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Sunday, January 11, 2009

Negotiate for Time to Market Advantage

Negotiation is about knowing your limits, your opponents limits, and being willing to walk away without a deal. But what if you can't walk away? The two most often cited reasons for not being able to walk away are:

- The opportunity that you are working on is so great and the window so small that you have to have all components in place very quickly or miss it.
- The number of viable options in the marketplace is limited, essentially this is the only option

I have encountered both of these situations with one big project in late 2005. We had a unique opportunity to be a first mover in the marketplace and that the competition would be able to match us within a year of our start. Our initial assessment was to attempt to be up and running in 90 days from approval, a very optimistic goal. The first thing we did was address the market window, only to discover the challenge from our competitors would have been limited initially so we had a much larger window. We also new that given our superior position in the space and the pent up demand opportunity that a scalable organization was more important than rushing into the space. After several adjustments to the plan we knew our first customer should be acquired within ten months. So we set out to find a technology vendor that could deliver a complete solution in 6 months or less. unfortunately there wasn't any vendors in the space that had a viable product. So we set out to find a vendor with a similar product that we could work with to modify to meet the specific opportunity.

We identified a single vendor that had a flexible system and the talent to develop to our needs; given that there was only one vendor in available it appeared on the surface that our negotiation position was limited. However, we used the following techniques for great success:

- Leverage Quarter end and Year end targets to our advantage
- Let the vendor know you are willing to go without them (build internal if they won't play)
- Write a commercial as well as legal contract with tight service levels and compensation when not met
- Agreed to co-develop and co-own the intellectual property for reduced pricing
- Used cooling off periods and a "most favored nation" clause to ensure best pricing

The end result was the vendor believed that we could walk away without completing the deal, raising their fear of not completing the negotiation before year-end and potentially losing the sale. After several rounds and a forced cooling off period from our last negotiation we were able to get a solid contract that ensured we had the best pricing with the "most favored nation" clause. The vendor was able to work closely with our specialists and we delivered a successful business within 10 months and leveraging a window of opportunity well before our competition was able to enter the marketplace.

I would like to hear about other stories of negotiations, if you have some that you would like to share send me your comments.

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