Rules for Negotiation: Never Negotiate Against Warren Buffett . . .

“To win a negotiation you have to show you’re willing to walk away. And the best way to show you’re willing to walk away is to walk away.” – Burn Notice

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If bidding starts higher than a bag of Skittles® for this truck, it’s too high.

Last Wednesday I posted about how a really big source of wealth was “The Deal” (LINK).  I listed some good and bad deals, and noted that some deals were big winners for all sides.  But deals don’t come pre-assembled.  They’re made (or not made) on purpose.

And as near as I can figure, the people who get wealthy off of deals look at many more deals than they ever make.  Last time I played poker, I played 30 hands for the evening.  I won two.  I made $30 bucks.  I would have made more, but I kept trying to lose so I didn’t walk out of the house $80 up, which I would have considered rude because it was the first time I played poker there.  (My initial stake was $20.)  Lots of bad deals, two winning deals.

One big lesson leads to the first rule:  it’s easier to win or create great deals when the stakes are so small that you can think calmly and rationally.  Hence:  Warren Buffett can make lots of small (to him) bets that were white-knuckle negotiations on the other side of the table.

Rule 1:  BATNA

The first rule of negotiation is that you don’t have to end up with an agreement – you need to know your BATNA – Best Alternative To a Negotiated Agreement.  In the poker example, I folded and was out a buck or two on each hand I walked away from.  Several times in my life I’ve walked away from job offers because they weren’t right.  And no amount of negotiation could have made them right.

Sometimes, most times, the best deal is no deal.

Warren Buffett generally walks away from most deals.  He could literally do almost any deal he wanted to do, since most companies are smaller than the available cash that his company has on the books.  He reminds me of the story about the guy on the golf course who kept talking about how much money he was worth.  The old Nebraskan golfer couldn’t stand it.

“How much are you worth, son?” asked the Nebraskan.

“Fifteen million dollars.”

The Nebraskan responded . . . “Flip you for it.”

The question you have to ask is . . . what happens if you don’t come to an agreement?

If you’re Buffett, there’s no deal you have to make.  But you’re you – there are consequences from missing deals – sometimes significant.

One particular negotiation that I had to make involved negotiation over some land with a guy worth about $80 million bucks.  If you can help it, NEVER negotiate with someone worth $80 million dollars.  Unless the deal is ludicrously good for them, they have NO reason to even speak with you.  Unless, your kid is in the same calculus class.  So, he talked with me.  And gave offered us his land at 10 times the going rate.

Our alternative as a company?  It was spending several million more than his offer on another patch of land.  We almost the other land, on principle.  The rich guy?  He wouldn’t have cared.  Our deal, worth more than the average family makes in years, literally was a favor because his kid went to school with my kid.

Sometimes your alternative sucks.  But we had one.

Another big mistake is buying into the frame of reference of the other party.  If his opening position is that he’ll trade you a handful of magic beans for your two children, negotiating him down to just one child isn’t awesome negotiation (unless you really want him to take both).  No, the deal is bad and probably isn’t worth negotiation.

Rule 2:  Don’t negotiate against yourself.

I worked with a guy named Moe who was a genius at negotiation.  We would drive around in the company pickup and he would take me, the new kid at work, out to look at jobsites.  Occasionally these trips would involve Moe’s personal shopping, as well.  He was a golfer, and one time we walked into a golf shop and he asked about a specific club.  He then proceeded just to walk around the store, and the clerk would follow him around, constantly lowering the price.  The clerk was negotiating against himself, while Moe looked disinterested.  I tried the same tactic later that week at a furniture store – same result.

Rule 3:  When you get to yes, shut up.

This one is pretty simple.  I’ll just shut up now.

Rule 4:  The deal isn’t done until the deal is done.

When I bought my first car from a dealer, I was surprised that negotiation wasn’t done.  We had just negotiated price.  Then there was financing.  And undercoating.  And floor mats.  And add on maintenance contracts. And about half a dozen other things.  The deal wasn’t done until after another dozen “deals” were done.  They tend to push these deals after hours of negotiation, when you’re tired.

Rule 5:  The more information you have the better you can understand what a good offer is, and whether to accept it.

Whenever you negotiate for a job, the employer has more information – how much they can offer for the job, and what other things they can do to sweeten the deal.  One colleague I know started a job in management at a company after accepting their offer.  Three months later, a new employee of his started.  The new employee had gotten a signing bonus:  my colleague hadn’t.

Oops.

Rule 6:  Know what is important to the other party.

It might be money.  It’s probably money.  But it also might be looking good to their boss.  Understand what they want, and then see how to best give it to them.  It might be something simple like being able to leaver every other Thursday at 3pm.  It might be that they won’t stop until you give them a coat made from bigfoot hair stained red from a pigment derived from Martian sands.  Or even something unreasonable.

Rule 7:  If you live longer than age five . . . you will run into unethical negotiators.

They might lie.  Which looks and sounds a LOT like bluffing.  But it’s not, and you know the difference.

They might threaten.  One salesman always talked about all the people that got fired for buying the competing product from his competitor.  How did that affect me?  It made me want to never buy his product (I’m contrarian that way).

They might try to impact the negotiation by “accidently” letting information slip.  Information carefully prepared to skew your decision or offer.

My best advice?  Be honest.  No one can cheat an honest man.  And always be ready to walk.

There are other deals.

Author: John

Nobel-Prize Winning, MacArthur Genius Grant Near Recipient writing to you regularly about Fitness, Wealth, and Wisdom – How to be happy and how to be healthy. Oh, and rich.