Game Theory and Business Partnership Negotiation

Are you trying to negotiate with your business partner? Read about the biggest mistake in negotiation that most people make.

Negotiation with Your Business Partner

If your business partner is not crazy, you should be able to make progress in negotiations if you consider his point of view first. Most negotiations start with people thinking about what they want. It’s a lot more effective to put your thinking into the other side’s desires first.

The point of this post is so important that I am going to keep it short so it stays in focus. If you want to negotiate with a hostile business partner, don’t start with what you want and think he’ll accept. Start by thinking about his side of the negotiation. Do this first before you consider what you want.

It’s Not Altruism; It’s Strategic

Don’t think for a minute I’m pleading for sympathy for your partner. While I always conduct ethical and proper negotiations, I also want my clients to get what they want. The reason we start by looking at the other side’s position is that we want to know where the barriers to a positive outcome exist. That doesn’t mean we can’t work to overcome them, let’s just start by getting a good understanding of them. And that is where nearly all negotiators fail. We aren’t going to think about what your partner wants, but what drives your partner.

The secret to success is in understanding the motivation behind the demand, not the demand itself.

It Is a Game

Negotiation is a game and it’s a serious one. I use Game Theory in my work and have had amazing results. In Game Theory, we start by looking at the positions of all the pieces to the puzzle. Who is involved? What are the issues? What is at our disposal? How much time do we have? Once we understand these subjects and others, we get to the heart of Game Theory.

It’s All About Payoff

What? No, not kickbacks. A Payoff is something the person wants. That’s true. But in Game Theory, we look at that in a deeper sense. A Payoff is a satisfaction of a need or desire. Maybe the person wants $100,000 for their share of the business. Most negotiators will think about the amount and how to negotiate it down. We want to look at the motivation which might be a satisfaction of pride or ego. If we realize that somebody needs to satisfy ego, we can look for other things that meet that need while saving some money on our side.

We need to consider all of the personal aspects of an individual we can. The better we understand what drives the opposition, the better our negotiations will go. In the example above with the demand for $100,000, let’s say we’re dealing with a very status oriented party. We could say something like, “I know someone who has a Mercedes dealership. I am willing to offer you either $60,000 cash or $50,000 and a new Mercedes.” (I have no idea what the car costs. Just stay with the concept)  If a car is $40,000, I’m offering $90,000 but putting a new car in the mix appeals to that status oriented ego. Don’t want the car? Well, then it’s only $60,000. The conversation has shifted a bit. And if I have the car here and put the keys on the table, it gets pretty enticing even though I am saving $10,000.

The things that constitute a payoff are numerous and it’s critical to put a lot of thought into this. Is there a need to be right? To win? To be superior? To appear to be smarter? More successful? We have to consider all of these things first. If we do, we’ll have better outcomes for our negotiations.

Chris Reich, TeachU

“Never prepare for negotiations by thinking about what you want first. Start by thinking about all the possible things that would constitute a payoff to your partner.”