As a startup founder, what would you say is the most challenging part? Most make the mistake of believing that it may have to do with building or innovating a product.
If you think the same, what about negotiating deals? Founders need to juggle vendor contracts and partnership terms while running on coffee and intuition. However, it’s like walking a tightrope. A single slip-up can make your equity or cash flow take a hit.
What’s more is that you’re not alone in this hustle. In 2024, around 846,000 new companies were launched in the UK. This involved a slight drop between 3% and 4% from the previous year. It only goes to show just how competitive the startup landscape has become.
Amid such fierce competition, the art of negotiation can make a huge difference. To that end, this article will share four negotiation secrets to help founders turn complex deals into strategic wins.
Establish Your Terms Upfront
Want to know a secret strategy the pros always follow? They understand that the first numbers you put on the table matter a lot. It’s comparable to dropping the first domino in a set of cards. Once set into motion, everything else follows.
While negotiating, the opening offer you make will become the psychological benchmark for the entire discussion. Well, this shouldn’t be a secret, but it is because even today, many startup founders treat the opening offer like a casual suggestion.
In truth, only seasoned negotiators know that it is indeed a power move. Humans naturally tend to compare everything that comes next to the first anchor. Perhaps your first move could turn things in your favor without creating any pressure.
Now, how do you make this move like a pro? Here are some things to keep in mind:
- Pinpoint your must-haves or non-negotiables. They could be in terms of the equity, the pricing, or the ownership stakes.
- As you set the stage with your preferred terms, be confident and back them up with proper reasoning. This step involves a little market research and data-hunting.
- Stay flexible in tone, not too rigid. It’s all about guiding the conversation with authority.
Here’s something to encourage you: A recent study found that making the first offer can shift the outcome in your favor by as much as 50%. It also noted that precise, well-reasoned numbers were more persuasive than rounded figures. So, don’t be afraid to use this ninja move in the world of business negotiation.
Do Your Homework on the Other Party
The next secret that leads to success in negotiation is to go beyond what you say. Yes, it’s also about what you know. The better your understanding of the other party, the more control you will have over the conversation.
It’s a lot like a chess match. The most thoroughly prepared are those who are aware of their opponent’s moves and need not worry about too many (unpleasant) surprises.
Again, a lot of founders walk into negotiations thinking it only has to do with their pitches. Clever founders understand that uncovering the other party’s goals, hidden agendas, and unspoken pressures provides better leverage.
Now, it can be challenging to craft proposals that feel like wins for both sides. Here’s how to do your homework like a pro:
- Start by diving deep into the other party’s background. Look into their company history, prior deals, and public statements.
- Learn to spot what really matters. Are they looking for long-term stability? Is their aim to protect their brand reputation?
- Have smart concessions ready in advance. This should be easy when you know their priorities. You can offer them trade-offs that are both valuable and low-cost.
Now, a 2024 study found some somber results. Only 16% of negotiators felt that they were focusing on the right contract terms. This means a majority of them were wasting time on irrelevant or low-impact points. If you want to be a part of the minority, do your homework and lead the conversation in the right direction.
Spot Underlying Risks in Agreements
They say that all that glitters is not gold, and there’s much truth in that adage. No startup founder became a seasoned negotiator who got carried away by fancy clauses and shiny numbers.
You need to develop a sharp eye for hidden risks lurking in contracts, vendor deals, or partnerships. This is important because many such risks do not even become apparent until months down the line.
Many entrepreneurs dive into deals, focusing solely on immediate gains, be it equity or price. Then, the small details create big headaches later on. As Hudson, Reed & Christiansen, PLLC, notes, business transactions are intricate to handle.
This encompasses everything, from buying products and services to major shifts like company mergers and takeovers. Unless you can spot potential pitfalls before the other party, you cannot negotiate terms that both protect your interests and retain the deal.
Now, let’s see how you can identify the underlying risks with an expert eye:
- Look for contractual landmines in the form of vague language and clauses that limit flexibility.
- Assess the operational and financial exposure through clauses for market shifts and delayed deliverables.
- Build in safety nets, such as contingency clauses and clear exit strategies.
Being able to spot hidden risks is especially crucial for founders operating in fast-growing startup hubs like Murfreesboro, Tennessee. A vibrant startup culture means businesses are booming, and agreements can be complex.
Be it local partnerships or regional expansions, contracts here often involve potential pitfalls that aren’t immediately obvious. This is precisely why consulting Murfreesboro attorneys is invaluable. Their local expertise helps founders anticipate risks and structure deals for future growth.
Don’t Underestimate the Power of Walking Away
They say that it’s critical to know when to hold on and when to let go. In fact, one of the strongest moves you can make is to walk away. There’s no need to throw tantrums or slam doors.
All this is about is showcasing confidence that communicates you won’t settle for less. The other party should know that you’re not in it to hurt your long-term interests. Consider it to be the business equivalent of, “I am polite, but I also have standards.”
Negotiations are often treated as a tug-of-war. Founders believe that they must give in to pressure to close the deal. Those who get it done successfully understand the power of walking away.
This could be the only way to get the other party to offer you better terms. At least, they will know that you won’t settle for less, no matter what. When used wisely, walking away isn’t a threat, but may even tilt the table towards you. Here’s how you can walk away with boldness:
- Set your bottom line by knowing in advance what your minimum terms will be.
- Don’t raise your voice, but calmly indicate that the terms won’t work for you.
- Stay professional and composed, as confidence can win more deals than drama.
- Combine this with the homework strategy, and the walk-away becomes credible.
The walk-away strategy transforms restraint into leverage. It’s a psychological nudge to protect your interests while keeping the relationship intact. You can control the narrative without creating chaos. Isn’t this a truly savvy founder move?
Finally, don’t consider negotiation to be just a business tactic. It’s more of a skill that empowers founders to write their own unique success stories. With every deal that offers better terms, you also build sharper instincts and resilience.
There is no denying the fact that the startup landscape is crowded. However, those who approach the table calm and prepared will continue to stand out. The cat is out of the bag now. You must master the above-discussed four negotiation secrets. It’s only a matter of time before you open new doors for your company’s future.
