Don't Overstate your Goals

Imagine this scenario: An architect whom I had never met before in my life called me in my office.

“I would like to speak with someone in sales,” he said. “This is Bill Beauchamp with Awesome Design Group in Atlanta.”

“You have him,” I said. “How are you?”

We chitchatted for a few minutes. Then he mentioned the reason for his call.

“Well, I have designed a really nice mansion for a client of mine in Kiawah Island. Your company’s name came up and I would like to set up a meeting,” he said. Three days later I was in an airplane on the way to Atlanta.

I arrived at Awesome Design and lugged my sample case up the stairs to the second floor. The secretary asked me to wait for Bill to come down from his office.

“Hi, you must be Harry,” Bill said. He was a middle-aged man with flowing grey hair wearing khakis and a shirt with a bow tie. I differentiate architects into the technical types with lots of knowledge but also very rigid in their approach, and the artists, who are happy if someone helps them translate their creative designs into a buildable project. Both, by the way, tend to fall within The Scientist personality preferences; one seeking perfection in every detail, and the other pursuing the perfect design independent of practical evaluations. Think of Frank Lloyd Wright’s design of a fountain at the Florida Southern College. It took 50 years to develop the pump technology to make the dome design work, but the concept was artistic perfection.  

Bill clearly seemed more the artist. He invited me into a conference room. Plans of beautiful mansions covered the walls. A side table showcased a wooden model of a house.

“Before you unpack all your stuff, let me show you what I am working on,” Bill said and pointed to the model.

“Wow, this is beautiful,” I admired the work. “How many square feet?”

“Just under twelve thousand,” he replied.

Yes, this was a great project for us, I mused. Bill was enormously proud of his design. Over a cup of coffee, he explained the ideas and concepts of the project to me for over half an hour.

Finally, I broached the subject of cost. A house like this, on the ocean, and in a hurricane-zone would be $12 to $15 million to construct. I had done my share of houses like that. I also knew that in a hurricane zone with a requirement for impact-rated glass, windows and doors would run as high as eight to ten percent of the overall construction cost. I estimated the fenestration for this house to be anywhere from one to one and a half million dollars, depending on materials and features.

“Bill, what have you budgeted for the fenestration?” I asked.

Bill looked at me.

“The client is very cost-conscious,” he began.

Right, I thought. That’s why the client is building a house in one of the most exclusive beach-front communities in the United States.

“I was hoping to get windows and doors for about $400,000,” Bill said.

What would you do in my situation? Negotiate? Not me! I hate to waste time, and in this case, I saw no chance that we would ever come to an agreement. Our numbers were just too far off from one another.

It can happen in any negotiation that goals don’t overlap. I would not ever burn any bridges unnecessarily, but continuing to negotiate in a situation like this would make a conflict even more likely. So, I typically extricate myself diplomatically before frustration, disappointment, anger, and other emotions take over the conversation.

“Thank you so much for your coffee, Bill,” I answered. “I hate to admit it, but we are probably not a good fit for this project. But, please, keep us in mind for any new project that comes up and where the budget is a little healthier. You really do great work and I would love to work with you in the future.” Then I got up, shook hands, and turned to leave.

Now, there are two possibilities for what could happen next: The architect indeed has an extremely low budget and there is no chance that he can allocate over one million dollars to the windows and doors. In that case, our negotiation is over for now. Maybe the budget becomes larger sometime down the road or the potential customer buys a cheaper window from a different vendor. If I am lucky, I will get another chance in the future.

The second possibility is that as I get up and walk towards the door, the architect jumps up.

“Wait!” he says, “don’t leave just yet! Let’s talk about the budget…”

What do you think my windows may now cost? One million dollars or $1.5 million? Once I recognize that the architect really wants to use my windows and doors, maybe because his customer insists, or there is no other manufacturer, he has just surrendered all his bargaining power. He had set his goals too aggressively and now has to change them in the middle of a negotiation. That is never a good idea.

A Good "Fake"

Have you ever been in a situation where you had no leverage, no good negotiation options but desperate to achieve a good result? Can you fake leverage, an alternative supplier? Yes, you can. Just be very, very careful. Faking an alternative is the absolute last resort for a negotiation. It is high risk. If it fails, there can be serious consequences. It also takes a lot of preparation work. So, to be sure, I only use a fake in the most desperate and rare occasions.

I was once successfully ‘faked’. I was a young salesman for a North American automotive battery company, and my biggest customer was a high-end German car manufacturer, an OEM with a production facility in the US. We had succeeded in creating a specification with the OEM’s Engineering Department that made us the only source for batteries in hot climate markets, such as the US, Japan, and South Africa. We had effectively created a monopoly using the “harmonious” relationship between our engineers and the OEM’s (see Figure 1 Communication and Relationships).

Death of a fake alternative: It only works, if Engineering is part of the plan!

Although we did not abuse our position within the OEM’s supply chain, I was aware of the strength of my bargaining position. I had given tiny discounts of 1% and less over the past two years. Now, it was time for another annual price negotiation in Germany. Self-assured and with another 1% discount in my pocket, I made my way across the Atlantic. When I arrived at the Administrative Center of my customer site—that was where the Purchasing Department was collocated with Engineering—I registered at the front desk. Instead of the buyer, whom I expected to greet me, the engineer responsible for batteries came for me. Franz was a familiar face and we had a warm relationship. He asked me to join him briefly in the basement where he had a small test lab. Franz mentioned that he had tested a few batteries and cut them open. He wanted to show me the failure modes.

When we arrived at his lab, Franz walked ahead of me. The lab consisted of two rooms. The first contained large water containers to the left and right of the walkway. These water containers served as temperature simulators in long-term cycling tests. Basically, the batteries sat in the water and the water temperature mimicked cold and hot climates. The test determined how often a car could be started in a specific climate before the battery failed. The second room into which Franz was now leading me was a small shop with a work bench and tools. Here, batteries that had finished the cycle test could be taken apart to analyze failure modes.

As I walked behind Franz, I noticed four batteries in a cycle test that had the words “hot climate” written on their lids. Hot climate? I immediately did a double take. These were not our batteries! Franz had already gone to a workbench in the other room, so I had no choice but to follow. My head was spinning. Had Franz developed an alternative to our hot climate battery? I could certainly find out—if I had time to call my engineers and start some inquiries. But it would not be today. Franz showed me three failure modes with just enough time to spare to rush upstairs and make it on time for the Purchasing Department price negotiations meeting.

My alarm turned into panic when we arrived in the conference room on the fourth floor. Usually, the buyers were tough, no smiles, no platitudes. This time it was the opposite: The two buyers welcomed me with big fanfare, offered coffee, smiled, and made small talk (unheard of among Germans). They sat across from me, smiling confidently. At this point I was sure that they had developed an alternative, although they never mentioned it. They asked for a 5% discount. After a bit of back-and-forth, I gave in at 2.5%. That was the most I had ever allowed, but with this OEM providing sixty percent of my business, I could not take the risk of losing the account. My job depended on this customer.

It was years later, while I pursued other ventures, that I reconnected with Franz by chance. He had come to visit another supplier in a nearby town and decided to contact me. Franz, Bob, our head engineer, and I had spent time fishing on a nearby lake on occasion. Since Franz stayed in a hotel over the weekend, I offered to take him out on the lake. So, Saturday morning, I hooked up my small fishing boat, filled the cooler with some sandwiches and beer, and picked Franz up at his hotel. We had a splendid time, talking about the good old days, common friends, and mutual colleagues. The topic of the price negotiation a few years back came up during the conversation. Franz laughed so hard that tears streamed down his cheeks. “We got you good that time!” he exclaimed. “You should have seen your face!” I had never seen him laugh like that before. I had to join in. “What did you guys do?” I asked.

Still sobbing, Franz told me the story of how, two weeks before my arrival for the negotiation, the buyers had come to him and asked for help. “We have nothing on Harry,” they complained. “Can you help?” Franz came up with an idea. He went to a gas station and bought four batteries, removed the labels, took a sharpie, and wrote “hot climate” on the lids. The buyers were in on the fake, of course. Franz knew that I, the nosy salesman, would surely notice the batteries he had placed conspicuously into the water containers. All three buyers guessed I was scrambling to change my approach based on what I had discovered just before I came into the conference room. And they could hardly keep from laughing. I had been had!

But I am not angry at all. I love good planning and execution. Franz never lied to me, neither did the buyers. The fake included clever time constraints and well-placed assumptions that did not give me time to do more research. A well-deserved win on their part!