Soft Power in Negotiations

Creating Power Series Article 2: The Start-Up and the Multinational

4 articles exploring power creation in negotiation. Each uses a CSN client case study to show negotiation power in action.

Introduction

How do you create negotiation power? Especially when the other party has more leverage? In article one we started with Joseph Nye’s definition of power:

1. Hard power: Using superior resources to impose your will. The traditional concept of power: making others do what they otherwise wouldn’t. Change behaviour or face consequences.

2. Soft Power: Using influence and persuasion to change peoples’ preferences, and so change their behaviour. Influencing hearts and minds, to agenda setting

3. Smart power: Power created by most effectively combining hard and soft power.

How can hard, soft and smart definitions of power explain negotiation dynamics and outcomes? Our first case study was a large charity finding, and using, hard power to turn around a deal.

This case has a small start-up negotiating with a multinational. It wants a deal on equal terms, but lacks ‘hard power’ resources to leverage the negotiation. Soft power — influence and persuasion — is its only option to change the negotiation dynamics.

Case Study: Start-Up Creates Soft Power to Negotiate Equal Terms with Multinational

An education technology start-up, 3-months old, received partnership interest from the sector’s global leader. A quick, high-value, deal would accelerate their growth. A slow, low-value one might harm it irrevocably. The multinational’s initial term sheet, with 80 / 20 revenue split, threatened the latter.

Power Analysis

The multinational assumed holding resources meant holding power. Their low margin initial offer expressed this by essentially dictating terms. It wasn’t a partnership, but more of an agency relationship.

The start-up needed to create soft power, change perceptions and build influence, to counterbalance this. They worked with CSN to quickly design a negotiation strategy to create leverage.

Negotiation Strategy I: Reframing Context and Narrative

First step was a meeting to understand the multinational’s interests, motivations, and also their concerns. Concerns are a form of interests, and shared interests are fundamental for an effective negotiation.

In an initial meeting, the start-up ensured the multinational’s motivations and concerns were revealed. The multinational wanted innovation, and to accelerate growth, without altering their management or operations.

So behind this interest was a concern of being left behind. The start-up avoided discussing the term sheet in the first meeting but did in the second. Framing it not around uneven terms, but more reflecting the multinational’s lack of ambition.

The start-up expressed its own future expectation of success, and fear of being held back. Delivered in a polite way, this still turned the narrative on its head. Gone was the picture of a grateful start up, flattered by the interest, but rather one fearing the opportunity cost.

Opportunity cost was precisely what the multinational feared too; losing out and being left behind. The start-up’s narrative had been carefully selected to play into both the multinational’s interests and concerns. What if they missed out, or the start-up went with a competitor?

Negotiation Strategy II: New Vision

This new narrative moved the conversation towards scarcity and, with it, urgency. It was now the start-up setting expectations, and negotiation pace. It opened the floor to articulate their partnership vision, one sellable to the multinational’s board.

Innovation, a proxy for both vision and execution, was at the heart of their vision. The multinational liked it but wanted to know the cost. Just by asking, they had effectively torn up their own term sheet.

Traditional negotiation theory states: ‘don’t make the first offer’. Give that ‘monkey’ to the other side. Get their ballpark numbers, or you might under-price your offer. CSN’s advice was: break that rule here. The start-up controlled the narrative, and the vision, and so could determine the value.

Negotiation Strategy III: Controlling Content & Process

By taking responsibility for the numbers, they could control both content and timing. The multinational’s board had an upcoming meeting. They promised partnership detail for it, including numbers. The numbers were duly delivered — but only revenue –not deal terms.

So, when proposed deal terms came — two weeks later — it was into an approving environment. That deal was a 50:50 split. A world away from the multinational’s original offer, but now not so unreasonable given the new context and content.

The start-up then focused the conversation on negotiation issues ahead, and the need for joint problem-solving culture. In other words, any further power flexing needed to be replaced with partnership behaviour. The timetable, and terms, were non-negotiable.

Result

The 3-page 80:20 split term sheet became a 40-page deal closed in 8 weeks. The 50:50 revenue share brought millions, funding growth without losing equity. It also brough instant market credibility.

Reflection on Soft Power

Smaller parties always have one residing power: the ability to create and sell a vision. Visions are resource-free and move people to commit. They are essentially stories, or narratives. Narratives are soft power in action.

This soft power became negotiation power by changing the narrative: the start-up was shouldering the risk. The path was clear for the start up’s pictures, and process, to lead the negotiation. Size and maturity became irrelevant, and power became equal.

Centre for Strategic Negotiations (CSN) offers a new approach to maximising negotiation value