Thursday, August 30, 2018

Open the Black Boxes

I once negotiated for two weeks on the word “capital.” Not because people were being difficult. It’s because we were not explaining ourselves well.

When trying to close a sale, it is important to remain open, flexible, and maybe a little stupid (see, “How Stupid Can You Be?”

The stupid part can be especially useful because it allows you to ask clarifying questions: Why is that important to you? What do you mean when you say that? How does that affect your business? Asking open questions such as those may lead you to what should not be a surprising conclusion: your client doesn’t see the world the way you do.

People are complex animals: highly cognitive, reasoned, self-interested and emotionally contoured. When trying to come to agreement with another, it’s the contours of emotions that usually create the conflicts. We all have been shaped differently, by nature, nurturing or experience, so we all react or perceive what we see in the world differently. Words are black boxes. Sometimes you don’t know what’s inside until you open up a dialogue.

In my case, I was negotiating with a large pharmaceutical client over a termination clause. The client wanted the right to terminate our multi-year services agreement for convenience. I said we would do that, subject to a fee of several million dollars. When the head of procurement asked what the fee covered, I said “our invested capital.” He said no.

We went back and forth, neither one giving in on the issue, until he finally asked me the clarifying question: what buildings do you have that you are investing in?

Buildings? I said, this is not about buildings. It’s about money. The cash we invest in launching this deal and transitioning the services. If you terminate before we recover that investment through our fees, we need to be made whole for that capital.

He smiled and explained he had a different view of what “capital” was. He had been pushing back on this provision for two weeks because he thought our need to recover “capital” was related to infrastructure. Being a pharmaceutical company, he said, we run factories that manufacture drugs and the word “capital” is tied to hard, tangible assets.

Once we understood the source of the miscommunication, we closed the issue. As a result, I now know when there is a challenging issue to resolve, it’s time to open the black boxes.