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‘After you’, ‘No, I insist, after you!’

Why we need to be less British when it comes to negotiation.

Mattie Ross in the Coen Brothers’ film, True Grit. A masterclass in a negotiation when the odds are stacked against you.

In business, like they say, you don’t get what you deserve, you get what you negotiate. — Jay Z, Decoded

There is a perceived British tendency to politely sit back and let others come to you with their best offer when it comes to negotiation. While this can sometimes be a useful approach, often, it pays to set the pace and put your best foot forward.

We all like to think we are highly rational and objective. But in reality, our viewpoint and behaviour can be affected by seemingly unconnected factors or information. Daniel Kahneman’s bestselling book Thinking Fast and Slow explores some of these ideas brilliantly. In one example, he describes an experiment carried out with his long-time collaborator Amos Tversky.

It combined a roulette wheel with a tricky question. Each participant rolled a ball on to a roulette wheel, that, unknown to them, was rigged so that the ball would only land on the number 10 or 65. They were then asked to respond to a completely unrelated question: ‘What percentage of UN members are African nations?’ The results of the experiment were illuminating.

For those whose number on the wheel landed on 10, the average guess was a 25 per cent membership. Those who landed on 65, however, answered the same question, with a much higher number of 45 per cent. (The actual answer is 28 per cent: 54 of the 193 members as at 2020.) So why were smart, intelligent people being influenced by something as arbitrary as the last number they saw? There’s certainly no actual relationship between the number on the wheel and UN membership percentage. The answer can be found in the concept of anchoring that plays an unseen role in our everyday lives, and that is pivotal in understanding how to negotiate better.

Anchoring is a cognitive bias in which the brain will tend to fixate on the first, or most dominant, factor that it is presented with, and then (usually unconsciously) we lopsidedly base our perceptions and negotiation around that initial starting point.

Our brains like to build a simplified picture of what is happening in any given situation. It allows us to draw conclusions and react more quickly. Some elements in these mental pictures will be more dominant than others. For our primitive ancestors, it might have been a snake lurking in the grass spotted out of the corner of their eye. Today, it could be the click-bait headline that you are drawn to while scrolling through social media. The type of modern business deals that we negotiate are invariably complex and multifaceted. But if you asked 100 people to name one thing that might be important in a record deal, for example, we bet most of them (even those with no experience of the industry) would probably answer: ‘The Advance.’

The Advance. It’s very glamorous-sounding. Aspiring pop stars dream of it, the tabloid press have a lurid fixation on it. Rappers dedicate verses to the size of it. The Advance is precisely what the name suggests. It’s a prepayment of future earnings. It might take your music five years to earn £1,000,000 in royalties. So, if a record label or song publisher offers you an advance of £900,000 today, that’s going to grab your attention. There are many other factors that the company could focus on to try to entice you, of course:

· The investment the company might make in marketing and promoting your music

· The cachet of working with a particular label

· Or just having a team of great people around you

But it’s easy to see how each of those things can melt into the background when set against one big, bold number. That’s an anchor.

It’s powerful and persuasive tool, so let’s take a closer look at the application of anchoring and the impact of placing this strong, unambiguous marker down in the early stages of negotiations.

Andrew and I are music lawyers and have worked in the industry for over 20 years. Every day, we negotiate all sorts of deals with all sorts of wild and wonderful people, representing highly successful artists, record labels and businesses in, sometimes, extremely high-stakes negotiations. In many of these deals, the ‘buyer’, i.e. the side that is acquiring the rights (in music deals this is usually the record label or the song publisher), will start the negotiations by making the first offer. The side whose rights are being acquired, the ‘seller’ (in this example, the artist), will usually wait for the offer or offers (sometimes musicians can find themselves in a ‘bidding war’) to come in and then negotiate from there.

But let’s look at this in the context of anchoring.

The relationship between the buyers and sellers in this type of transaction is already quite asymmetrical: in other words, they may have unequal status or power. The record label usually has considerably more information (prior deals, market trends and, more recently, reams of data and analytics) and resources (funding, staff, knowhow etc.) than the artist. An inexperienced artist can seek to redress this imbalance by hiring a smart manager or a flashy lawyer, but costs can quickly escalate.

A crucial advantage the label might have is that they’ve done a lot of these types of deals before. And, consciously or unconsciously, they will be aware that by putting an offer in first, and by focusing attention on an eye-catching advance, then this negotiation, like the one before that, and the one before that, is more likely to go their way.

It’s also worth noting that anchoring around the advance is a very smart move for the label. Because even if it’s a huge number, that advance is still a prepayment of the artist’s future earnings. So, if things go as well as everyone hopes, the size of the advance won’t have been a factor for a well-funded label. (That’s if things go well. The other side, of course, is that many artists never recoup those big advances, so in that sense there is a real risk for labels when assessing the level of advance). A negotiation built around a healthy advance is pure anchoring.

But what if we flip the script?

What would it look like if the seller (artist) had anchored first, and early? How would the buyer (label) react?

Let’s look at a scenario that Andrew encountered when he was the senior lawyer at a large record company. The label CEO and Andrew met with a manager who had recently started to represent a very well-known artist, with consistent high earnings over many years. After a very brief exchange, he surprised them by immediately opening with, ‘We are looking for an advance of one million pounds.’ Andrew nearly fell off his chair.

It wasn’t worth that much and definitely not what he had discussed with the label CEO. This opener was followed by a few weeks of intense negotiations. But, to cut a long story short, the manager got his million-pound advance. From the moment he gave the number, the label CEO was thinking of how he could get to pay that advance. Imagine how different it would have been if the manager had opened by asking what the best offer was? It’s likely that half that amount would have been offered, ideally paid in instalments and with conditions imposed. The manager had anchored early, and grabbed the advantage of opening.

Of course, the artist in this instance was already extremely successful and had a significant degree of bargaining power at their disposal. Anyone at the early stages of their career won’t normally have that luxury. But whatever the perceived power balance in a negotiation, understanding the principles of opening and anchoring can play a huge part in redressing that power dynamic. Studies in this area are clear. Anchoring plays an undeniable role in the outcome of almost any negotiation. So how should we go about it?

When you open and when you anchor, ensure your language is clear and concise. Extra words will suggest a lack of confidence in your position. If you’ve prepared well, you can speak plainly about what you want. At this early stage in the negotiations, it shouldn’t be necessary to justify or explain why you have come up with this proposal. It is what it is. As the negotiation proceeds, the discussion may open up around specific points. But at the outset, when you open or when you respond to an opening offer, be bold and unambiguous.

Simply listing your expectations as bullet points is often all that’s needed. We often see lengthy emails justifying each point. But what do we all do instinctively when we receive emails like this? We skip to the bottom line anyway.

Sometimes the other party gets in first. However, there is nothing to stop you giving an early indication of what you are thinking, to manage expectations. If you are hit with that first demand, if your counterpart drops a big old anchor right on your front lawn, a useful tactic to dealing with it (and to dealing with difficulties in negotiations generally) will be to:

Step 1: Identify it. If someone has placed a big arbitrary number down in the opening stages, it’s helpful to see it for what it is: an anchor.

Step 2: Diffuse it. You can start the expectation management process immediately. ‘Having looked at the figures, we were thinking of something more like half that amount.’ Or, ‘That’s a pretty high number and I don’t think we can pay that much.’

What you have done is to put into the other side’s head a different idea or a number. Do not say, ‘We’ll think about it,’ or simply, ‘I’ll check,’ because those phrases do not shift the other side’s expectation in any way. Whatever you do, use simple, clear wording.

So, next time you’re entering negotiations, why not gain the advantage by opening and drop your anchor? The anchor is a simple and strong visual metaphor. That’s why it works!

Both Richard Hoare and Andrew Gummer are lawyers working within the music industry. Between them, they have more than 50 years’ worth of negotiation and music business experience and a reputation for getting the right deal done, without a fuss, and without leaving both parties feeling bruised and battered. Do Deal: Negotiate better. Find hidden value. Enrich relationships (Do Books) is their first book publication.

Book excerpt from Do Deal: Negotiate better. Find hidden value. Enrich relationships. Text copyright © 2022 Richard Hoare and Andrew Gummer. Published by Do Books, March 2022. Order from your local retailer or: Do Books (includes ebook) | Bookshop.org | Amazon.co.uk

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