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The Biggest Mistake You Can Make When Negotiating

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The Leadership Insider network is an online community where the most thoughtful and influential people in business contribute answers to timely questions about careers and leadership. Today’s answer to the question: How can you be a good negotiator? is written Phil Friedman, president and CEO of CGS.

Considering the range of skills and experiences that reflect what Americans seek in a leader – legislative expertise, international diplomacy, military service, to name a few – it’s telling that negotiation skills have thrust to the forefront during the 2016 presidential campaign. Maybe it’s because mastery of negotiation can evade even the most intelligent among us. Whether an investment banker or a construction worker, we all naturally respect those who know how to get what they want.

True enough, there’s both an art and a science to the deal. And while there are those who seem to demonstrate an innate ability to negotiate, usually it’s been forged out of necessity and galvanized by experience. Over the past 33 years as a business owner and CEO, I’ve learned that you can never stop refining your approach. I’ve also learned that every negotiation comes down to four key elements. Most businesspeople know the first three well but will readily discount a fourth – we’ll get to that in a moment. First, let’s sketch out the other dimensions.

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Executives tend to focus most of their energy on terms – how many, how much, when, etc. And true enough, this first area is where you’ll likely spend the most time adjusting – but it isn’t where the heart of the deal is. It may seem obvious, but people can forget that the heart of a deal beats by addressing the mutual need. This second element is a prerequisite, and must never be sacrificed as part of a good deal. While compromise is a key ingredient of negotiation, it’s vital that concessions stay within the terms. It’s imperative that your deal successfully addresses 100% of the mutual need from the start. The third element is risk justification. Consider the potential negatives that can arise from even entering a negotiation, let alone those that come after completing the deal. Before sitting down at the table, executives should understand risk tolerances and address them as directly as possible through the terms.

Finally, there’s the final element of a deal that executives frequently discount. After an analysis entirely based on numbers and facts, too many executives are willing to abandon this signal simply because they may question the efficacy of the data source: gut feel. This is the fourth element – when the science of negotiation gives way to the art of the deal. Bottom line: If it doesn’t feel right, there’s a reason. What your gut is really trying to calculate is the sustainability of the deal. Is this something you can live with? And importantly, is this something the other side of the table can live with? A good negotiation results in a tie – both parties proceeding into an equitable, positive relationship.

To get there, make sure that all parties involved understand every detail and that business leaders drive the conversation. Negotiate directly. While it’s crucial to retain lawyers and accountants, they are there to execute your strategy, not to create it for you. Also, be certain each party involved knows the value proposition of the deal beyond the dollar signs – can the customer or partner get the product or service somewhere else? If so, what’s the advantage of working with you?

I’ve worked through countless deals and closed over 30 successful acquisitions. However, there have been deals where everything seemed to be going smoothly but, in the end, if it didn’t feel right, my gut instinct prompted me to step back. In my book, walking away from an unsustainable deal can be a real win. Through the years, what I’ve found is that mastery of the science of the deal comes from understanding the numbers and the opportunity costs – the kind of things you may well-learn in business school. But mastery of the art of the deal arises from faith in your own sense of sustainability and risk, which, like all leadership, ultimately only comes from hard-earned experience.