Teaching The Deal
In
his Negotiation and Deals courses, Kevin Mohan uses his VC experience
to teach students that showing emotion, asking questions, and understanding
your own strengths and weaknesses can be key to a successful agreement.
It's
best to be nice when negotiating a business deal, but it's also OK to be
aggressive in pursuing your interests—as long as you back up your position with
facts.
"If
you're a seller and your price seems high, but it's justified in some way, with
market comparables or other information, it's easier for the other party to at
least understand your number, so they're not as likely to get mad and
walk," says Kevin P. Mohan, a senior
lecturer at Harvard Business School.
"If
you can explain why you're making a reasonable request and deliver it with a
smile, hopefully you can keep the other person in the room and see what happens
next."
Mohan—former
managing director and now senior advisor of $15 billion VC and private equity
firm Summit Partners—teaches this deal-making tactic along with many other key
negotiation strategies in the courses Negotiations and Deals.
Both
courses stress what corporate leaders learn from experience, that a manager's
success depends largely on keen negotiation skills, whether the manager is
trying to seal a deal with customers, seek funding from investors, or resolve
internal conflicts.
In
the Negotiations course, students not only analyze a number of case studies,
but also participate in a series of negotiation exercises that give them
hands-on practice with a variety of deal-making scenarios, allowing them to
experiment with different approaches and see which ones are ultimately most effective.
One
common takeaway: People's perceptions of their negotiation strengths and
weaknesses are not always on target.
"People
come into the course with this idea that they're too aggressive—or on the
opposite end, they think they're too quiet and shy—and both want to improve the
way they handle themselves in their negotiations," Mohan says. "After
seeing their results as compared to their peers over a few negotiations,
sometimes they realize they are just fine. Other people come in thinking they
are fine and find out they are too passive or too aggressive."
INTENSE EMOTIONS CAN WORK
Students
learn that it's important to keep their emotions in check in many cases, but at
the same time, successful negotiations often require finding the right balance
of approaches. It can be revealing to discover that expressing intense emotions
during negotiations—even anger—can be effective in certain situations.
"The
students find out that maybe it's OK to be angry sometimes," Mohan says.
"It can work."
In
one exercise, Mohan divides his 60 students in 30 pairs, giving them all the
same data and preparation materials in negotiating the sale of a piece of
property. Eyes are opened when Mohan shares the results and the students see
how well they fared price-wise compared to others.
"It
opens people up to, 'Gee, maybe I should try different things,'" he says.
And
that's the nice thing about testing out negotiating skills in a classroom
setting: Mohan assures his students it's OK to experiment and even to fail.
"This
isn't the real world, and you should feel safe enough to try some things out to
see what works," he says.
The
negotiation exercises become increasingly complex, involving multiple parties
with varying interests. For example, when a chief financial officer and a marketing
person are involved in negotiations, the CFO is naturally focused on keeping
costs down while the marketing executive is looking for a successful campaign
outcome.
Some
students blatantly voice their interests across the bargaining table, while others
are more guarded—and they learn through the process of getting to a deal how
much information it makes sense to share along the way.
If
it's unclear where the selling price should ultimately land, the first number
mentioned in a negotiation often has a big impact on subsequent talks. It's
nice to get the benefit of that "anchor" if the number is in the
right ballpark, but if you're unsure what the range might be in a likely
outcome, it can be a mistake to blurt out a figure too soon.
"If
you don't have a good sense for the "zone of possible agreement," you
can anchor in the wrong place and end up with a suboptimal outcome," Mohan
says.
QUESTIONS UNLOCK INFORMATION
Asking
a lot of questions—especially the right questions—is part of the
deal-making process.
"Early
on, they may think that they understand the other side, but sometimes asking a
question once is not enough," Mohan says. "You often need to explore
the other side's interests and true alternatives more deeply, or things can go
wrong. We get people to think about what their mindset is and also the fact
that other people might have another mindset."
Students
also learn not to get snowed by certain tactics that are used by the other
party. For instance, the class works on a case in which a banker is selling a
business and the student is the potential buyer trying to understand the
competitive dynamics and decide on the right bid.
"Bankers
are famous for saying, 'We have a number of offers in order to get a bidder to
pay more.' But in second grade you learn that 'one' is also a number,"
Mohan says. "If you're the only bidder or the best bidder, you probably
don't have to raise your offer."
Most
of the classroom negotiations involve pursuing a potential deal that benefits
both parties—although in real life, getting to a deal is not always possible.
Mohan says in the corporate world, those involved in negotiations often need to
ask themselves whether they are talking to the "right other side." He
recalls a time in his own corporate career when "we spoke to 10,000
entrepreneurs a year to get to 10 deals."
So
negotiators need to sift through prospects quickly, constantly asking
themselves: Should an additional counter-party be present? Or should I blow off
this person and find someone else to negotiate with? It's important to figure
out fast whether there's a "zone of possible agreement"—a good deal
that works for both sides.
"If
not, you need to move on because otherwise you're wasting your time and someone
else's time. Finding the right party to negotiate with is often more important
than working with the parties you have."
At
times an executive can determine during a five-minute conversation that a good
deal is or isn't likely to see the light of day. Or, it can take years to
figure it out. In situations that take a long time to develop, it's easy to
fall prey to "the fat file syndrome," getting too deeply entrenched
in trying to make a shaky deal work because of the time and energy invested in
it.
"Sometimes
your partners need to tell you it's not going to work because you're too
personally invested," Mohan says. "You think it should work and you
start to downplay the problems because you want it to work."
KNOW WHEN TO WALK AWAY
Letting
a project that you've worked on for a long time go can be difficult, but Mohan
tells his students that sometimes it is for the best.
"It's
never too late to call off a deal. Do your work, but in the end, if it
shouldn't happen, you don't want to go through with it," he says.
"Sometimes you think [later], 'Thank the Lord we missed that one.'"
Mohan,
who recently completed his second year of teaching, noted that colleagues
including professors Deepak Malhotra, Guhan Subramanian, and Andy Wasynczuk
designed the courses and helped shape Mohan's classroom discussions and goals.
Mohan's
students get a lot out of the courses because, after all, negotiation skills
are crucial both in the business world as well as in people's personal lives
when they look to buy houses or cars—or even get along with friends and
spouses.
"Students
are at a stage in life when they are facing some important negotiations, and
often working alone," Mohan says. "They're negotiating their job
offer or they have a startup and are negotiating with investors. So these
lessons strike home."
by
Dina Gerdeman
http://hbswk.hbs.edu/item/7522.html
