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Buying a business for MSPs, Chapter 7, Negotiation and Offer. Part D. Reciprocosity.

Listed among other principles in Dr. Caledini’s excellent book about persuasion, which covers reciprocosity, commitment, consistency, social proof, authority, liking, and scarcity, we find that the reciprocosity can have a powerful effect within negotiations, particularly when used as part of a set. Giving people insights into your personal life, for example, a few issues you’ve had to deal with or mistakes you’ve made, can help show you’re human and engender reciprocosity. Also, food helps. Consider taking your vendor out for a hot meal, or at the very least, a hot drink. Look at the benefits, a lack of distractions, convivial, non-competitive surroundings, feelings of warmth, and experiencing physical warmth can help associate warm feelings towards you, a sense of reciprocosity, and lastly, it will raise their blood sugar levels. Think about what you’re like when your blood sugar levels are low compared to when you’ve just eaten.

Justify with data, charts and graphs. People can often more readily accept and be led by arguments that include scientific looking evidence such as data, statistics, charts, graphs and quotes from respected people. Use verbal cues, body language and all that jazz. As so much information is available about the non-verbal cues we should be able to detect when negotiating, it is a subject you should study in its own right given its importance. Below are a few concepts you should at least be aware of so that you can find out more about them. Where possible, try and mirror and match them in their speech patterns and body language. Unless, of course, negative signals are being sent and it would be inappropriate. Speed. Try and match the speed at which they speak and move. Modality. Remember VACOG. Visual, auditory, kinesthetic, olfactory, and gustatory. This is how they process information and it is evident in their language. Does that feel right? Can you hear what I’m saying? Does that look right to you? Can you smell money here? Try and speak in their modality. Body language. Again, this object is so broad it can’t be covered here, so I’ll suggest you read up on it. Identifying gestures such as nose touching, potentially signifying A fib, to micro signals like pupil dilation, potentially indicating desire, can be a useful way to decipher someone’s state of mind. Basically, try and get people to, quite literally, open up. Uncross arms, use open gestures, use eye contact, lead the way, and don’t appear closed or defensive. You should be able to feel connection when you’re in a rapport with someone.

You can certainly see it. Anchoring, burn, and relative numbers. There are pros and cons when it comes to who makes the first offer. The main advantage is that of setting the expectations. A disadvantage would be over-offering for something when they may have let you have it cheaper. If you think it’s worth paying, say, 100 pounds, then you should mention earlier in the conversation along the lines of, We’d typically pay in the range of 50 to 90 pounds, depending on the circumstances. Setting a range rather than a singular value engenders negotiation rather than a simple yes or no. Setting the range lower than the perceived value sets the pace, and when figures are hinted at early on in discussions, the prices outlined will burn in the vendor’s mind and anchor a useful reference point when making an offer later. How many times have you watched a sales pitch where the vendor states something along the lines of, Normally, this gadget would sell for X amount, but for today only, you can have it for six easy payments of a much lower price.

The point is, without having set up expectations earlier by allowing an exaggerated price to burn for a while, there would be no contrast or perceived value when a different figure is presented later. Without reference points, any figures discussed are absolute and not relative. When you do make a hard offer, try and make it a specific value. It conveys the impression that you’ve done your homework and have arrived at a carefully calculated amount, which gives the offer credibility and solidness.

As an aside, one technique used in property purchasing is round number, round number, specific number. For example, forget the actual values in this example as they’re probably not relevant or appropriate, they’re merely to demonstrate a principle. If the asking price for the property was 500,000, you could initially offer, say, 420,000, which after discussions gets up to 430,000, and after more discussions could then again be up to 439,850 pounds. What does being presented with a specific figure like that convey to you? Remember, in general, if it’s a distressed business, you’re likely to offer deferred payments, i.e. nothing or very little upfront, and only acquire the assets, i.e. not the shares and associated liabilities. Whereas if it’s a profitable business, you’re hopefully still looking to offer deferred payments, ideally linked to the performance of the business, although it’s much more likely you’d be expected to pay a large chunk upfront and acquire the business in its entirety, including shared ownership. Hybrid solutions may be available where a third of the asking price is paid upfront for a good, profitable business.

The third is deferred, i.e. the vendor financed at X percent, and the remaining third is financed by a third party. Whatever you’ve decided, you need to ensure you have enough working capital in the business so that you can trade. It’s no good buying a business for a great price if the vendor takes all your cash and then the business is under-capitalised. By now, you should have enough information and feedback to have either made a soft offer or moved away from the deal. Any soft close offers that you’ve made will be couched in terms such as in principle or subject to due diligence. If the deal was rejected by the vendor, then at the very least, find out why. Go back and renegotiate if necessary, and make sure you learn as much as you can from the experience. If you’ve managed to gain some kind of mutual agreement, then you’re ready to make things more concrete and start investing time and resources in rigorous due diligence. One thing to consider is that everything is still fragile and that the seller will likely be having second thoughts.

Avoid seller’s remorse. The last thing that you want after successfully negotiating a deal is for the seller to feel bad afterwards and change their mind. This might be the case if they feel they should have negotiated better or that your negotiation skills got the better of them. So congratulate them. Let them know you think they got a great deal and that their negotiation skills served them well. Remember, when everything is conducted in a spirit of win-win rather than win-lose, there will be less reason for after negotiation doubt and remorse. Get commitment. Let them know that your due diligence process incurs a cost for you.

Consider getting some kind of loosely written agreement that they agree to, even though it won’t necessarily be legally binding at this stage. Their commitment will be psychological rather than contractual. Please note, when it comes to completing a fully fledged contract, get it drafted by your team. Apart from anything else, such as ensuring there’s no onerous terms for you, this will increase the overall speed of the deal and any default options you want to include will hopefully be met with less resistance. As an aside, if the expression ‘heads of terms’ is ever used, change it to ‘heads of agreement’. It’s far more collaborative. It will loosely outline both the parties’ expectations in terms of finances, timescales and handover. It’s essential this is drafted properly for you by an expert in their field. Once you have made an offer that’s been accepted, then you’ll want to have an agreement from the seller that you can have a period of no less than a month for your due diligence process.

MSP Marketing in bite-sized bits. It’s easier than you think with MKLINK. To get more of MKLINK’s MSP MBA Marketing and IT training resources, make sure that you’ve registered for your account for free now at www..MKLINK.org.