Negotiating for Nerds

If you have ever thumbed through an airline magazine you’ve probably seen advertisements for courses on 12 Power Negotiation Techniques or 7 Ways To Crush The Competition At The Negotiating Table. This is not one of these.

I have been in independent business for nearly 7 years. During that time I’ve had to enter into countless contracts to promote and continue my work. These can be setting up consulting agreements, agreements to sell software, negotiate office space or hire employees.

I’ve probably made every mistake you can make in this process. I’m a software engineer by trade and temperament. I like creating things and as much as I can I want to focus on that part of my business. Looking back, I realize I often neglected the importance of sound negotiation tactics – potentially to the detriment of my business.

Here are some things I’ve learned so you won’t make the same mistakes.

Valuing yourself and your work

In finance there is a concept of determining the value of something based on the highest price someone is currently willing to pay for it. It is best to not apply the same philosophy to your own work. The things you create or the time in your day has an intrinsic value outside of whatever someone else is willing to pay for it. While you can only realize that value when you sell it, that does not mean that it isn’t already there. If your initial mindset around pricing is that your work has no value until someone else pays for it, you are working in the wrong direction. Do not start at zero and work up to the price; start at the value you think it is worth and work down (if necessary). If you can’t find someone willing to pay what you are worth then you have a marketing problem not a contracting problem.

Leverage your interpersonal tendencies

I have a lot of anxiety when talking on the telephone. I tend to shy away from confrontation and can turn into a bit of a pushover when the conversation gets tough. As such, it is important for me to understand this tendency and work within contexts where I can succeed. This can mean different things to different people but for me it means I should try to have the majority of the negotiation via email (where I don’t feel that same anxiety) and only have phone calls as a secondary avenue. You should drive the negotiation to the venue where you are most comfortable. Keep in mind that you are likely working with someone who makes deals as their profession; avoid giving them a home field advantage.

Assume the worst, hope for the best

Within the developer community in which I work, there is a high degree of camaraderie. Look no further than the open-source movement to understand the degree to which we are happy to richly share our talents and skills without the need for remuneration. This kind, trusting attitude is great in that context but horrible for negotiating. You cannot and should not assume that the opposing side of the deal has any concern for your best interests. In fact, it is likely the opposite. The people you are negotiating against have the goal of getting the best deal for themselves. This isn’t to say that you need to be overly confrontational or aggressive; you should conduct yourself in a manner in which you are proud. It does, however, mean that you should always read every term in a contract with the worst possible outcome in mind. Hopefully it will never come to that, but if you aren’t comfortable with the most aggressive reading of a contractual term then that is an area that needs to change in the contract.

You need a lawyer

I go to a doctor when I’m sick. I go to an architect when I want something built. I go to a lawyer when I want a contract done. I am a strong advocate for only signing documents that I fully understand. You don’t need a lawyer so that you can avoid having to think through and read the deals you are making. The lawyer’s job, however, is to make sure that you are being protected. He has a statutory responsibility to look out for your best interests. He is trained to look for the trapdoors and quicksand that could be lurking in some seemly innocuous line of legalese. A good lawyer’s hourly rate can seem a bit expensive superficially, but when viewed in the context of the value of the contract, it is almost always an absolute steal.

Never negotiate against yourself

As you work through your own desires for the outcome of a deal, it is often easy to start imagining how the opposing side will respond to your request. This can be useful if it helps you think through the details and strengths of your arguments. It is very, very dangerous, however, to start weakening your position in response to their imagined objections. You should only weaken your position within a framework of negotiated compromise. It is their job to come up with objections to your requests, never something you should do yourself.

Don’t rush it

It is a common tactic, especially when dealing with a large company, to try and create a sense of urgency and pressure around getting a deal done. This is a tactic that serves them well. They have a large team of lawyers and since they are typically writing the cheques can make it feel like they are in control. Stop. Take a deep breath. Never enter into a deal with anything but a sense of calm and comfort. You aren’t buying a used car; you are conducting a professional transaction. As soon as you cede control over the pace of negotiations, you give up your position of power. Most often they are coming to you asking for something you have or can provide. Stay in that strong position throughout the negotiation.

Beware of sunk costs

The process of working through a contract can be daunting and arduous. Having a good attorney can help but there will always be lot of time, energy and focus given to creating a new contract. It is vitally important that you avoid the trap of the Sunk Cost Fallacy. This is the natural tendency to make decisions including the value of costs already paid that you cannot get back. The time, energy and focus you have lost in the negotiation are gone; you can never get them back so don’t even think about them. You need to be able to walk away at any point in the process should the deal no longer make sense from that point forward. This is probably the hardest part of working through a negotiation because it spans the gap between reasonable analysis and emotion. The best way I found to help keep you on track is to surround yourself with good advisors who don’t have the same level of emotional investment. They can remain levelheaded throughout the process and help you do the same.

Remember that the impetus for the negotiations is the other party’s interest in your work. Your creativity and skill is the motivator for the negotiations in the first place. You have a responsibility to yourself to ensure those talents are appropriately valued and given the recognition they deserve.

David Smith