Entrepreneurship Success: Contract negotiations (II)

Last week, we posited that most entrepreneurs are reasonably clear about the importance of sales in the short-term survival and long-term success of their business. We brought out the need to have a long-term perspective in developing customer relationships as well as some of the ways an entrepreneur can inspire a farsighted, relationship-biased and contract-mindset […]

Last week, we posited that most entrepreneurs are reasonably clear about the importance of sales in the short-term survival and long-term success of their business. We brought out the need to have a long-term perspective in developing customer relationships as well as some of the ways an entrepreneur can inspire a farsighted, relationship-biased and contract-mindset for handling business transactions in themselves and their business. We will conclude this series today by suggesting some of the building blocks of living that purpose.

Think long-term: Each transaction, no matter how transient it might seem, has the possibility of creating or ruining future business opportunities. When customers interact with us, their experience, pleasant or not, has the tendency to last. Therefore, if we appreciate the possible long-term consequences of each interaction, we will be more inclined to doing what is right, thereby giving our customers positive experiences. This, in return, will make it possible for them to either come back or refer others to us. Thinking long-term makes us moderate and sharpen our behaviours.

Be willing to pass a business opportunity: Sometimes, the entrepreneur is called upon by a client to do something that the entrepreneur cannot or should not do. In the former category are the situations in which the entrepreneur does not have the competence or required resources to do what the customer demands.  If you cannot, on technical grounds, do what is demanded of you and cannot work with other entrepreneurs to get the job done as expected, you should back down on the deal. Similarly, if the customer asks or in any way implies that you should do something that is either morally wrong or outrightly illegal, let the deal pass! 

One of the things that entrepreneurs in our environment find very difficult to do is to pass on deals even when there is rationale for doing just that. But the rules of thumb are: If you cannot deliver fully and satisfactorily, let the deal pass; If a client expects you to serve them by getting on the wrong side of the law, let the deal pass! 

If we ever have to fall short, it must not be because we lack the resources or competence or for failure to fully apply ourselves. It should only be because of extraneous issues outside of our control. 

Learn to negotiate: Running a business entail having to often negotiate with others. Whatever may be the subject, the entrepreneur should take negotiations seriously. This means you must be thoughtful to everything you say and commit to. If in the course of some negotiations you are not able to immediately decide on a specific request by your customer, you can always ask to have more time to consider and revert. Just remember that as soon as you commit to do something, it is binding on you to discharge it. If after your agreement, however, legitimate and innocent justifications arise that necessitate a reconsideration of terms, then you can, in the most responsible way, call for a review.  In such situations you must conduct yourself fairly and honourably. 

Understand your business: To make your negotiations successful and minimise the risks for having to call for reviews later, you need to understand your business very well. For instance, what is your cost structure? What are the realistic delivery timelines based on empirical experiences, etc? Understanding your business, industry standards and practices is important in working out profitable deal with your customers. 

Be clear about all terms: The usual terms that get discussed in business deals include pricing, quality standards, measures, packaging, labelling, delivery schedule(s), etc. It is compulsory that an entrepreneur is conversant with the common terms of trade in their business. Where a customer requires certain shifts from the usual terms, you should not shy away from discussing any likely cost implications and, therefore, price changes. 

In our environment, it is common that entrepreneurs often agree to all other terms once the pricing seem potentially profitable, unalive to the reality that the other terms may be unrealistic or can significantly erode their margins. This is foolish and each entrepreneur must extricate themselves from this practice.

Always endeavour to document the details of your agreement. Where it is considered not necessary to document an agreement, the least you should do is to take a personal note. In the heat of daily vagaries, many of us innocently forget some of what might have been agreed to. A personal note can refreshen our memory.

Make everything simple: My first and second degrees are in Nuclear Physics and I learnt something very interesting in the way the physics community of scientists informally ‘assess’ their members. Obviously, every worthy physicist must generally be incisive in their thinking and erudite with their mathematics. However, the best physicists are not considered to be the ones that can introduce or work out complex concepts and mathematics. Rather, the best physicists are those that can simplify the most difficult concepts and mathematics in a way that a non-physicist can easily understand. 

Making difficult things seem elementary is one of the ways otherwise formidable challenges can be made popular, exciting and achievable. In negotiating and managing business transactions, simplifying things makes them unambiguous, allowing you to achieve your goals and strengthen your relationships. 

It is fundamental to the success of our businesses that we approach and handle each current transaction with the understanding that it has a link to the prospects of future opportunities. A way to successfully navigate the approach is to have a long-term perspective of each transaction and handle it appropriately. Next week we will take up two closely linked and crucial business topics; Costing and Pricing.