Negotiations are like tennis.
Each side volleys the ball back and forth until one side “wins”.
Most of the time, there are way too many volleys.
Moving the goal posts. Changing deadlines. Redlines on top of redlines.
The ideal way is to have a brief friendly game of tennis… on a sunny afternoon.
It all starts with the serve. The serve should be strong and down the middle. Transparent, straightforward, and clear.
Whoever is the most clear on what they want should go first.
The serve leads to the return, equally strong and clear. A sincere response to a respectful serve.
Maybe another round of volleys after review and deep-thought.
If you’re not close yet at this point, the game is probably over and it’s time to find another game.
Otherwise, close the deal and score a point for both sides.
In Warren Buffet’s 2014 letter to the Shareholders of Berkshire Hathaway, he describes a transaction of $8.4 million from 1967 ($61.8 million in 2017) that was completed with a 1 1/2-page contract and no lawyers:
[…] since 1967, when we acquired National Indemnity and its sister company, National Fire & Marine, for $8.6 million. Though that purchase had monumental consequences for Berkshire, its execution was simplicity itself.
Jack Ringwalt, a friend of mine who was the controlling shareholder of the two companies, came to my office saying he would like to sell. Fifteen minutes later, we had a deal. Neither of Jack’s companies had ever had an audit by a public accounting firm, and I didn’t ask for one. My reasoning: (1) Jack was honest and (2) He was also a bit quirky and likely to walk away if the deal became at all complicated.
On pages 128-129, we reproduce the 1 1 ⁄2-page purchase agreement we used to finalize the transaction. That contract was homemade: Neither side used a lawyer. Per page, this has to be Berkshire’s best deal: National Indemnity today has GAAP (generally accepted accounting principles) net worth of $111 billion, which exceeds that of any other insurer in the world.
Here’s the contract:
So there you have it, a brief friendly game of tennis.
The irony is, the drawn-out fight-to-the-death volley exchanges rarely pan out anyway. Too much wasted time, cost, and headache.
The next time you sit down for a negotiation, get your racket ready. But look for a brief friendly game of tennis… on a sunny afternoon.