The significance of negotiating skills in entrepreneurship should be more valued despite being an aspect of the entrepreneurial journey. Whether you’re embarking on your journey as a new entrepreneur or a business owner, refining your ability to negotiate successfully can have a transformative impact. Here are three reasons why these skills are not merely advantageous but indispensable for all entrepreneurs.
Photo 1: Two founders exchanging a handshake
Securing Favorable Agreements and Terms
Entrepreneurs frequently find themselves in negotiation scenarios with suppliers, clients, employees, co-founders, investors or collaborators. Negotiating well can result in pricing for essential resources, favorable contract terms and advantageous financing arrangements. This directly impacts the company’s health by saving costs and boosting profitability. In a market where every penny matters, the ability to secure agreements that are favorable to the business is priceless.
Building and Maintaining Relationships
When it comes to negotiations, sometimes winning is not the only goal. Knowing how to better negotiate, depending on who you are dealing with and the circumstances, will allow the entrepreneur to build and maintain relevant relationships, especially if the perceived importance of future relationships between parties is high. For example, an entrepreneur negotiating equity with their co-founder (s) should not only be focused on winning the negotiation and having the best deal. In such a case, these people are people with whom the entrepreneur will have a long-term relationship for as long as the business exists. Hence, creating a win-win solution for all parties involved will foster confidence, build trust, and ensure a long-lasting collaboration. Good negotiation skills will provide that.
Resolving and Mitigating Conflicts
As a business grows, conflicts tend to be inevitable as these are often indications of progress, developments and the need for change. Effective negotiation skills are crucial to finding a constructive solution to disagreements that may emerge with suppliers, customers, partners, investors or even team members and co-founders. When a key supplier unexpectedly increases the prices of their services, an entrepreneur needs to be able to renegotiate terms that would benefit both parties involved while avoiding conflict. When confronted with a supplier’s price increase, an entrepreneur might work out advantageous terms for both sides. They may consent to a longer-term contract with the supplier in exchange for consistent business and maintaining present pricing or a slight price rise. Alternatively, the entrepreneur could agree to longer payment terms to give the company more time to manage cash flow without facing immediate financial strain. All this requires good negotiation skills to navigate.
Photo 2: A selection of bestselling books on negotiation
With the above points raised, here are a few tips on better negotiating as an entrepreneur.
1. Know the negotiation style to use, and it would be advantageous if you had an idea of the personality of the party you are negotiating with. The types of negotiating styles are
a. Competing: A competing negotiator loves negotiating and is excellent at positioning and gaining leverage. This is also known as Sportsman
b. Collaborating: also known as Problem solver, this negotiation style is excellent for complex issues if time is flexible. Generates creative solutions
c. Compromising: another name for this style is Closer. This style is excellent for straightforward issues or if time is limited. It seeks quick and fair resolutions.
d. Avoiding: this type of negotiation is tactful, prefers harmony and is also known as diplomacy.
e. Accommodating: this is also known as Relationship manager. It strives to maintain relationships and seeks to be helpful
2. Determine the type of negotiation you are having. Some questions to ask yourself to determine the kind of negotiation is
a. What is the importance of future relationships between parties? Is it high or low?
b. What is the perceived conflict over stakes? Is it high or low?
Answering the above questions would enable the negotiator to determine what negotiation style to use.
3. Start with small concessions with negotiating and move up slowly when it is hard to reach an agreement. This would prevent stagnation and bring the negotiation closer to being closed. It is essential to set limits to avoid conceding too much
4. Know your Best Alternative to a negotiated agreement. This refers to the next best option if the negotiation does not yield results.
5. Know your Walk Away Point in advance before negotiating. This is a point beyond which one will not make a deal. It is important not to change your Walk Away Point during negotiation, but if you have to, it is necessary to buy time to consider it carefully.
6. Identify your Zone of possible agreements before entering a negotiation. It is best to give yourself a range of what you consider ideal, best, worst, worst deal (worst-case scenario). Ideally, deals should only happen within the set range.
Negotiation is a necessary skill in the world of entrepreneurship. Strong negotiation abilities have numerous advantages, including better agreements, relationship-building, dispute resolution, and the creation of new opportunities. These are essential qualities for entrepreneurs, as they help businesses succeed immediately and provide doors for long-term expansion and resilience. Consequently, putting in the time and effort to improve your negotiation abilities will pay off handsomely in the long run as you pursue your entrepreneurial goals. To learn more about negotiations, check out the books above.
By Lawrencia Kwansah
