Old Mother Hubbard – An Article on Negotiation

By Prism’s Peter Watson

How often have you ‘played’ Old Mother Hubbard? Who, as the nursery rhyme goes, went to the cupboard to find it bare. In negotiating parlance this is the “I’d love to pay more but we only have £X” ploy.

This can work but the minute you concede, all credibility is lost. It is therefore a somewhat crude approach. Just because you have more money there is no reason why you should part with it – and the art of negotiation is to make the other party believe it.

Negotiation takes place in many aspects of business life, but never is it played for higher stakes than in a purchase or sale of a business.

Just as with buyers, keen to conclude a deal and suddenly finding more in the proverbial ‘cupboard’, the prospect of that golden retirement can encourage owners to make concessions too. Yet each concession actually gives succour to the other side, and instead of satisfying their demands, leads to more. Knowing when to yield and when to resist is critical.

For each owner who has given away value without need, we have sat commiserating with another who hung on for a higher price (thinking there was more to be had) and in fact subsequently realised that an opportunity had been missed. Judgement is the key.

The fascinating thing about negotiation is that each time it is different. That is not to say that you cannot learn from each encounter, but every negotiation depends upon the circumstances, relationship between the parties and upon the people involved.

It is a dance where each misstep can cost dear, and the trouble is what is right with one party might be wrong with another.

There are a number of maxims used in negotiation, such as:

  • Nothing for nothing (don’t concede without getting a concession in return)
  • Negotiation takes place in the other persons head! (It is not what you are thinking that is important, it is what they are thinking – and how can you influence it.)

Good Negotiation requires a very wide range of people skills, where success is more about the control of emotions than an A-B-C approach. What is appropriate behaviour in the circumstances?

Deadlines can be very effective in reaching agreement – and these can be real or artificial. The recent Eurozone crisis is a good example – albeit subsequently compromised by the threat of a Greek referendum. The pressure of getting to some conclusion before the end of the summit brought parties together.

When applied to a sale or purchase, a non-moveable deadline can be a real help. The change to the Capital Gains Tax regime in April 2008 provided a wonderful deadline for many company sales and, as it turned out, was an excellent time to exit. Where no such statutory deadline exists, it is important to establish an alternative.

We all negotiate throughout our business and personal lives, but how good at it are you really, particularly when under pressure?

Whilst all owner managers will be engaged in negotiations throughout their day-to-day business lives, we firmly believe that negotiating the sale or purchase of a business is rarely something to be embarked upon on your own. OK, we would say that wouldn’t we – but just consider the following:

  • Have you done this before?
  • Do you really know what is involved, both in terms of complexity and time commitment?
  • How are you going to fully commit to this whilst you still have a business to run? (Underestimate the amount of activity going on at this point at your peril!).
  • Consider relationships – you may well need to work closely with the other party after completion of the deal and this can be difficult if negotiations were carried out directly. The use of an intermediary like Prism not only brings expertise and other resources, but helps maintain a certain distance.
  • Seldom if ever do we hear someone say “I could have done that on my own” – quite the contrary, in fact.