Danger Will Robinson; Danger!

Lost in Space was a classic television show broadcast on CBS between 1965 and 1968. A young Billy Mumy played the part of Will Robinson who regularly interacted with the Robot. For those of you too young to remember, the plot centered on a modern day Swiss Family Robinson, marooned in space where the goal was to somehow figure out how to return to Earth. I enjoyed watching this show in black and white, and later in color, while Will and his family would constantly encounter misadventures. One of the most epic lines was spoken in a raised voice by the Robot – “Danger Will Robinson; Danger!” whenever Will was about to be eaten by some exotic space creature, or step into an abyss that lay below some cosmic quicksand.

We entrepreneurs need our own version of the Robot to help us avoid many of the missteps that we encounter in our daily lives. One such opportunity for disaster comes when we are in the middle of negotiating. In my world, we’re always buying and selling apartment properties. Let’s use the acquisition of one such property as the example for this blog. The property in question seems to perfectly fit our acquisition strategy. The location is right, the property age falls within the target time frame, the unit mix is perfect and historical data shows a very strong operation for the past several years. But . . . the price is significantly higher than we can pay to generate the return on investment we are seeking.

We negotiate back and forth. Offers and counteroffers ensue, but we just aren’t quite at the price we’re looking for. Here’s where we need the Robot to save us from ourselves. There’s a psychological threshold at which point we are committed to getting the deal done. We’re vulnerable at that point to being taken advantage of. Maybe we start looking at our projections again and tinker with the annual rent increase percentage we initially underwrote. When we do this, the numbers work and we’re able to close the deal. Yet, are the new rent increase projections realistic? Or are we simply looking for a way to rationalize the adjustment? I’ve certainly done it before. My reasoning went like this, “The standard 3% increase on this property is approximately $25 per month. Another .5% pushes the rent up by $29 per month. A renter isn’t going to balk at $29 any more than at $25, so I’m comfortable using an annual rent increase factor of 3.5%.” Now, it’s very possible that this line of reasoning is sound. But it’s important to understand the motivation behind it. Are we modifying our projections just to get the deal done, or are we really being ultra-conservative and there really isn’t going to be a problem with the rent increase tweak?

There’s a fine line to walk between being creative to successfully complete a negotiation, and allowing our emotions to drive the terms and conditions that we are willing to accept. By establishing strategic parameters in advance, we can avoid becoming vulnerable to doing a bad deal. For example, we will only acquire an apartment property that’s of sufficient size that we aren’t compelled to purchase a second or third property in the same market just to gain management efficiencies and economies of scale. It’s also important to remember to separate business negotiations from personal ones. Buying a piece of artwork for a personal residence is an emotional decisions and it is acceptable to allow emotions to enter into the negotiations. Making a business acquisition of some sort should be completely divorced of emotion in all but the rarest instances.

In a business negotiations, understanding where the line is between sound decision making and being vulnerable to manipulation, is critical. Establishing strategic parameters before the negotiations commence and then sticking to them during the negotiating process, will help us avoid crossing this line.

You can also listen to a weekly audio podcast of my blog. What you hear will be different than what you read in this blog. Subscribe on iTunes or wherever you get your podcasts. You can also click on this link – Click here to listen to Audio Episode 18 – Grrr!

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

robot

Lost Art

Harrison Ford starred in the classic movie, Raiders of the Lost Ark. Bill Murray and Scarlett Johansson starred in Lost in Translation. Richard Dreyfuss played the lead in Lost in Yonkers. The television show Lost in Space ran from 1965-68. And entrepreneurs star every day in the Lost Art of Negotiation. Why is negotiation a lost art? I believe that too many of us see negotiating as a competition.

Google gives 90,500,000 results for the word negotiation so there’s no shortage of material about the subject. But I don’t want to focus on negotiating techniques – that’s not the point of this blog. Instead, I’d like to offer some ideas that may be helpful in making the negotiating process more productive.

If we start with the premise in a negotiation that we want to win, then it becomes a competition where someone (not us) is going to lose. From here we harden into our “positions” and the tension begins. There is a better way. First, we need to see a negotiation as an opportunity to solve a problem. It’s actually a dual problem – one for us and one for another party. Trying to solve just our problem may be far more difficult than figuring out how to solve for both parties. What do we do when we solve a problem? We start by clearly defining all elements of the problem. Then we catalog all of the possible solutions. Our innovation and creativity come into play at this point.

In the process of attacking the problem we establish our bedrock principles. For example we may resolve that no matter what, we will always be respectful. Perhaps we commit to avoid getting hung up on personalities. Or we may decide that regardless of how dirty the other party may play, our approach will continually reflect total integrity. Ultimately our analysis leads us to the bottom line for the most critical factors to the outcome we believe will best solve the problem for both parties.

Recently I was coaching a business owner about the potential sale of her company. I asked her what her bottom line number was and she gave me a figure. Then I asked her if negotiations led to a value that was $50,000 less than her bottom line number, would she sell. She replied in the affirmative. So we went back and forth with the $50,000 question until we finally reached an amount that she absolutely positively would not accept. The takeaway for her was that the initial figure she thought was her bottom line number actually wasn’t.

As we engage in a negotiation we listen to and understand what the other party is telling us. This information is then overlaid onto the problem we have identified and our array of solutions is applied. We avoid confrontation by working from a set of facts; seek agreement wherever possible, and constantly narrow the scope of issues.

Being in the commercial real estate business I’ve been in continuous negotiations in one form or another for more than 40 years. You can read all the books you want and watch all the videos in the world on negotiating strategies. And if you pay attention to them you can easily end up getting too cutesy. I have found that a pretty straightforward approach has been extremely successful for me. I don’t try to outthink the other party or construct a series of chess-like moves. Instead, I know what my bottom line is and I know the principles that I want to maintain. If I have to violate my principles to get to my bottom line I’ll withdraw. And I’ve learned that transparency and respect have been more valuable than anything else.

Entering a negotiation as a creative opportunity to solve a problem for both parties puts us on the same path. Bedrock principles and a clear understanding of our bottom line is then the recipe for a positive outcome.

 This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.

negotiations

No and Yes

Question: An attorney friend of mine is working with me on an apartment acquisition and suggested that I write this blog. In particular the negotiations have been interesting and offer some life lessons.

Answer: As part of the due diligence process our team inspected every single unit on the apartment community we are purchasing. We determined that there was considerably more deferred maintenance than had been anticipated. The cost to repair all items identified was far more than we had projected and as a result we found it necessary to go back to the seller and ask for a price adjustment. The seller was initially only willing to reduce the price by approximately one-third of the amount we requested. We subsequently told him that he should move forward with a different buyer. However, the next day his broker contacted us and we ended up finalizing a deal that gave us the price reduction we were seeking.

When negotiating something of significant magnitude it is important to remember a key tenet. Always try to avoid any sort of emotional investment in that which is the focus of your negotiation. This not only applies to a business transaction but also to personal matters such as the purchase of a home, a car or even a piece of artwork. Every one of us feels emotion – that’s a fact of life. Smart business people know that playing to a person’s emotions can convince him or her to say “yes” to whatever transaction is being contemplated. The trick is to learn how not to act on our emotions when that is precisely what others want us to do.

So how can we avoid falling victim to making an emotional decision when it comes to a major purchase? When we do our homework and know the value of what we are about to buy, we are in a much better position to avoid being swept up in the emotion of the moment. Of course we wanted to acquire the apartment property but when we did our homework we realized that the value was diminished by the defects we discovered. And then we were willing to say “no” and walk away unless the price adjustment was granted. I maintained the perspective that there were plenty of other apartment properties we could purchase and we did not have to complete this deal for our acquisition program to succeed.

Remember that there is nothing wrong with emotion. But the real test of strength is being able to control emotion when making important decisions. When this happens you will find that you can easily say “no” just as easily as you can say “yes.”

This blog is being written in tandem with my book, “An Entrepreneur’s Words to Live By,” available on Amazon.com in paperback and Kindle (My Book), as well as being available in all of the other major eBook formats.