos and Netflix where the rules are being rewritten.

 

“Great leaders don’t settle for low levels of efficiency.” –David Burkus

 

From designing office space to eliminating annual performance reviews and unlimited vacation policies, David’s book ignites a debate and conversation.

Some of the “rules” may stand the test of time because they work while others may be held in place based solely on tradition. Regardless, his newest book, Under New Management: How Leading Organizations Are Upending Business As Usual, is a good reminder that it’s time to review all the rules and determine whether they still serve a valid purpose.

 

The Case for Change

David, in one book, you have assembled some of the most contrarian practices being used in business today. What led you to this approach?Under New Management

After I wrote my first book, The Myths of Creativity, in which I talked a bit about practices like hackathons and 20% time that spurred innovation, I started to get even more curious about the things innovative companies were doing that seemed unusual or opposite of best practices. As I travelled down that rabbit hole I found lots of people writing about why the ideas were unique and appealing, but no one was making the case for why these practices work so well. Since organizational psychology is my background, I started to look at these ideas through the lens of human behavior and found compelling reasons for why they might be better than best practices.

Do you believe many of our management practices and principles are outdated? Is this a global view?

Well that depends. As Daniel Pink rightly pointed out in Drive, the shift from industrial work to knowledge work left a lot that needed to change about how we motivate people. I think that shift has broader management implications, which I explore in Under New Management. So yes, if you’re organization does mostly knowledge work, it’s likely that your management practices are rooted in some outdated assumptions.

 

Ban Email and Increase Productivity

Let’s look at email. Does banning email really work? Do these techniques work in larger organizations? Doesn’t moving to other technology tools just move the problem and not address the fact that it is people, not the tool, that cause it?

Email is an amazing tool because it’s cheap and it’s asynchronous. But it’s a difficult tool for exactly that reason. It’s easy to send…so we send it far too much. And because it’s asynchronous, it moved us to a world where we’re always on. There are a lot of other tools that are also cheap and asynchronous, but it’s a matter of how the tool is used.

And yes, to some extent, it’s a people issue. The companies that banned email took a deep look at their communication needs and settled on another tool for internal communication. If you’ve looked at what your team’s communication needs are and email meets those needs….great. But odds are, there’s a better tool out there.

 

“Leaders are discovering that limiting email improves productivity.” –David Burkus

 

13 Counterintuitive Ideas to Upend Business As Usual

  1. Outlaw email.
  2. Put customers second.
  3. Lose the standard vacation policy.
  4. Pay people to quit.
  5. Make salaries transparent.
  6. Ban non-competes.
  7. Ditch performance appraisals.
  8. Hire as a team.
  9. Write the Org chart in pencil.
  10. Close open offices.
  11. Take sabbaticals.
  12. Fire the managers.
  13. Celebrate departures.

 

Eliminate the Performance Appraisal