← The Game with Alex Hormozi
The Game with Alex Hormozi
The Psychological Power That Wins Every Negotiation Before You Sit Down | Ep 981
00:11:15
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Over my career, acquiring and scaling businesses for acquisition.com I've done a lot of deals. I want to put the five most brutally effective tactics that I know in one video for you. A lot of these things I didn't actually learn from books. I learned them from mentors and actually seeing them do it and learning like in the streets, in the real world, most itty bitty tactics like don't actually drive the needle. But these five actually have gotten deals done and improve my situation or standing in the deal. So let's dive in. There's three contexts that you're going to use each of these skills with. The first is with employees. And this goes both ways. If you're an employee trying to negotiate with an employer, then that applies. The second is going to be vendors. Now this also applies if you're a vendor who's dealing with customers. And then third, you've got what I would consider partners. This is when you do deals, M and A, things like that, investment. So these are kind of the three big vectors that all of this stuff applies to. So if you're like, I'm not sure if this will work for me, you for sure. Even if you don't have a business, you are an employee. And if you are an employee and you don't want to use that, you certainly have vendors that come to your house and do things for you like, this is the fruit of life. You have to negotiate and you get what you negotiate, not what you deserve. That may sound not fair, but it's also the truth. Number one, this is actually from a Harvard Business School thing that I learned from Sharon Sirvata. It's called batna. Now I didn't know the fancy term for it, but it means best alternative to a negotiated agreement. So what does this really mean? Research has shown that having strong batna, basically a strong alternative, gives you significant leverage in negotiations. Negotiations about leverage. London Business School did a study and they found that negotiators who know their alternatives set higher aspirations. So they ask for more, they make more aggressive first offers, and they negotiate ultimately better outcomes. So your batna serves as almost like an anchor, a counter anchor that you have in the back of your mind of what you're negotiating with. It's kind of like a source of power. It's a decision standard that you only accept deals that are better than your best alternative. You can think about this in any setting. So if you're with a girl and you know that you can only date tens, and if a 7 comes along, you're like, well, my alternative is a 10, so I'm only dealing with tens. If someone says, hey, I'll be willing to buy all of your inventory for 10 bucks a piece, and somebody else comes along and says, I'll do it for nine, instead of just saying no, you're like, I'll do it for 10, 50, or I'll do it for 11. You can edge them up, but if you know that it's not going to matter, then it doesn't matter. So I'll tell you something that recently happened. I'm right now negotiating to buy a home. It's something that Layla wants, and it's aggressive. We already have a home that we like a lot. I really like the house we have. My best alternative to buying this house is doing nothing and just enjoying the home that I already have. They're in a terrible position because right now I know that they haven't had anyone else who's bid on the property because it's aggressively priced. I'll put it that way. It's them versus me, and it's who wants it less. The reason bad is so important. You're like, okay, I get that. How do I have a best alternative to negotiate agreement? You win negotiations. And I'm starting with this one because I think it's all five of this or six ones that I'm going to show you are going to be so important. But this one is probably the greatest source of psychological power. And you do this before you sit down to the table. Me going to look at these homes. I know I don't have to buy the homes. When I was selling gym launch and prestige labs, I was like, I can just keep the businesses and they'll just keep making me money. I don't need to sell them. And from negotiating for that position. You only want to sell when you don't want to sell. You want to buy when you don't want to buy because you have something else. If you're looking for jobs as an employee, you want to negotiate when you already have another offer. So if you're going to your existing employer, get another offer and then negotiate with that, you can only do that so many times before you start losing goodwill. So you have to make sure that you're balancing that well. If you're dealing with a vendor, then you're like, okay, I'm going to get multiple bids before I'm going to decide to work with you, because these are what I'm considering. You'll get so educated from actually negotiating. 4, 5, 6, of these vendor agreements that you'll learn other terms that other people include that you can use, which is a later strategy that I'll explain. Getting multiple offers before you sit down increases your bet. So for sure, don't take the first offer, because even if you have first offer within the negotiation with one guy, but then you have that offer compared to all the other offers, you're ultimately going to get to do the work on the vendor side, it's reversed. What's my best alternative? What are my other customers? If I've got 20 other customers, I got people banging on the door. It's a supply demand thing. So I've got more demand for my services than I have supply. And so if you don't want it, don't worry, I've got another customer behind you. And so this is the leverage that we go back and forth in negotiations. And then finally with partnerships, the same idea. How can I get multiple offers from people wanting to buy my business? And at the same degree, for me, if I'm trying to buy a business, then I want to not have to buy the business because I got other businesses I'm looking at. So no matter what, all of this is one, before you sit down to the table right now, if you sit down and you need this deal and you have no other offers, all the little tactics that you can try, sure, you can try to do it. But the thing is that it's just trying to win at poker, only on bluffing. It's a bad position to be in. I would rather have pocket aces. If you have other offers. There's two different ways of thinking about this. So one is you can be overt about it and say, listen, this is the counteroffer. If you could beat the offer, beat it. If you can't, no worries. We don't need to waste time. The other way is that you just have it in the back of your mind and then you just see what you get. Because the thing is, somebody else has given you a $10 offer. If you say, hey, I've got a $10 offer, maybe this person will just beat it by 10, 25. But if you have the confidence that you know you're going to sell the inventory no matter what for a profit, shoot for 11, shoot for 12, shoot for 15, like, you can shoot way higher because you know your plan B is not bad. And so when you show it, they're just gonna basically marginally edge it versus you having the confidence to basically swing big real quick. If you were a business owner and you are not growing as fast as you'd like. I'd like to give you a free gift. So my team and I put together the $100 million scaling roadmap, which is basically 200 hours of US looking over all the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so we broke it in these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, it, human resources, and finance. And so no matter what you're struggling with, someone else has already struggled with it and solved it. And so I'd like to give you this thing absolutely free. You go to acquisition.com roadmap, plug in your business information and if you want us to actually help you deconstrain the business and you're trying to scale, we'd love to help you out on the thank you page. You can just book a call with my team and we will look into business, see if we can help. And if we can, we'll invite you out to Vegas and we'll do this in person live. So that's cool. Hit the link. Otherwise, enjoy the rest of the video. Now, the second is a big one. And a lot of negotiation books and courses and stuff talk about this and people are like, hey, I'm not trying to anchor here. It doesn't matter if you say I'm not trying to anchor here. It's an anchor. An anchor is the first number that is set in a negotiation. If you're like, hey, what do you think you'd be willing to do this for? And someone's like, I was thinking I could maybe do it for $2,000. That's now the anchor. You want to get less than that. And you were like, shoot, I was hoping for 500. Well, something you should have said 500 first because now their 2000s seem ridiculous. There is a strategy called counter anchoring, but it's typically not as effective as anchoring, but it's the only move you have left. Now, the flip side is the reason a lot of people don't want to put the anchor out is because they don't want a short change. If someone was going to say yes to 5,000, you put 2,000 out there. You're like, damn. Because whatever happens is if you a fast yes, you're like, no, I left so much money on the table. So I'll give you a little pro tip that I've learned being on the other side of this. If I have somebody who comes to me and says, hey, I'll do it for $2,000, and I would have paid 5, and I say, yeah, $2,000 works. The next thing I do is I say, hey, and if you were curious of whether I would do it for 2,500, I wouldn't have done it. And the thing is that it puts them at ease that like, you know what? You wouldn't have done more. And what happened is I bought a super expensive penthouse few years ago. And after I bought it, the guy who sold it to me, obviously a wealthy guy too, he said, hey, we accepted your first offer, and you're probably wondering if we would have done it for less. He said, I wouldn't have sold it for a penny less. It felt so classy. Maybe he would have sold it for penny less. I have no idea. But in the moment, actually, like, I was like, okay, it just made me feel a lot better. So if you're in the reverse situation, I would put someone at ease by just saying, hey, I wouldn't have done it for any less. I wouldn't have done it for anymore. Whatever. What's interesting is that Daniel, Nobel prize winner, figured out that people give excessive weight to the init and make insufficient adjustments from that starting point. It's a psychological bias. Basically. It's like you want to anchor as high as possible. That's why I'm a big advocate of getting the gas. You put the big number out there because it completely shifts the whole negotiation numbers to way, way higher. And the things people think in different increments. And that's what we want to change. If you say, I'll do this work for $100,000, whatever, you're in construction. If someone was thinking 10, their increments now become the entirety of what they were willing to pay. They're going to be like, can you do it for 80? All of a sudden we're thinking in $20,000 increments. As a side note, you can also anchor increments. So explain what that means. I'll actually walk you through the house negotiation that I'm actively in right now. The house was listed at 25 million. Then they dropped it to 20 million because the markets changed things like that. Okay, so now they're at 20 million. So I made an offer for 15 million. They countered and said, we'll do it for 16,9. So big move on their part, right? They're moving aggressively. They're trying to sell the house. They moved a lot towards me because they're trying to get a deal done. The natural thing that some people might think is, okay, they're at 17, you're at 15. Counter with 16 here. So what I did is I counted with a 15.25. So they moved 3 million. I moved up 250 grand. Things that there's this idea of, like, movement, of you make an offer, I make an offer. So if I say 15.25, what am I indicating? I'm not willing to move very much. I'm going to out of reciprocity, which we'll cover later. I'm willing to move a little bit. I'm going to make some counteroffer, but I'm not going to give a lot. Then I can stack in other terms that make it more ameliorable. For that, my initial offer, I had two other things. I was like, okay, I can offer cash. My first offer is not going to be cash. I can also say, hey, it has furnishings in the house, which are super expensive. I don't want to have to deal with refurnishing the house. What I did was when I moved up to 15.25, I sweetened the deal by making it all cash. But then I also said, I also want the $4 million of furniture that's in the house, which is technically a worse second offer than my first offer. But the thing is that I moved the number up. And a lot of people are always way too fixated on the price and not enough on terms. One is we anchor with our original price and also in the increments that we move in. This was something that took me actually a while to figure out. And so let me tell you a story about this one. So one of my partners at my gym, way back in the day, I learned this from him. We had to get this big custom front desk built. So it had, like, multiple cutouts. We have multiple salespeople. Big impressive thing. You get a custom built. The guy came out, they built this whole thing. He was like, hey, when we went to do, like, the final inspection, we noticed that they had kind of nicked a corner of it just from moving it around or whatever happened, right? It was a small nick, but it was noticeable. My partner goes to the guy and he says, hey, how much would it cost you to replace this? And the guy, of course, because he doesn't want to rebuild the whole thing, he's oh, my God, it would be a huge deal for us to have to, like, just this little thing. We have to go back to this job. We have to do those stuff. It would probably cost us $1,500 just to replace that. And he says, that sounds like a pretty good place to start it for a discount. Nasty. I was like, oh, I'm going to use that. If there's ever someone who messes something up, instead of saying, hey, what, can you knock off the price? Ask them what the big inconvenience would be for them, ascribe a price to it, and then they have a hard time backing down from that because they just said that's how much it would cost them to fix it. Then you should probably discount us by that much because that was the size of the mess up. So you get them bidding for themselves and then you flip it.