Negotiation
Price Negotiation
Sooner or later you are going to have to have a conversation with somebody that starts with the words, 'Can we have a word about this quote.?' Either it is going to be you saying this to a potential supplier or a client ringing you up to get some money knocked off the bill. Generally there are two incorrect responses to both - namely a) 'Certainly, how much were you thinking?' and b) 'Bugger off'. Neither is especially helpful, as the latter merely invites more swearing and lost business and the former opens the door to any one of several ridiculous suggestions that will cost you money.
At the outset of this section, it is also worth noting that any sort of bartering or haggling implies a certain lack of trust. To move away from this regrettable but wholly understandable state of affairs, it is important to concentrate at the start on making any discussion about money into a sort of partnership where both parties are trying to find a common goal (a mutually beneficial business arrangement mostly). This infers that you are problem-solving together, not having a fight.
If at all possible, it is best to have a negotiation over two or more conversations. Initially all that is required is for you to listen to the second party's point of view. It is vitally important that you then crave some thinking time. Even if it is just five minutes and you call them back, it prevents any quick-fire horse-trading, where you almost inevitably end up meeting in the middle; and, more importantly, it is invaluable as a technique for preventing things getting heated. When people get upset they tend to get dogged and this helps no one.
Some compromise is almost inevitable, unless you are very sure of yourself. Most importantly, if you are to give any ground or they are to do the same, it must be for a clearly defined reason. Put the phone down after politely letting them know that you will be getting back to them shortly. Then marshal your arguments and phone them back. Try and avoid emailing at this stage - there is something about this form of communication that has an uncanny knack of allowing a minor difference of opinion to escalate into a franker exchange of views than is strictly necessary.
Essentially what you are aiming for is consensus on why something should cost what is being charged. If you are negotiating your costs with a client, this should be something you have already thought about in depth. One of the central issues in any pricing policy you set out is justification for your charges based on the accepted market rate. If there isn't a 'going price' then work out the cost to you, plus your time getting an end product or service to them. No one expects someone to lose money but, as a rule of thumb, anything over a 100% margin on your physical costs might be considered excessive. If margins are not relevant to your business or are complex to work out on a job-by-job basis, then work out a rough hourly rate that covers all your costs plus around 20%. By the same token you should expect the same sort of logic from suppliers.
Honesty really is the key word. Honest. People will pick up on a line or a ruse very quickly and whilst they might be polite enough not to say anything it will sour the relationship. You might not mind if this is a supplier (although you should) but you can do a lot of damage in just a few minutes to a client relationship that has taken months to build.
Whilst I'm about it, here are a few techniques from clients who wish to get a better deal that you have to watch out for:
Hilarity
The most obvious ruse and one which wouldn't even fool my four-year-old son. Eyes wide, the negotiator treats anything you say with an incredulous, 'You've got to be kidding!' An extreme form of this is when he or she falls over in mock surprise, clutching at his chest, as if in the throws of a seizure.
Step over the prone body on the way out the door and talk later.
Grim silence
A good one this. The other person simply says nothing, whilst fixing you with a steely gaze they've practised in the bathroom mirror. The hope here is that you'll be embarrassed or intimidated into filling the silence with more concessions. Concentrate on settling your features into a serene expression. I find that mentally humming the theme tune to Neighbours helps. The contented, faraway look in your eye will eventually unnerve the other person and you can then start to get your own back.
An alternative to silence is when the negotiator adopts a stammer, tempting you to finish his sentences for him, usually in his favour. Again, this should be met with a Zen-like calm and a silent insistence that they furnish their own arguments.
Dishonesty
By that I mean the person you are talking to adopts a devious response to any suggestion you make with, 'I thought you said.' and then usually tells you something they'd like you to have said but that has no basis in reality. The idea is to break your flow by putting you firmly on the defensive, and, you never know, you might find yourself admitting to something that never happened. Like silence, the only way out of this is to fight fire with fire. Disagree with a sad shake of the head and adopt a similarly hurt tone at being so misunderstood. Then leave it there. Do not be tempted to try and put words into their mouth, unless you have decided that negotiations are past saving.
Volume or loss leader
The client promises much more work or better rates of pay 'next time'. Use your own judgement here about volumes, but in my experience loss leaders very rarely play out well for the vendor. Once you have agreed on a deal, particularly one that is very favourable to the other party, then they are very unlikely to want to revise it.
Decision maker
Just when you think you've got them beat they turn around and say, 'I agree with what you are saying but my boss will never go for it'. Permit yourself a thin smile and then ask to speak to 'the decision maker'.
Wrong conclusions
Never let someone you don't fully trust sum things up before you have a chance to. This is because they are very likely to say, 'Let me sum up.' and then they proceed to give everything a favourable spin in their direction. If they do get in first, make every effort to give the impression you're just not listening: Open a packet of crisps, yawn halfway through one of their key sentences and turn your head away to stare out of the window at something happening in the middle distance.
When they've quite finished, say nothing for a few moments and then remark (still staring out the window) that you've just seen a cloud that looks like a cat. This is incredibly annoying for the other person. Whilst they are fighting off the urge to stab you in the eyeball with their pen you then regain the advantage, if not the moral high ground, by summing up their summary - being careful to bring the facts back into play.
Establishing a routine
Let's face it, there are plenty of small business out there but the vast majority of us work for other people. It is very likely, then, that you are going to be feeling a couple of country miles shy of your comfort zone at the outset of running your own business. One of the best ways to get over this is to establish a daily routine alongside a firm set of principles, which will be the cornerstone of your company ethic.
First of all, get used to looking at your business with a critical eye and deciding if things are working or not. If all is well, then great, if not, have a back-up plan that is quick and easy to implement.
I'll coin a phrase now and call it the Principle of Prudence. The worst-case scenario, in any business, is that after paying expenses, electricity, the telephone bill, etc., you don't have any money left to pay yourself. A lot of people throw the towel in at this stage and go back to working in a shop/office/etc. However, I found myself in this position before and most of you will too. The main thing is not to panic and imagine that you've failed.
Before starting a business, make sure that you have a source of income that is relatively accessible at short notice to tide you over in the difficult periods. There is no shame in this and it doesn't mean that your business is rubbish. Remind yourself that if you started out with £100K, then you wouldn't need to do this but then you'd have this enormous debt hanging over you too. I used to teach French and English privately. Earning £20 an hour, I only needed to do three to four hours a day to keep body and soul together and still have time to run and grow the business. It is a source of comfort now to know that I can go back to this and earn £20K a year without too much trouble and without giving up on the long-term goal.
Starting things on a tight budget focuses the mind and you become very aware of making lazy decisions. I do believe that big budget start-ups kick-off in a spendthrift manner, which colours the way they operate in the future. With the smallness of the budget you must learn never to solve a problem by chucking money at it. Never take a quote at face value or assume that just because everybody engages a bookkeeper, web designer or has an expensive brochure that there is not another cost-free way. There are literally thousands of ways to cut costs and still get the same service, or achieve what you want. The key is ingenuity. Lazy rich people, when defending themselves, always claim that they need the money to allow them to focus on the job of running the business without bothering about the small stuff. This is poppycock, God is in the details and it's in mastering the small stuff that you learn how to run the big stuff with clarity, innovation and rigour. As the owner, you are never above the details. As soon as you leave this to someone else, costs will spiral; just see if they don't.
By way of example, we never buy advertising on spec. Untried advertising in anything - magazines, the Yellow Pages, internet banners - represents an unacceptable risk in my view. Giving someone £1000 to put an ad in their publication with no guarantees has always struck me as reckless and stupid. We do advertise, it is an important way of getting work; but we insist on getting the first advert for free. If we get some response, then we will spend money because we know that this is a good investment. Magazines, in particular, always have a bit of space free at the end of the month, a quarter page near the back, or maybe a few column centimetres to fill in the classifieds. Persuading them to give you a small bit for free, on the understanding that they will be creating a loyal customer if it works, is relatively easy and no one loses out.
Some cost-cutting, however, is just penny pinching and counterproductive. We never had proper letter heading for the first three years of being in business and in hindsight this was a mistake that probably cost us a lot of clients. Spend money on image. This includes making sure you have enough phone lines so that it doesn't ring engaged.
Keep your personal expenses to a minimum. It's not impossible but it's not a great idea either to start a small business if you've got a £3000 monthly mortgage and four children in private school. Do everything you can to take the pressure off yourself and to keep the business in the black. Take on lodgers if need be. Most people generally cut costs when things have got bad. You have to learn to be more pre-emptive and have costs down long before money becomes a problem.
With regard to flexibility, always have an eye for creating a structure that can grow and diminish at minimal cost to you in a relatively short space of time, should disaster strike. Having freelance staff is one way, or two part-timers instead of one full-time assistant. This means that you can dispense of one part-timer's service in quiet periods and still have someone to help out, assuming there is some work to do.
Unfortunately, you have to learn to be ruthless in this. Keeping part-timers on temporary contracts allows for this and means that you are not letting anyone down by promising a career you have no certainty of offering them.
If you take on office space that becomes too much, then make sure you are able to sub-let at short notice. I know people who do this so successfully their office eventually ends up costing them nothing.
Go for leasing deals - although office machinery, including brand new computers, is so cheap these days as to make them a disposable commodity anyway. But you can lease coffee-making machines, franking machines and even office furniture (and what's more its 100% tax deductible).