Risk and negotiation

1. The Generator Accelerator
Negotiating & Risk
Taking the lead!

2. Negotiating…

3. What is Negotiating?

4. “Negotiation is a process which takes place
when two or more interdependent parties who
have different needs and goals, work together
to find a mutually acceptable & beneficial
outcome”
‘Often involves both parties making concessions’
What is Negotiating?

5. 3 Areas of Interest in Negotiation
Substance Process
Relationship

6. Traditional Negotiation
Commitment (extreme position)
Final offer
Last Offer
Final last offer
Commitment (extreme position)
Final offer
Last offer
Final last offer
Threat to walk
Threat to walk
Outcome

8. Alternatives to Negotiating?

9.  PERSUASION ( convincing the other party )
 GIVING IN
 COERCION ( threatening )
 PROBLEM SOLVING
 INSTRUCTION ( employer / employee relationship )
 ARBITRATION ( seeking fairest 3rd party ruling )
Alternatives to Negotiating?

11. Why do negotiations fail?

12.  Getting too emotional
 Focus on personalities, not issues
 Not trying to understand the other person (too focused on
our own needs)
 Wanting to win at all costs
 Regard negotiations as confrontational
Why do negotiations fail?

13. A successful negotiator needs to be….

14. A successful negotiator needs to be….
• Professional
• Confident, Relaxed, at ease
• Open, honest, sincere & credible
• Respectful of other peoples values
• Show empathy, and understanding
• Committed to a WIN:WIN result
• Continually enhancing their skills

15. 7 Elements of a Negotiation
• Interests – What do people really want?
• Options – What are the sources to be gained?
• Alternatives (BATNA) – What will I do if we do not agree?
• Legitimacy – Always ask yourself, is that true?
• Relationship – Can I separate people from the problem?
• Communication – Am I listening effectively?
• Commitments – Have we considered the steps to
implementation?

16. Definition Measure of Success Advice
Interests Needs, concerns,
goals
Satisfies parties’
interests
Probe for interests; ask Why/Why
Not?
Alternatives BATNA Better than your BATNA Improve your alternative before
negotiations begin; make their
alternative less appealing
Options All possibilities Expands the pie Separate option generation from
evaluation and commitment
Legitimacy External criteria Established standards Criteria = sword/shield
Communication Exchange of info
and thought
Message sent = message
received
Tone-match to audience; advocate
AND inquire
Relationship Connection
between parties
Relationship improves or
is not harmed
Be constructive; problem vs.
people
Commitment Agreement to
will/will not
Specific, firm,
implementable
Use both process and substance
commitments; not too early
7 Elements of a Negotiation

17. 4 outcomes of negotiation
• Lose-Lose
• Lose-Win
• Win-Lose
• Win-Win

18. A Successful Negotiation
• Meets our Interests well, theirs acceptably, and others tolerably
enough to be durable.
• Is the best of many Options.
• Is better than our BATNA.
• Is Legitimate, supported by objective criteria.
• Improves, or at least does not damage the Relationship.
• Is based on clear Communication.
• Identifies Commitments that are specific, firm, & implementable.

19. The 4 stages of negotiation…

20. 1. Preparation
2. Information Exchange
3. Bargaining
4. Close & Settle
The 4 stages of negotiation…

21. Preparation
 Be briefed on the subject matter of the negotiation
 Be clear about your objectives, what you are trying to achieve:
The LIM Model:
- Like to Achieve (most favoured option, ideal settlement)
- Intend to Achieve (expected result, realistic settlement)
- Must Achieve (fall back position, bottom line)
 Work out your tactics and how best to put your case
 Tryto figure out what the other parties objectives will be
 Gather background information
- personalities involved, power balance, attitudes etc.

22. Preparation
 Negotiators with high aspirations consistently outperform those with low
aspirations
 By adopting a high aspiration base, negotiators create sufficient room to
make and request the necessary concessions
 High aspirations generate positive psychological energy and prevent a
negotiator from being rigid and defensive
 A high aspiration communicates confidence to the other party and
generally prevents irrational negotiation behaviour
 High aspirations require the other negotiating party to expend more
energy in trying to lower these aspirations, thus not focusing on
promoting its own aspiration

23. Preparation questions…
What is the reason?
What are the topics to be discussed?
What is my perception of the issue?
Perception on the other side?
What resources can I draw on?
What do I know about my company?
What do I know about the company negotiator?

24. Preparation questions…
What are our interests?
What are our common interests?
What are the opposing interests?
Why are they talking to me?
Why do they need something from me?
What prevents them doing it another way?
What is my baseline? What is an ideal win?

25. Prepare your baseline
Define your range
Starting position
Target – ideal scenario
Walkaway
BATNA*: your alternatives
*BATNA: Best Alternative To a Negotiated Agreement

26. Information Exchange
 This is the single most important stage of negotiation. Both
parties will be trying to find out and understand the other’s
position and requirements
 Successful negotiators ask twice the number of questions and
spend over twice the amount of time acquiring and clarifying
information than do average negotiators

27. Bargaining
 Reject constructively
Do not cause offence. “I’m afraid we can’t possibly agree to a
reduction in the service charge, but there might be room for
manoeuvre on the wording of clause16”.
Retain a constructive atmosphere
 Note the moving base line:
As each issue is agreed, acknowledge the fact, summarise it,
and move on to the next point after you have noted the issue of
agreement

28. Bargaining
 Be firm on broad issues:
Be flexible on specifics.
 Look for the agreement signals:
Certain words indicate that agreement is very close. -
If….then….
- Let’s put that in round numbers
- Well, that’s hardly worth holding us up..
As soon as a number or term is mentioned by one party, you have begun
to move out of information exchange and into bargaining....

29. Close & Settle
 Your judgement…
Is this the best and final offer? If yes…
 List the agreement in detail
 List the points of explanation, clarification and interpretation
 Record agreed summary with all at the table
 Re-start negotiations if any dispute over agreement

30. Negotiation styles
Hard or Soft types
Interpersonal behaviours

31. HARD…
…or soft

32.  Tends to see negotiators as friends
 Sees agreement as the goals prepared to make concessions to
cultivate the relationship
 Is willing to trust the other side
 Is willing to modify position at an early stage
 Discloses “bottom line” early in discussions
 Avoids contests of will on particular points
 Concedes to pressure
Soft negotiator

33.  Sees negotiators as opponents or adversaries
 Sees victory as the goal
 Demands concessions to establish a relationship
 Tends to mistrust the other side
 Is reluctant to alter position in any way
 Misleads as to “bottom line”
 Expects to win contests of wills
 Applies pressure
Hard negotiator

34. Where do you sit…?
We all have certain tendencies influenced by our
socialisation, our personalities, and above all by our
managerial histories….
Do you rate yourself as ‘hard’; or ‘soft’?
Does your preference work for you?

35. Negotiator behaviours

36.  The Avoider
– Dislikes conflicts
 The Compromiser
– Fair-minded, interested in maintaining relationships
 The Accommodator
– Resolves interpersonal conflicts by resolving the other persons problem
 The Competitor
– Winning is all that matters
 The Problem Solver
– Seeks to find the underlying problem, brainstorms to solve
Negotiator types…

37. Question…

38. You are one of ten people at a
board table, each person sitting
across from one another
Someone comes in the room and
says “I will give $1k to the first
person who can persuade the
person sitting across from them to
come and stand behind his/her
chair.”
How would you negotiate this
situation?
Question…

39.  The Avoider
– I don’t want to play, look foolish
 The Compromiser
– Offers $500 to both and runs to the other side
 The Accommodator
– Runs to the other side, negotiates later
 The Competitor
– Sits tight, demands the other person moves
 The Problem Solver
– Suggests both get behind each others chair, thinks both can make $1k
The results…

40.  Separate personality and issues:
– don’t see the issues as necessarily reflecting in any way on your
personality – hard or soft. An important point should be made with
conviction, and without fear as to the negotiator’s image
 See the other side’s case unemotionally:
– try to be objective about your case, and the case of your opponent. This is
the best way to serve your client.
 Avoid confrontation:
– confrontation is the weak point of hard and soft negotiators alike. The
hard negotiator will find that (s)he is required to lose face to accept a
compromise, or allow negotiations to fail when it is not in client’s best
interests that they should do so. The soft negotiator is more likely to
succumb to pressure from a more aggressive counterpart. Stay calm!
The winning combination…

41. Advice
 Be unconditionally constructive.
 Approach a negotiation with this:
‘I accept you as an equal negotiating partner; I respect
your right to differ; I will be receptive and open-
minded.’

42. Brainstorm 10 key skills that
succesful negotiators need
List your key skills and note
the reason why each of your
10 skills is crucial to you as a
negotiator..
10 mins!
In groups of 3…

43. Key negotiator skills…
Planning
skills
Integrity
Think
under
pressure
Verbal
clarity
Common
sense
Gain
respect
Leadership
Tact
Open Mind Standards
Product
knowledge
Confidence
Persistenc
e
Insight

44. List all your personal
strengths as a negotiator.
List your personal areas for
development.
10 mins!
Individually…

45. Body Language

50. Interpreting Body Language
Faltering eye contactFaltering eye contact
• Boredom, fatigue or lying
Intense eye contactIntense eye contact
• Fear, confrontation, anger or trying to intimidate
RockingRocking
• Fear or nervousness
Still postureStill posture
• Discomfort or nervousness
Prolonged silenceProlonged silence
• Disinterest
FidgetingFidgeting
• Disinterest or nervousness
Touching the faceTouching the face
• Nervousness, lack of confidence or submission
NoddingNodding
• Agreeing, willing to compromise
Shaking head or turning awayShaking head or turning away
• Frustrated, in disbelief or disagrees

52. Interpreting Body Language

53. Some Top Tips….

54. Develop negotiation
consciousness
Successful negotiators are
assertive and challenge
everything. They know that
everything is negotiable.

55. Become a good listener!
Negotiators are detectives.
They ask probing questions
and then remain silent. The
other negotiator will tell you
everything you need to know
– all you have to do is listen.

56. Be Prepared!
Gather as much pertinent
information prior to the
negotiation.
- What are their needs?
- What pressures do they feel?
- What options do they have?
Doing your homework is vital to
successful negotiation.

57. Aim High!
People who aim higher do better.
If you expect more, you’ll get more.
Successful negotiators are optimists.
A proven strategy for achieving higher
results is opening with an extreme
position. Sellers should ask for more
than they expect to receive and buyers
should offer less than they are
prepared to pay.

58. Be Patient!
This is very difficult for
some people.
We want to get it over
with.
Whoever is more flexible
about time has the
advantage. Your patience
can be devastating to the
other negotiator if they
are in a hurry

59. Never negotiate without
options.
If you depend too much
on the positive outcome
of a negotiation, you lose
your ability to say “No”

60. Stay calm,
confident
and curious!
Stay calm at all
times and
remember to
use a positive
tone.
Emotion cause
people to be
subjective and can
cloud a person's
judgment.
Cultivating curiosity
allows you to relax
the situation, focus
on the important
issues.

61. Look the part!
You only get one chance to
make a first impression

62. Risk

63.  In Australia, only 44% of business survive 4+ years
 Poor risk management is attributed to most failures
Some Fun Facts…

64.  Risk is a chance of losses
 Risk is the possibility of unfortunate occurrence
 Unforeseen events, eventualities
 Occurrence of economical loss
 Unpredictability
 The probability of an unwanted or unavoidable event
 Risk may have a positive or negative impact on the business
What is Risk?

65. Question…

66. What types of risks should you
consider within a startup or
commercialisation?
Question…

67.  Strategic
 Technical
 Compliance and/or Regulatory and/or legal
 Operational
 Financial
 Market and/or Competition
 Career and/or People
 Reputational
 Systemic and/or Political
Types of Risk

68. Two Dimensions to Risk…
1. Likelihood of occurrence; and
2. Severity of potential consequences.

69. Risk Management…
…is the art and science of thinking about what could go
wrong, and what should be done to mitigate those risks
in a cost-effective manner.

70.  The formal process of identifying and controlling the risks
facing a business
 The probability of an undesired event causing damage to an
asset
 There are three steps to Risk Management:
1) Risk Identification
2) Risk Assessment
3) Risk Control (and/or mitigation)
What is Risk Management?

72. Once we know the severity and likelihood of a given risk, we can
answer the question:
Does the benefit of mitigating a risk outweigh
the cost of doing so?
A 4 quadrant framework will help us determine level of risk…
The Risk Framework

73. A
• Ignored
B
• Nuisance
C
• Insurable
D
• KILLER!
The Risk Framework
Minor
Consequence
Major
Consequence
Low
Likelihood
High
Likelihood

74. Quadrant A – Ignorable Risks
The Risk Framework
• Risks with relatively minor consequences…
• …with a relatively low likelihood of occurrence…
• …and a minor consequence as a result.
• Not worth spending a huge amount of time worrying about.
Example:
The possibility of getting a flat tyre on your way to a routine meeting.
Assuming you service your car regularly and you drive on maintained roads, a
flat tyre might cause you to be late to a meeting once every 10 years.

75. Quadrant B – Nuisance Risks
The Risk Framework
• Little things that often seem to go wrong, simple solutions
• Impacts are easy to minimize through behaviour change
• Usually solved with common sense approach
Examples:
o The printer runs out of toner while you’re preparing the proposal for the
customer meeting that starts in 30 minutes. Solutions: don’t wait until the last
minute, and always keep extra toner on hand
o Your lead engineer gets the flu three days before the scheduled release date of
your first customer beta. Solutions: create a development process free of
dependencies on any one person, and build in contingencies for the fact that
almost everything seems to take twice as long and cost twice as much as you
originally expect.

76. Quadrant C – Insurable Risks
The Risk Framework
• Risks that could have major consequences but are relatively
unlikely to happen are often insurable.
Examples:
• Property & Casualty Insurance can mitigate losses from fire, theft, and
natural disasters;
• Key Executive Insurance can mitigate losses from the death or incapacitation
of a management team member;
• Liability Insurance can mitigate lawsuits resulting from product defects or on-
site injuries to visitors;
• Errors & Omissions Insurance can mitigate lawsuits from disgruntled
customers; and
• Directors & Officers Insurance can mitigate lawsuits in cases of negligence,
harassment, or discrimination.

77. Quadrant D – Company Killer Risks
The Risk Framework
• Risks with both a relatively high likelihood of occurrence and
major consequences;
• These risks can sink startups and Fortune 500 companies alike;
• The survival of your venture depends on your ability to identify
and mitigate the company killers; and
• Individually, they may seem manageable, but collectively, they
represent a true challenge.

78. 10 company killers…
…and the 90% rule!

79. Company Killers & The 90% Rule
The Risk Framework
1. There’s a 90% chance that you’ve identified a genuine market
need;
2. There’s a 90% chance that your addressable market is as big as
you think it is;
3. There’s a 90% chance that you can actually implement your
innovation;
4. There’s a 90% chance that you can figure out how to sell it for
more than it costs you to make it;
5. There’s a 90% chance that you have assembled the right
management team to do the job;

80. The Risk Framework
6. There’s a 90% chance that you manage to stay one step ahead
of the competition;
7. There’s a 90% chance that you don’t get sued into bankruptcy;
8. There’s a 90% chance that you won’t get buried in regulatory
red tape;
9. There’s a 90% chance that you don’t run out of money; and
10. There’s a 90% chance that nothing else goes wrong.
Company Killers & The 90% Rule

81. Identify and Mitigate…
…the “KILLER” risks!

82. Most startup killers fall into these categories:
Market Risks
Competitive Risks
Technology & Operational Risks
Financial Risks
People Risks
Legal and Regulatory Risks
Systemic Risks
Killer Risks

83. In your project groups, you are to
identify one killer risk from each
category….
As a group we will mitigate the
risk.
Question…

84. Market Risks
Refers to whether or not there is sufficient demand for what you have to
offer at the price you set.
Many inventors have died penniless, clinging to the belief that the market
would beat a path to their door if they designed a better mousetrap.

85. Write down
your ‘killer’
market risk…

86. Competitive Risks
Every venture has more competitors and fewer competitive advantages
than it thinks.
Figure out what you do better than all of your competitors — whether it
be price, features, quality, or some other advantage — and focus on
maintaining your leadership in that category

87. Write down
your ‘killer’
competitive
risk…

88. Technology & Operational Risks
Technology and operational risks broadly cover everything having to do
with execution:
• Can your team finalise the product design on a limited R&D budget?
• Will your product work as intended?
• Can you find reliable vendors?
• Can you manufacture it?
• Can you optimise the logistics of product distribution?
• Can you create an effective product support infrastructure?

89. Write down
your ‘killer’
technology or
operational
risk…

90. Financial Risks
The end of the road for any business is running out of cash
For startups, the biggest financial risk stems from not having a Plan B in
case investors and lenders say no
If you do succeed at raising capital, the next trick is to figure out how to
start generating enough revenues to cover your costs before you run out of
money.

91. Financial Risks
A number of things can affect the cash flows of operating ventures:
• Credit risk - customers can default on your invoices
• Commodity price risk - the cost of your raw materials could increase
• Interest rate risk – could raise the cost of working capital
• Asset price risk - a plunge in the value of stocks or real estate you
pledged as collateral could cause your bank to cut your credit lines
• Exchange rate risk -
• A strengthening dollar can reduce the net profits;
• A weakening dollar can increase costs of your offshore
manufacturing operations

92. Write down
your ‘killer’
financial risk…

93. People Risks
People are, at the same time, the most crucial and least predictable
element of any business
The right combination of experience, contacts, and temperament among
the founding team can vastly increase a venture’s odds of success.
Failure to recruit, motivate, and retain the right partners can spell doom.
Companies fall apart when it develops major rifts: when one faction wants
to move one way, while others seek a different result.

94. Write down
your ‘killer’
people risk…

95. Legal & Regulatory Risks
The list of possible problems with legal or regulatory is almost endless: tax
complications; disputes from poorly structured agreements; lawsuits filed
by a competitor for intellectual property dispute.
Retain the right lawyers, one for corporate matters and another for IP
matters. You must keep your lawyers informed of what’s happening in the
business so that they can address potential problems

96. Write down
your ‘killer’
legal or
regulatory
risk…

97. Systemic Risks
Systemic risks are those that threaten the viability of entire markets, not
just a single firm within a market
Examples: A spike in the cost of fuel is squeezing the entire passenger
airline industry. The availability of low-cost skilled labour in emerging
economies, a suspected case of mad cow disease can affect beef sales for
months or years

98. Write down
your ‘killer’
systemic risk…

99. Pragmatic
Risk Plan

100. Risk Management Plan
A pragmatic risk management plan is straightforward in concept
- 7 headings -
Risk Factor
Risk Type
Likelihood
Consequences
Mitigation Tactics
Mitigation Costs
Status

101.  Risk Factor: List anything you can think of that could cause substantial
harm to your business.
 Type: e.g. market risk, competitive risk, technology & operational risk,
etc. Assigning a type can suggest who might be best qualified to
manage that particular risk
 Likelihood: Think of the relative likelihood of manifesting this
particular risk factor. Simple descriptors like high, medium, and low
should be sufficient.
 Consequences: Describe what would happen to the company if this
risk factor manifests itself.
 Mitigation Tactics: List the things you can do either reduce the
likelihood or minimize the impact of the consequences if this risk
factor manifests itself.
 Mitigation Costs: For each mitigation tactic, think about the
implementation cost.
 Status: Once you have assembled the first six columns, you need to
decide which mitigating tactics, if any, you need to implement.
Risk Management Plan

102. Some Top Tips….

103. Focus on a tough customer
problem rather than a fun
technology.
Investors hate technology solutions
looking for a problem, due to the
high risk of no customers. If the
customer need is obvious and
large, the calculated risk is in the
quality of your solution, your team,
and marketing. These are risks that
can be mitigated with the right
resources

104. Schedule frequent updates to your
solution to maintain growth.
Assuming that you can quickly
recover after competitors kill your
cash cow is not a smart risk. You
need a plan to regularly obsolete
your own offerings, with
continuous innovation, before
customers send you negative
messages. It’s hard to recover from
a tarnished image

105. Plan to deliver a family of
products, rather than a one-
hit wonder.
Even a great initial product,
with no follow-on, won’t
keep you ahead of
competitors very long. A
smarter risk is to build a
plan, with associated greater
resources, that will put you
in position to expand your
product line and keep one
step ahead of competitors.

106. Implement a modern real
business model.
Providing everything free, and
growing users to the max for years
is a high risk approach requiring
deep pockets. Risk is more
manageable with subscriptions
and even freemium pricing. Even
non-profits need revenue to cover
their costs, and continue to
provide services.

107. Find a strategic partner to
accelerate growth.
Everyone wants to forge
ahead all alone, and kill
every competitor in sight.
Almost always, risks are
more predictable when
you use collaboration for
access to new customers,
economies of scale, and
shared resources. Finding
win-win deals is a
manageable risk, versus a
battle with one winner.

108. Use metrics to measure results
of marketing initiatives.
Too many entrepreneurs put all
their resources in one big
make-or-break effort they can’t
measure, or they count on
word-of-mouth and viral
marketing, which are totally
unpredictable. Prepare
marketing plans that come
from both inside and outside
the box, but have milestones
and measurements.”

109. Trying to save money by recruiting family members, or hiring only interns, is a bad risk.
Great team members may take more time to find, and cost you stock options, but a
qualified and highly motivated team that stretches your budget is a good calculated
risk.
Recruit the best team
members and provide
incentives

110. Build your business with minimum outside funding.
More money is not more likely to solve your problems or reduce your risk.
Investors know that startups with too much money fail just as often as those
with not enough. Strategically, you need a plan to survive through organic
growth, with outside funding to effectively accelerate scaling.

111. Don’t rely on conservative forecasts to reduce risk.
Investors don’t fund conservative forecasts, nor wildly optimistic ones, since
both imply a lack of commitment or homework. Opportunity and revenue
projections based on deep market and customer analysis are a smarter risk.
Measurements and business intelligence along the way also mitigate risk.

112. Be a leader rather than
following in the footsteps
of another.
Many entrepreneurs think
they can reduce and predict
risk by emulating previous
winners. But stepping into a
crowded space to steal
customers is more risky
than attracting new
customers looking for a
solution. Customers like
leaders, not followers.