Creating Value: Negotiation – Avoiding Needinessby Ben KillerbyShare0TweetprintemailNegotiating with big corporations often starts as a dream and ends as a nightmare.  Almost always, this is because you have demonstrated neediness.

Neediness is most evident when small and mid-sized companies do their own negotiations.  It might be that a start-up needs this Fortune 500 company as a demonstration client or a cornerstone client.  It might be that an expanding company needs capital from a VC, PE company or large investor.  Alternatively, it might be shareholders wanting to divest their company in a business exit.

“Neediness” is wanting or needing the deal to excess and is often linked to a weak or non-existent Best Alternative to a Negotiated Agreement (“BATNA”). 

When professional negotiators detect neediness, they hone in on it and exploit it.  Often, this doesn’t happen in they way you expect it.  At first glance, you would expect a strong negotiator to force down your price and immediately take advantage of your neediness.  Granted, this happens a

lot, but what also happens is the opposite: a big company talks to you as if it accepts your price, your conditions and even the perks you have woven into the deal for your company.  Author Jim Camp is quoted in Harvard Business Essentials “Negotiation” [1] as saying:

“Tough negotiators are experts at recognizing this neediness in their adversaries, and expert in creating it as well. Negotiators with giant corporations, in particular, will heighten the expectations of their supplier adversaries, painting rosy, exaggerated scenarios for mega-orders, joint ventures, global alliances, all for the purposes of building neediness on the part of their adversary. . . . Then, when the neediness is well-established, they lower the boom with changes, exceptions, and . . . demands for concessions.”[2]

I have seen this personally dozens of times – especially when selling land to developers or mining companies. This is where the vendors are drawn into the rosy picture of their land becoming an entire suburb or producing mine, only to find that the purchase contract becomes an option to purchase and the large sums become conditional on zoning approvals, environmental approvals or grants of mining leases.  It also occurs when smaller companies are being played off against each other in supplying big orders for big corporations.  It happens time and time again in business exits where the prospective purchaser seems to have no qualms about the price or terms until due diligence starts to throw up problems that can only be solved by a lower price.

The problem is that the longer and more frequent the contact you have with the other side, the more you are building up an emotional commitment to the outcome.  It is that emotional commitment that makes you hang on to the result that you want (a supply contract, an investment, or a sale of your business) in the face of each movement downward in price by the other side.  Indeed, there is research that shows emotional commitments to the outcome cause up to 33% of negotiators to accept an outcome that is worse than their BATNA.

The text book answer to the neediness issue is to work harder on your BATNA and to let the other side know up front that you are prepared to walk away if your BATNA is not met. [3]  I think it is more complex than this. That’s because I think there are really two types of neediness:

Subjective neediness – where emotions, feelings and often general inexperience is driving your negotiations, and

Objective neediness – where you may be completely unemotional and personally detached from the outcome, but your company needs the deal so badly that it is affecting the outcome.

Yes, the answer in both cases is to focus on your BATNA, but even in the second case of objective neediness, you may even choose to acknowledge that there are no other buyers or investors on the horizon (especially if they already know this) but you are not taking their offer because it simply doesn’t make any profit/won’t discharge your liabilities after the business exit etc.  It is at this point that you seek to create value with trades, or simply walk away as you promised yourself you would when you developed your reservation price and your BATNA.What do You Really “Need“?In negotiation preparation, we always make the distinction between “need” and “want” and, indeed, “nice to have.”Oftentimes a company “needs” a sale of its business by a certain date for a certain amount simply because the investors or bankers are demanding it, or it will run out of cash and become insolvent.  On the face of it, that is a pretty compelling “need.”  We have, however, often been in the situation where the other side has detected this need and driven such a hard bargain that our client could not rationally accept the offer without having disposed of its business and still been facing insolvency because of the liabilities that were not transferred.    In this situation, the client has turned down the offer and explained that the situation, then calmly turned to the investors or lenders and explained the situation to them.  At that point, investors have put more money in and bankers have agreed to “extend and pretend” by not calling in the loans.  Yes, there had to be a plan for the future of the business, but the

point is that when faced with having an investee or client becoming insolvent, investors and bankers will usually try to resolve the situation some other way.How Neediness Manifests Itself in NegotiationsThe most obvious manifestation of neediness is an excessive willingness to please, to tailor the agreement to the wants of the other side and an unnecessary willingness to act at the behest of the other side.  There is, though, a flip side of this.  Neediness can also show up as table thumping, impoliteness or disproportionate anger at comments and suggestions from the other side.  This is because the attachment to the outcome is so strong that any impediment (such as the other side wanting something their way) produces upset and a misplaced sense of urgency.

Both an excessive willingness to please at one end of the spectrum and anger at the other end of the spectrum lead to sub-optimal negotiating outcomes.

ConclusionFor anyone who is even vaguely entrepreneurial, there are always going to be negotiations where they will “bet the farm.”  For many growing companies, there are always defining negotiations with bigger companies that will make or break the business.  To prevent neediness, you should always spend a lot of time on your reservation price and your BATNA, but if you “need” the deal so badly, you should probably send in professional negotiators. 

[1] Luecke, R., Harvard Business School Press “Negotiation” Perseus Books Group.[2] Camp, J., “Start with No” (New York: Crown, 2002), pp.4–6.[3] Luecke, R., op.cit.