Lois and I are both serving as mentors for the three finalists in the Yahoo Seeds for Success Program - how much fun it is to talk with such enterprising, energetic women!

Each of the entrepreneurs I spoke with was very clear about the myriad of opportunities to negotiate ─ with suppliers, service providers, independent contractors and, of course, customers and prospective customers.

For these three businesses as well as every other start-up I know though, when it comes to negotiation, it can seem as though it’s a clear case of David v. Goliath. So the question is:

How do you negotiate effectively when the other party has more leverage?

Planning is critical. Some important things to consider:

The first thing is that you need to figure out is what you need to get in order to make a “good deal”.

Examples:
When dealing with customers:

• What is the lowest price you can charge and still make a decent margin?
• How does that stack up against your competition, assuming you have competition?
• What differentiates your product if you are not the lowest cost provider?
• What value does that differentiation provide to your customers?

When dealing with service providers:

• What defines a good working relationship from your perspective?
• What kind of turn-around timeframe do you need?

When dealing with independent contractors:

• What is fair compensation?
• What rights should you retain?

If you don’t know what you need to negotiate for, it’s impossible to be successful. The secret here is to do your homework ahead of time.

Consider your BATNA (Best Alternative to a Negotiated Agreement). What will you do if you are unable to reach agreement with this particular party? What alternatives do you have? How good are your alternatives? How can you improve them?

Examples:

When dealing with customers:

• If this potential customer won’t pay the price you need, where else can you sell? Perhaps you’d really like to have this customer but, trust me, your business won’t shut down if you can’t agree on terms that make sense. And, if you sell your product for less than it takes to make it, you can be absolutely sure you won’t make it up on volume!

When dealing with a potential supplier:

• Can you source what you need to produce your product someplace else?
• What would be the cost difference?
• The delivery difference?

Always have at least a Plan B, you can’t walk away from a bad deal if you don’t have alternatives. And, think about a Plan C too.

Build your confidence by realizing you probably have more leverage than you may think. Examples:

When dealing with customers:

• Your product may be unique, you may have had the idea first and can bring it to market more quickly than anyone else.

When dealing with service providers:

• You may have an “in” with someone who has influence over the individual with whom you are dealing. You may not want to use this leverage, at least not right at the beginning but it helps to know that you have some clout too.

Fear is easy to spot and some have no qualms about exploiting yours; confidence counts!

As their businesses grow, the opportunities these women have to negotiate will also expand, for example, as they hire people, they’ll be negotiating with them too, not only about compensation but about performance standards. I’m confident that their negotiation skills will too because they’ve each made a commitment to building them.

This post also appeared on Shine, Yahoo’s new destination site for women.

TAGS: business owners, entrepeneurs, negotiation skills, playing to win, small business