Creative Deal Structuring: Negotiating Conditions

Creative deal structuring can transform an unappealing offer into one you’re happy to accept. Here’s how to negotiate deal conditions that will help get you more of what you want.

By — on / Leadership Skills

deal structuring

Being pressured to do something we don’t want to do is an unfortunate fact of life. Former Congressman Paul Ryan found himself in such a situation in 2015, when his fellow Republican Party members urged him to run for the position of Speaker of the House of Representatives.

We tend to respond to such pressure either with a flat-out refusal that bruises the relationship or a grudging yes that can leave us feeling unappreciated and angry. Often, creative deal structuring can be a better choice. Specifically, by stipulating conditions to negotiating or reaching a deal, as Ryan did, you can make an offer more palatable both to yourself and the other party.

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Ryan’s Creative Deal Structuring

Following John Boehner’s announcement that he would retire from the Speaker post by the end of October 2015, Ryan was widely perceived as the only Republican capable of garnering enough votes to unite the party’s fractious caucus.

But Ryan repeatedly said he didn’t want the job. The often-thankless position, he knew, would be made more onerous by tough fiscal deadlines and election-year politics. Yet Ryan’s fellow Republicans courted him relentlessly, appealing to his sense of duty. In his absence, they feared, unelectable candidates would vie for the position and make a spectacle of the party’s turmoil.

Ryan’s resolve began to waver. But rather than caving, he met with other Republican House members to lay out three clear deal conditions that would have to be met for him to agree to run for Speaker:

  1. The three major Republican House factions—including the Freedom Caucus, which was tepid about Ryan’s candidacy—would have to unite behind him.
  2. To avoid power struggles and threats, Ryan asked for support to overturn a rule allowing a simple majority of the House to remove a sitting Speaker.
  3. Ryan insisted on delegating travel and fundraising duties to leave his weekends free for his family. In return, he said, he would spend more time communicating the party’s message.

Republicans readily agreed to meet Ryan’s conditions, and on October 28, he was elected Speaker. “The whole conference is more united,” said House Majority Leader Kevin McCarthy, according to the Washington Post. “And when we’re united, we can accomplish big things.”

Using Deal Structuring to Change the Game

Ryan used conditions, an often-overlooked deal-structuring technique, to help make the speakership appealing. A condition is an “if” statement—“If you rally behind me, I’ll run for Speaker,” or “I’ll work through the weekend if you can give me two paid days off next month”—that qualifies your entry into a negotiation or acceptance of a deal. Conditions are particularly useful in improving the appeal of another party’s onerous request or demand.

Harvard Business School and Harvard Law School professor Guhan Subramanian has identified four types of conditions that can serve us well in business negotiations and beyond:

  1. Conditions to entering talks. Because your participation in a negotiation often has value, you can use that value to gain leverage by proposing conditions to entry. Imagine a customer invites you to participate in an auction for a coveted contract. You might agree only under certain conditions, such as a limited number of bidders and the ability to negotiate with top bidders.
  2. Conditions to the deal. During negotiations, you can use conditions to improve the quality of the deal and stand firm when you’re being asked for too much. Ryan made the support of the main Republican factions a condition for running for Speaker.
  3. Conditions built into the deal. A condition built into the deal guarantees agreement whether or not it’s filled, explains Subramanian. For example, Ryan’s condition that he be granted weekends off was built into his deal.
  4. Conditions to closing. When a delay exists between agreement and the deal closing, you might use conditions to reduce your exposure to risk. For example, home buyers often condition their purchase on a satisfactory inspection or financing.

Issuing Conditions Successfully

When stipulating a deal condition, you need to be prepared for the possibility that your counterpart will reject it. In Ryan’s case, he was aware that his party had a poor BATNA, or best alternative to a negotiated agreement: It had no other strong candidates. Ryan, meanwhile, had an excellent BATNA: He actually preferred not to be Speaker. This power difference meant that Ryan had little to lose; he could issue creative conditions and insist they be met. You should strive to craft conditions that make the deal on the table more appealing than your BATNA. If you can’t, then saying no may be wise.

Conditions are generally an excellent deal-structuring maneuver when you are negotiating from a position of strength. By contrast, when you have less power or when power is more evenly balanced, demanding firm conditions can be riskier. If the other side refuses to meet your conditions, you could end up disappointed.

The lessons are clear. First, demand only those conditions that are truly deal-breakers for you. Second, try to craft conditions in ways that provide benefits or concessions to your counterpart. For example, Ryan’s insistence on party unity offered clear benefits to House Republicans. Your efforts to help your counterparts get what they want will contribute to stronger relationships and more lasting deals.

What other deal-structuring advice would you offer business negotiators?

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