Franchisees Must Learn to Become Effective Negotiators

To be successful in franchising or any kind of business, you must be an effective negotiator. One reason for this is that if you negotiate well -- that is, you and your negotiating partner both come out with a good deal -- you will sell more, spend less, and potentially have higher profits to sustain your business long enough so that it can reach adulthood. Many people start businesses and are much too quick to accept cost burdens that can have far-reaching impacts:

• If you negotiate to purchase an existing business and you overpay, you could be saddled for years to come with higher loan payments.
• If you borrow money to fund your startup and you don't negotiate the interest rate but just accept it as if the bank is a deity of some kind, you will pay thousands of dollars more over the life of the loan. Before you sign any loan agreement, play around with the loan calculators at BankRate.com. For example, let's say you borrow $100,000 and the bank offers 7 percent for fifteen years. You will pay $61,789 in interest. What if you could shave one-half percent off that rate? You would then pay $56,799. Is five grand worth negotiating for? For a business that makes a 20 percent pre-tax profit, $5,000 is the equivalent of $25,000 in sales. If you don't think that's important, you will not be a successful franchisee.
• If you sign a retail lease and could have done just a few hundred dollars a month better by negotiating more, the affect of that burden will haunt you for five to ten years.
• If you don't absolutely hammer the car dealer who sells you the vehicle you will use for business, you are a sucker. This is the one place where you can and should arm-wrestle the dealership almost to the point of them throwing you out. If the dealer is smiling at the end, you did a bad job.

How to Improve Your Negotiating Skills

The best negotiator I know is my friend Oakley Gentry, who was one of the biggest retail boat dealers on Long Island for more than 20 years before he sold his business.

There are a number of tricks to become a better negotiator quickly. Here's what Oak recommends you do. His advice is centered on the importance of talking less, listening more, and letting silence happen. His advice can be adapted to almost any negotiating situation:

1. Interview the prospective client. Always be kind and nurturing. Ask for permission to ask a few questions. Listen.

2. Qualify the buyer. Make sure the decision maker is in a position to commit.

3. Find the pain. People buy to satisfy a need. Ask, "When you say X, what do you mean?" Ask them to explain their pain.

4. Talk about budget. Figure out how much they are willing to spend.

5. Fix the pain. Ask the buyer, "What would you like to do now?" It's decision time. Be silent. Let the buyer commit.

6. Negotiation. Ask the buyer, "When you say the price is too high, what do you mean?" Be silent.

7. Work it out. Close the deal.

8. Post close. Ask the buyer, "Are you okay with the transaction?" Surface any lingering issues and address them so the deal doesn't become undone.

Believe me, if you can become as good a negotiator as Oak, your business worries will be over. To Oak's expert advice and eight-step process, I add three more steps.

9. Slow Down. Good negotiating requires patience. Oak has an uncanny knack for being able to remain silent when most people get verbal diarrhea when they negotiate. Focus on saying less and doing less. Also, slow down all the random saying and doing. When I first started in my coffee and smoothie catering business, I'd get a call from a party planner or caterer that would go something like this:

ME: [Cheerfully, hey the phone's ringing!] Hello, this is Mitch!

HER: [Sounding in a hurry] Hi, I'm calling for a price for a party we're having next month. We're interested in an espresso bar. I see from your Web site that you do that. Are you available May 23, and how much does it cost?

ME: Thanks for calling, I'd be happy to help you. Our prices start at … uh … five hundred dollars for two hours of service.

HER: Wow, that's really expensive. We're only having fifty guests. Can you do it for less?

ME: Uh … sure, how much is your budget?

Duh! How dumb I used to be. I was so thrilled to get the call; I didn't follow a system that kept me in total control of the negotiation. I often forgot to ask who was calling, to get background information on the caterer or the event, and to qualify the prospect to see what was most important to them in making this purchase decision. I just wanted to get a yes and put an end to my anxiety.

I surprised myself with my incompetence, because in my former executive career, I was very adept at sales. But in previous times, I was not working for myself. I was working for a corporation. Yes, I was compensated based on sales results, but it is still not the same as when the whole enchilada is yours. It takes a re-learning to get your bearings on the sales process once you are doing it for you and not "The Man."

In my new business, out of necessity, I developed simple tools to help me slow down the sales process: a Qualification Form that has to be completed before I will discuss details of our pricing, for example. If people say, "I just want a quick quote," I am very comfortable letting them know I can't give it to them until I have all the information I need.

I also stopped quoting prices on the phone. I will only quote prices in an e-mailed document, so I have a record of what I told the person. My process frustrates some people, but it only slows things down for a few minutes. As soon as I'm off the phone, I organize my thoughts and e-mail them the information they need.

If they can't live with my process, I have to tell them respectfully that I may not be the best person for the job. I've only had to do that a few times, and you know what? It feels good to tell someone who doesn't do it my way to get lost! (Politely, of course.)

10. Call a Time-Out. In a seminar on negotiating that I took from a superb marketing consultant, Rennie Crabtree of Marketing Outcomes, I learned the technique of leaving the scene of the negotiation when necessary.

You can call a time-out for yourself. You can postpone. You can get up, leave, and come back in fifteen minutes or another day. There is no pressure except what you create.

So the next time you find yourself in an uncomfortable negotiating spot, consider removing yourself from the situation. Going back to your neutral corner to consider your next set of moves is nothing to be ashamed of; in fact, it is a remarkably effective tactic for winning concessions.

11. Stop Negotiating with Yourself. How many times have you been in a negotiation during which you or the other party starts making concessions before they are demanded? I used to do this myself.

In my franchise business, we would often provide our product for an event and offer a percentage of sales to the event producer in lieu of paying a fee. If I thought that the going rate was 40 percent for a place like Shea Stadium (former home of the New York Mets baseball team), I offered 40 percent. I anchored myself into a high-cost predicament because I made the assumption that to offer less would have been an insult to ARAMARK, the food service company in charge of concessions at the ballpark. Why was I concerned about not insulting ARAMARK? Believe me, they insulted us plenty once we were in the stadium! And we didn't stay long because the percentage was so high it didn't enable us to make a reasonable profit.

Had I started at 20 percent, I might have done better than I did. So no matter what negotiation you are in, don't worry about insulting the other party with a low offer -- as long as you can justify why it's a fair offer. If the negotiation can't end in a fair solution where everyone gets something valuable, you should walk away.

It takes practice to make good deals. Some people (like Oak) are natural-born negotiators. I am not one of them. I've learned it the hard way. I hope you can learn it too, the easier way.