The Risk of Asking for Too Much at The Start Of A Negotiation

Every negotiation brings a new set of variables. I've written before about the challenge of dealing with someone who wants to negotiate positionally. Positional negotiation is when the negotiator issues demands and positions. Issue negotiation is when the negotiators explain their objectives and collaboratively solve issues.

There are times, however, when you are forced to play the positional negotiation game. Examples might include buying a car, negotiating a salary, or even buying a company. A typical positional negotiation will begin with either a high ask (from a seller) or a low bid (from a buyer), with the expectation that both parties will eventually settle somewhere in the middle.

Anchoring can be helpful in an opening bid. But you need to think carefully about your opening bid. If you overplay your hand--by asking for too much or offering too little --you can blow the deal and even damage a relationship.

Let me explain.

Killing The Deal Right at The Start

Negotiation dynamics can get very heated as both sides try to sway things in their favor. Reasonable negotiations are based on a level of trust and respect. A quick way to kill a deal is to start from an unrealistic position.

This isn't just a math problem. It's all about how you might risk your credibility and perhaps even your relationship with the other party if you offend them with a wildly inappropriate offer.

I've seen this play out during a negotiation over buying a company. For example, let's say I have identified a company I'd like to buy, and I know it's worth $5 million. But when I approach the business owner about selling for that price, he shakes his head and says his company is worth $20 million based on what someone told him at a cocktail party. While there might be a range of outcomes around $5 million, his ask for $20 million isn't close. It's unreasonable.

That puts me in a difficult position. I'm not sure this guy is serious about selling his business. I know what his company is worth. And by asking for such an unrealistic price, I don't have much hope that we can get anywhere in a negotiation.

In this situation, I would likely walk away. Yes, sometimes that can be an effective way to get someone back to the negotiating table. But in this case, I think continuing to talk over such a big gap would waste our time.

If you're not interested in selling, throwing out a ridiculous price can be a way to discourage any more offers. But recognize that there might come a day when you want to sell, and your reputation and lack of credibility might hinder future offers.

Price And Terms

The good news is that there are better ways to handle the start of a negotiation without high- or lowballing yourself out of the game.

One example is to show a range of prices. I've written before about "my price, your terms." The idea is that there can be times when a price is less important than the terms that come along with a sale. You might be willing to take less money, for instance, if you get your money faster and without any contingencies.

That's why I've found it helpful to present a range of prices to help stimulate a deeper conversation and negotiation. If we return to our example of the company I wanted to buy, I might offer a range of $5 million to $10 million to the seller, with different terms attached to the different price points.

The seller might still prefer to take more money, but I could ask for better terms, like paying out over extended terms. Either way, this technique has allowed us to engage in a dialog we might not have had if I had tried to lowball the offer, hoping we'd find our way to the middle.

Bidder Beware

I encourage you to beware of any advice that tells you to bid super-low or ask for super-high prices during a negotiation. Keep your eyes open to the real risks associated with doing this. Not only can you risk deep-sixing the deal right at the start, but you might also cause some self-inflicted damage to your reputation and credibility that could haunt you when negotiating again.

Credit: JIM SCHLECKSER, CEO, INC. CEO PROJECT@THE_CEO_PROJECT

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