Three Tests For Negotiating A Software Deal

Written by Sean Murphy. Posted in 3 Early Customer Stage, Rules of Thumb, skmurphy

Negotiating a software deal, from either side of the table, can be different from many other negotiations that you enter into. I have been surprised over the years at how folks who are successful in other domains can fail one or more of the following tests as they negotiate a software deal.

  1. Have You Created the Basis for an Ongoing Relationship?
    Software is the Promise of a Relationship: software typically involves getting your custom information into a new format (or creating information you would later like to translate into other formats) and almost always involves process and habit changes. The expectation on the vendor side is that the customer will contribute not only bug reports and enhancement requests but also additional maintenance and/or license fees over time. The customer expects the vendor to continue to maintain and enhance the product in response both to general changes in the environment and to specific requests from customers. If the negotiation leaves such ill feeling on one or both sides that a mutually beneficial relationship is out of the question, it’s not a good deal.
  2. Have You Assessed Both Yours and the Other Party’s BATNA?
    In their 1981 book “Getting to Yes” Roger Fisher and William Ury coined the term “Best Alternative To a Negotiated Agreement”  which they abbreviated BATNA. Both sides have a BATNA. It describes the status quo ante or likely result for a side if an agreement cannot be negotiated. You must continually assess not only the other side’s BATNA but your own as well.
    • Explore the other side’s perception of their BATNA from the beginning. Their perception of their options will shape their negotiating position.
    • Be careful in multi-way negotiations as a smaller firm, you may have been brought in just to give the appearance of adding a key feature or a lower price to the other side’s BATNA. For example, your offer may be used to induce another bidder to cut price.
  3. Are You Considering Something That Must Be Kept Secret After The Deal is Signed?
    Assume everyone finds everything out! It’s rare that a negotiating ploy can be kept secret over the long run. Active misrepresentation in particular can be destructive to any ongoing relationship. However, you are not testifying during a negotiation: while I believe that you should tell the truth and nothing but the truth, you don’t have to tell everything that you know.
    • Don’t assume that the other side is telling the whole truth: trust but verify.
    • In “Negotiations and Resolving Conflicts: an Overview” Prof. Edward G. Wertheim of Northeastern University includes this guideline from a British Foreign Service Manual on diplomatic negotiation: “Nothing may be said which is not true, but it is as unnecessary as it is sometimes undesirable to say everything relevant which is true; and the facts given may be arranged in any convenient order. The perfect reply to an embarrassing question is one that is brief, appears to answer the question completely (if challenged it can be proved to be accurate in every word), gives no opening for awkward follow-up questions, and discloses really nothing.”

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