Adapted from “Leverage Time to Your Advantage,” by Deepak Malhotra (professor, Harvard Business School), first published in the Negotiation newsletter.
Businesspeople often make the mistake of beginning negotiations only after an offer is on the table or after an old contract has expired. Why is this a problem? When money is at stake, it can be difficult to build trust or share information. You and your counterpart likely will be much more forthcoming about your interests and concerns before you enter buying-and-selling mode.
Consider the case of a Harvard Business School executive-education student who ran a company in a segment of the machine tool industry where auctions were the primary means of deal making. The auctions followed a familiar script. A potential customer would announce a request for proposals. While attempting to build a competitive offer, the executive’s sales team would try to discover if the customer was primarily price focused (i.e., the lowest bid was destined to win) or if highlighting other sources of value could generate a higher margin. Meanwhile, the customer’s purchasing agent would send the same message: “If you want to win, I recommend you bid as low as possible.”
Tired of the guessing game, the executive began approaching companies that might one day become potential customers. In the process of relationship building, he tried to learn as much as he could about his contacts’ needs and interests. On occasion, he’d offer advice—no strings attached—on ways they might save money or improve their business.
The results? First, even if his contacts never became customers, the executive became skilled at distinguishing cost-sensitive firms from those that were willing to pay a premium for a high-value proposal. Second, many of the contacts did eventually request proposals—and the exec’s sales team had an edge in crafting proposals to best meet their needs. Third, some of these new customers eventually bypassed the auction process entirely: the moment they needed a vendor, they already had one in mind!