Commercial negotiation is a lot less intense than most people think.
Samar McHeileh, Co-CEO of Scale Investors and Claire Thompson, Co-Head of Venture Capital (Australia) at Herbert Smith Freehills regularly meet women founders who are nervous about negotiation.
The reality is that commercial negotiation is a lot less intense than most people think — at its heart, it’s a discussion between two people, and with practice anyone can gain the confidence to be a good negotiator.
Here are their top tips:
Listen and clarify
It is critical to have a clear understanding of your counterparty’s asks and objectives. If you don’t, ask them to clarify. Always open a negotiation understanding their objectives and goals.
Active listening and repeating or mirroring their objectives in your own words enables clarification and goes a long way to understanding your counterparty’s possible drivers. This can help you to find a creative solution to their needs without compromising your own.
For example, an investor may be insisting on a seat on your board, but you want to ensure that the board stays small to make decisions quickly. By asking questions to understand why your investor wants to sit on the board, you might identify that they want to be kept up to date with the activities of the business via access to board papers, and want to protect their investment to veto certain unusual transactions. These objectives could be achieved without a board seat through granting specific rights in your Shareholders’ Deed, giving your investor the protections they need while allowing you to keep your board small and nimble.
Be open about your objectives
There is a common saying, “don’t ask, don’t get”, which is completely true for commercial negotiations.
Be clear about what you are asking for, and why you are asking for it. It is often the case in a negotiation that one party’s ask cannot be met, but by being open about your objectives, there is a better chance that you can work together to find a similar outcome.
Most people have a terrible poker face, and it is usually obvious when a counterparty is trying to conceal something. If you are negotiating the terms of an ongoing arrangement, such as an investment in your business or a contract with a key customer or supplier, you want to ensure that the commercial negotiation sets a strong foundation for the business relationship. Clear communication and mutual respect are integral to developing that relationship of trust. Remain calm and allow for space (aka awkward silences).
It is only once you are all on the same page that you can identify areas where you are aligned, and those where you aren’t.
Accept everything you can
A short, clear negotiation that is over swiftly and smoothly is the best way to establish a respectful and strong working relationship. Long, drawn-out negotiations benefit no one —they are costly, painful and erode much of the goodwill you have spent time developing with your counterparty.
With this in mind, accept everything you can. Being accommodating and reasonable from the get-go sets the standard for them to reciprocate. Don’t hold on to positions you don’t need. Show goodwill and meet your counterparty halfway or suggest alternative solutions.
You will likely have a thousand tasks on your to-do list, so the less time you need to put into negotiating, the more time you can spend building your business.
Know your options
While you might do everything right, sometimes your counterparty won’t. For this reason, it is important to know your options if you do need to walk away from the partnership.
By keeping in mind your alternatives, you can assess more clearly what the benefits of the commercial partnership are and what you might be giving up, allowing you to negotiate the best deal for your business.
While terminating discussions is never easy, if you choose to do so, do so respectfully. Clearly explain your reasons, commit to maintaining confidentiality, and don’t just do it as a bargaining tactic.
Don’t go it alone
If you are feeling out of your depth, ask for support. That could take the form of a co-founder, legal or business adviser, your board chair or an investor. Tap into your network to find someone with experience in the field who can be a sounding board as you go through the process.
The start-up ecosystem is incredibly supportive, and we have always found that there are many experts willing to lend a hand to founders.
Organisations such as Scale Investors work closely with women founders to guide them through the investment process, from preliminary education, support during the application and pitching stage, and through to closing the raise.
Reach out. It is never too early – we are always happy to hear from women founders looking to do great things.
Samar McHeileh is the Co-CEO of Scale Investors. She runs one of Australia’s most successful angel networks focussed on investing in diversity, where she invests in the next generation of women-led startups.
Claire Thompson is the Co-Head of Venture Capital at Herbert Smith Freehills. She supports founders and investors to raise capital, make investments and navigate the legal issues that pop up on the way to success.
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