What The Nova Scotia Business Journal knows that you don’t

Posted on November 14, 2008 | Filed Under Questions & AnswersValue | Leave a Comment

There was a recent article in the Nova Scotia Business Journal that contained a fundamental principle for successful negotiators.  In the article titled “Five Fatal Business Mistakes”, the author included the following: “The psychology of the customer is vital to marketing and sales success.  …The prescription has three parts: do the research, listen very carefully and, most importantly, act decisively for the long term.”

How simple is that?  Yet in consulting session after consulting session, we see failures to perform on these basic tasks. Let’s take a look at how these simple precepts work, and where the failure to perform occurs.

Do the research. Many sellers provide references and high-level benefit statements, such as these:

These statements focus on the seller’s interests and generic values, but are not compelling.  Contrast those to these:

Moving from value statements about generic interests to value statements about the buyer’s interests takes research.  What issues concern them?  What are their goals and objectives?  Research takes time.  Many sellers fear the passage of time.  So they go with what they have, as unfocused and generic as it is, and hope that the buyer makes the connection on their own.

Sometimes the buyer does exactly that… when they get around to it.  This, of course, works against the fear of lost time that sellers have.  If you want the buyer to act promptly, there is no substitute for understanding their business. That takes research.

Listen very carefully. In a recent negotiations consulting session, I heard a list of client demands. “The client wants simpler contract terms and language.”  Later I heard, “The client wants different terms for the production and non-production systems.”  I stopped for a moment, and asked this: “What am I missing?  These two requests are conflicting.”  No one else had considered it.  I don’t deny that the client had a problem.  I just don’t think we knew what the problem was.

If we run around trying to satisfy every demand without listening, we are going to hit a dead end.  One of the things we see in the negotiation role-plays that we run as part of our training is a negotiation flaw related to listening.  Someone will ask a question of the other side.  For whatever reason - discomfort, time needed to make a thoughtful response, etc. - the other side will be slow in answering.  In many cases, someone else from the original team will jump in with another question or will change the subject.  The chance to learn something new and potentially valuable is lost.  The author of the article gets it right again.  Listen very carefully.

Act decisively for the long term. One of our clients was asked to quote a sale price for products including 4 years of maintenance.  She dutifully went off to get approval to do it, and found out that it was so hard internally to figure out how to do it that they were willing to give the fourth year of maintenance away for free.  This salesperson worked where the business model was to do complete replacements every 3 years, including new product and service.

It is not unlike a car lease for cars where maintenance is included (BMW or Audi, for example, in the US).  If she gave away the fourth year of maintenance, then she would lose the replacement sale 3 years out - the customer’s incentive to act would be significantly reduced if the system is still performing well.  We advised her to wait before giving it away - or to at least ask for a corresponding concession from the client.  She waited, and the client never brought it up again.  Business decisions with significant investments are long term decisions for the buyer.  The seller should remember that their own actions also affect the long term.

Now…does the Nova Scotia Business Journal really know something you don’t?  Or are you just forgetting the basics in a rush to close?  Remember: do the research, listen very carefully and act decisively for the long term.  (td)

Amazon & the Service Level Agreement

Posted on March 6, 2008 | Filed Under Questions & Answers | Leave a Comment

There is a fundamental principle you should remember when negotiating. Ask yourself, “What problem am I trying to solve?” before you settle on terms and/or prices.

Recently, Amazon experienced outages in their Amazon Simple Storage Service (S3), which provides scalable storage and retrieval to Amazon marketplace vendors.  The Service Level Agreement (SLA) says that Amazon “will use commercially reasonable efforts to make Amazon S3 available with a Monthly Uptime Percentage (defined below) of at least 99.9% during any monthly billing cycle (the “Service Commitment”).  In the event Amazon S3 does not meet the Service Commitment, you will be eligible to receive a Service Credit as described below”…  Great.  The SLA was not met this month. Now what? Or in this case, What problem are we trying to solve?

First things first.  If you are negotiating a contract that is important to your business, make sure you have adequate legal advice.  Terms like “commercially reasonable efforts” have specific meaning.  Remedies, cure periods, limits of liability, definition of terms, side letters, the “four corners” and more will impact your legal position if trouble arises.  Make sure your negotiating team includes the right skills, including legal skills.

Now - why have an SLA?  From the seller’s perspective, it can enhance credibility (”Here is proof of how I stand behind my product/service/solution.”), which can raise the odds of signing a deal.  It can also provide a specific statement of liability for failure to meet the SLA.  Affordability is a key part of the statement of liability.  So above, failure to meet the SLA results in an obligation on the part of the provider to supply a credit (essentially, some free service). A buyer may see this obligation as a penalty.  The seller, while acknowledging the “penalty” component of the SLA, also sees it as a limitation of liability.  When things go wrong, this can be important.

From a buyer’s perspective, an SLA provides some assurance that a necessary business condition will be met (as above, “availability of 99.9 %”).  The SLA provides a remedy/penalty if it isn’t.  After all, the buyer has a business to run.

Sounds simple, right?  An agreement on performance and an agreement to a remedy.  A side comment: for those of you who have read some of our other articles, K&R teaches the concept of the Negotiation Success Range™ (NSR™).  However, even a simple SLA like the one at the top of the page involves more than one NSR.  The ranges 99.9% to 99% and size of the credit are two examples.  Each of these terms has a magnitude, interacts with the other terms, and is in fact a negotiated result.  The NSR can help you understand the tradeoffs.  See our NSR articles for some thoughts on the use of that tool.

Back to the “problem”.  The full question is this: What problem are we trying to solve?  It’s a critical question in negotiations.  In the SLA above, if 99.9% availability of the service is important to your business, and you don’t get it, what remedy does a credit provide for you?  The answer comes from answering the question “What problem are we trying to solve?”  If the lack of availability causes you to lose revenue, and your company is publically traded, and the revenue loss will affect the stock price (and your personal options grants), then this remedy is probably the wrong one.  If the lack of availability causes your work to shift from completion on Monday to completion on Tuesday, and you only use the data once a month, the remedy may be perfectly suitable.  The negotiation principle is to understand the problem resolution as an end first, and address the means of resolution second.

Ask yourself, “What problem am I trying to solve?” before you settle on terms and/or prices.  Then make sure the terms and prices reflect a true solution to the problem.  The SLA example above provides a simple lesson in matching your solutions to the problem.  If you do it consistently, you’ll be a better negotiator. (TD)

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