Failing to Set Targets with High Aspirations
By Joe Hernandez, CEO Lionshare Negotiations
Research shows that negotiators that set targets with high aspirations have better outcomes. However, many negotiators don’t set their targets high enough. In fact, many don’t set targets at all. Fear is the reason.
Overcome the Fear
We are afraid that if we set targets too high, the other side will be offended and walk away from the deal. At Lionshare we have found this fear is unfounded. It turns out that the other side is expecting you to set targets with high aspirations, so don’t disappoint them!
If fear is the reason that most negotiators don’t set targets with high aspirations, then who are the best negotiators in the world? Kids, of course. Kids have no fear when asking for what they want. That’s because they have nothing to lose. They also know something that we as adults have forgotten. Kids know “If you don’t ask for what you want, you won’t get it!” As a result they ask for what they want without reservation.
But when we get older, not only do we gain in years, but we gain more responsibility. We now have bills to pay, and we have performance requirements at work. When we have a deal in front of us that can help us pay the bills and succeed at work, we get nervous. We need to get this deal. As a result, we lower our targets so we can get the deal done.
Setting low or non-specific goals is what Professor Shell of Wharton calls a “wimp-win”approach. This maximizes the likelihood of getting the deal done, but at what cost? Usually, the cost is lost margin, smaller deal sizes concessions on other deal elements with long term implications and bad deal outcomes.
Stay Away from Your Walkaway
Most negotiators are good at establishing their walk away position, but don’t really take the time to set a target that establishes an end game where they are well above their walk away position. Seems to make common sense to set a target in this way, but most don’t go beyond identifying their walk away position.
The problem lies in a negotiator defining their walk away position and that is the only position they have in their head going into the negotiation. If your walk away is the only number you have in your head during your negotiation, then where do you think you will end up? You will likely end up near your walk away!
Let’s say you are selling a software solution to a potential client. You have determined that your minimum acceptable price is $75,000 which allows you to make the lowest margin acceptable to your company at 15%. Most negotiators would go into the negotiation with $75,000 in their head. They would be telling themselves that if they got anything north of the $75,000, they have made a good deal.
During the negotiation several concessions were made to ensure the deal gets done that put the outcome at around $76,000 and this feels like success. But they actually ended up very close to their bottom line and leaving significant margin opportunity on the table.
Here is How You Fix This Problem
The next time you are working on a deal, take the time to set a target. Beyond that, set your target with higher aspirations. How? Start thinking like a kid! Kids ask for things they really want, not just what they need. I would ask you to do the same thing. Ask yourself, what is it you really want from the other side? What is it that you don’t have from the other side that would be a game changer? What is it that you could ask for that would benefit both parties financially?
We have found that when working with negotiators to set targets, this kid like thinking creates some of the best deal outcomes imaginable. That’s because the ideas that come up are fearless, innovative, have gain for both sides, and are requests that no one else would even dare bring to the negotiating table. That’s that kind of deals that everyone wants to do.
Setting a target for your negotiation is not a “finger in the air” exercise. Your target cannot be arbitrary. There are two rules that you should follow in establishing your target position.
Rule 1: Make sure you run financials to determine a great financial outcome. Don’t set your target as a good or ok financial outcome. Make sure it’s a great outcome.
Rule 2: Make sure you shoot for the lion’s share of the table stakes. Don’t split the difference!
But you do want to leave some of the table stakes for the other party…intentionally! Why? We have found that the other side will not be satisfied with the deal unless they have been able to extract value from you during the negotiation. So, plan on giving them some value as part of your strategy.
We need the other side to feel satisfaction with the outcome because we want them to deliver on their part of the agreement. More important, it lines us up for doing business with them again and again. Negotiators that know this create business deals that enable incredible growth for their companies.
Once you have determined your target, then everything you do planning for and executing on your negotiation is about hitting that target. Here’s the thing…executives that set targets for their organizations, come close to their targets…athletes that set targets for their performance, come close to their targets…and negotiators that set targets for their deals, come close to their targets!
Real Life Example
In his book, No Limits, Michael Phelps tells an amazing story about how setting high aspiration targets made all the difference in him becoming an Olympic gold medalist. He described the target setting ritual that he and his coach, Bob Bowman, conducted before every swim season.
On one occasion, Bob asked Michael to go to lunch at his favorite restaurant. At that lunch meeting, Bob asked Michael what time he wanted to hit in the 200M fly. Michael replied with 2:04.68. Then he was asked what time he wanted to hit in the 400 Individual Medley. He replied with 4:31.68. Then, unbelievably, Michael hit both those times to the fraction of a second that season.
This gave coach Bowman an idea. As Michael was preparing for the 2000 Olympic Trials, he told Michael that he could swim the 200M fly in less than 2 minutes. This would break the record in his category. And, as coach Bowman expected, Michael went 1:59.02 at the trials. That’s over 4 seconds faster than he had ever gone before which in the world of swimming is a mind blowing achievement. This happened for one big reason…Michael’s target was set with high aspirations…and he hit his target. Negotiators take note.
The same thing happens consistently for negotiators that set targets with high aspirations!
Focus on the Target
It turns out, that negotiators who establish targets actually work harder to get their desired outcome versus those negotiators that do not set specific targets. They become more patient with the negotiation process. They are willing to take the necessary steps to ensure they end up close to their targets. Patient and goal focused negotiators end up with better outcomes.
Specificity is critical to establishing a meaningful target. Further, they should be financially driven. This means you should identify all the important deal elements of the deal, put a financial value on each of them, account for timing of revenue versus cost, and consider opportunity costs if applicable. Know where you want to be on each deal element and manage your concessions accordingly.
For example, if you are selling software and are negotiating the terms of that deal, make sure you know your target price as it relates to the target length of term of the agreement, target payment terms, and target delivery timeframes. The goal is to hit target on all the deal elements, but if you have to give on one, you can adjust the others to help offset the loss.
Remember, when setting your target, don’t let fear get in the way of establishing a target with higher aspirations. Don’t be so quick to take the “wimp-win” approach as you will end up killing your deal before you even start the negotiation process. Be specific on your target right down to each deal element.
Follow the two rules for setting targets which are to target a great financial outcome and get the lion’s share of the table stakes.
Finally, think like a kid to determine what it is that you really want from the other party. Don’t just ask for what you need. Of course you want that covered, but add on top of that what you really want. And ask for it! Because if you don’t ask, you won’t get! It is in this fearless mode of thought that amazing opportunities present themselves that can differentiate you from everyone else out there and allow you to make deals you didn’t think were possible.