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Learn to Negotiate and Close

This is one post/chapter in a serialized book called Startup 101. For the introduction and table of contents, please click here.

“It ain’t over till the fat lady sings” means that nothing happens until you get the signature on the contract. That is when the money gets wired. Deals often get derailed. They drift, and then nothing happens. Or a competitor comes in and snatches the prize from you. That is why a “closer,” someone who can seal the deal, is so prized.

For enterprise systems, closing is a core competency. For Web ventures, you may need the skill less. But when you do need it (to raise money or win over a big strategic partner), you really need it. And you cannot delegate negotiating and closing. You can get advisors, but as the entrepreneur/CEO, you have to make the big calls. So, in this chapter we aim to distill a few libraries’ worth of books on negotiating and closing into a few points for the busy entrepreneur.

Four Points on Negotiation and Closing

  1. Two ears, one mouth,
  2. Wait until you hear them scream,
  3. Use tension to your advantage,
  4. Imagine the press conference.

Deals are deals. The deal could be securing an enterprise-wide contract for your software, raising a Series A VC round, selling your venture, or doing a big partnership deal. We tend to use the language of “buyer” and “seller” when discussing these four points, but they can apply to any kind of deal.

Two Ears, One Mouth

This is the simplest and most important sales lesson: listen. It also means keep quiet. No golden oratory, no gift of the gab, no persuasive speeches. Just listen to what the customer wants and let them reveal their needs and negotiating position. Then work out how to present what you have to meet those needs. Or decide that they are not the one to focus on and move on to a better a prospect.

Silence is very awkward socially. We are all brought up to fill these awkward moments with some type of conversation. Good negotiators use silence to great advantage.

Let’s say you have just proposed a valuation to your investor. The investor looks at you with a blank stare. Time ticks by and you think the deal has gone south. You start to think, “Oh no, we blew it and started too high.” More time ticks by. You could stammer something about it “all being negotiable, of course” or just keep silent and wait for him to say something. It is, after all, his turn to speak, and he will probably say something.

When someone agrees with you, shut up. When the contract is about to be signed, shut up, or talk about the weather. You can derail a good deal by raising more issues than need to be raised.

It is a simple mantra: you have two ears and only one mouth. Use them accordingly. If in doubt, shut up!

Wait Until You Hear Them Scream

When I managed a six-person sales team selling financial trading systems on Wall Street, there was one guy who was consistently the best performer. He was also, by all other visible metrics, the worst salesperson. His presentations were rambling and verged on incoherent. His writing style would have given my old English teacher apoplexy. He was consistently abrupt, almost rude, to all concerned. He came in late, left early, and took long, expensive lunches.

I was really interested to find out what he was doing right. I do not believe that luck is a consistent reason for success. He must have been doing something really, really well, because everything visible he was doing was being done very badly.

I discovered that the thing he was doing right was qualifying his prospects with great care and discipline. We all know we should do that, but very few salespeople do it well at all. We think sales is all about hard work, persistence, determination, and all those other good Protestant work ethics. So, we drive relentlessly on, calling each prospect for the umpteenth time.

This guy on my team waited until he could see that a customer’s need was real and urgent. He waited till he could hear them scream. He then looked for an indicator that we had an edge in the deal, some unfair advantage.

His laziness was a bit of an act. In reality, he was a tireless networker. That is what all those long, expensive lunches were about. However, he worked to create a sense of equality among, and respect for, his customers. Salespeople are usually all too ready to get on their knees for that all-powerful buyer or investor with the big budget or fund. The buyer won’t respect that salesperson and will ignore five of their calls, assured he will find another seller.

Yes, it is a bit of a power game. The game is easy to play if you work for its most powerful player. But it is hardest to play when times are tough and you are behind in your revenue targets, or when your venture is running out of cash.

One way of checking for urgency is to see how much effort the prospect is putting into your relationship. You have to be able to see some equality of effort. Calling five times before the prospect returns your call is not equality. If you send reams of information and give multiple presentations, but the prospect won’t fill in a detailed requirements questionnaire, that is not equality of effort. With every call, you want the prospect to do something. If this does not happen, then they are not screaming loud enough, and you should move on to your next opportunity.

Make sure you have a live one by waiting for them to scream. Make your prospect do some work before you get too excited.

Using Tension to Your Advantage

If you sell big-ticket deals, you don’t need that many to reach your revenue targets. If you are getting venture capital to power your dreams, you may need to close only one deal for your venture to succeed. But these deals take a long time to close, almost never less than three months and often twelve months or more. By the time you enter the “closing zone,” you and your teammates have expended a lot of time and energy, your company is relying on you to close the deal, and you are starting to think about what you will do once the deal closes.

This is an exhilarating, scary, dangerous time. Exhilarating because you are so close to a big “high five” success. Scary because if you lose now when you can almost taste success, the disappointment will be bitter. Dangerous because a smart buyer could easily exploit your intense desire to close the deal and force major concessions out of you.

Donald Trump (the real-estate developer), in his book “The Art of the Deal,” talks about guiding the other side to the point that they really want the deal and think it is in the bag. Then he backs off and demands major concessions. Smart buyers everywhere have learned some variation of this tactic.

This is when you get a knot in your stomach and may witness table-banging and raised voices. All of this unpleasant stuff is good news. Experienced deal closers recognize these as signs that a deal is closing. The absence of these signs is actually a cause for concern!

One thread running through all good negotiations is some sign of real pain from the buyer that leaves you confident you are not leaving too much money on the table. Of course, the buyer knows you will be looking for this and will send signals that you have reached their limit. The skill comes in differentiating between fake pain, as in “This is well above our budget, and my boss will kill me if I agree,” and the real thing. The buyer will also be looking for the same signs from you.

Losing your temper is usually not good. It implies a lack of control and usually signals fear and weakness rather than strength. However, sometimes it can be very effective. Negotiators use many tactics to simulate table-banging without killing the deal. You can use the old good cop/bad cop routine, or the “My intransigent boss will never agree to this” line, or you could use a stalking horse to lay down a negotiating line.

Your tactic will depend on the specifics of the sale, but the one constant is that when your stomach gets in a knot, you have probably entered the closing zone, and that is good. We were engineered for fight or flight for a reason!

Imagine the Press Conference

Early on in a big complex sale, take time for a bit of day-dreaming. Imagine the press conference in which the CEO or partner of the company you are selling to announces the project to the press.

Perhaps you think day-dreaming is rather self-indulgent. Perhaps this is some variant of the old “think positive” reinforcement.

Actually, this is a very practical, strategic selling tool.

Complex sales are… well, complex. As if you were in the middle of a chess game, your brain can hurt and you may not see the forest for the trees. You are probably juggling internal politics, resource constraints, pressure from partners, competitive moves, and customer politics… and that’s before you’ve had lunch!

You need a way to stay focused on what really matters. You need to know the single over-riding motivation of your decision-maker. This is the story your decision-maker will tell at the press conference when the deal is done. He will say why his great initiative will have a big effect on one of his company’s key strategic objectives and why he was smart enough to select the one vendor that was ideal for the project.

Unless you know this story, you will be shooting in the dark.

To cut your way through the complexity of enterprise sales, you need to simplify. Select the person who is the key decision-maker. Understand what is important to him. Find the one big reason why he wants to do this project. Select the one reason why he will announce that your company is the right vendor.

In long sales cycles, take time to imagine the press conference. Use this to get clarity on the key “ones”: one decision-maker, one business driver, and one vendor selection driver.

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