I went to an executive program for my MBA, so the class was made up of experienced executives. We thought we were pretty good, as in, “I wonder what these business school yahoos think they can teach us?” The very first week, we had a seminar taught by Max Bazerman, author of “Negotiating Rationally” and other books. He organized the class into several teams and then paired them up, so my team of five people had to negotiate against another team of five. Each team had fact sheets about the deal we were negotiating, but neither team knew all the details.

Since we were tough, savvy business leaders, we went into kung fu mode and negotiated hard. We were demanding, unforgiving and looked for openings to improve our positions. It was obvious that all the teams did the same thing when we all presented the results of our negotiations to the class. Like everyone else, we were pretty proud of what we’d accomplished.

That’s when Max pointed out that every scenario he’d shared contained several opportunities to collaborate with the other team to make the pie much bigger. Every team missed every opportunity. We were so busy going to war against the other team, it never occurred to any of us that we should first stop and see if there were ways we could collaborate. 

He asked for a show of hands: Which teams shared the details on their fact sheets with the other team?

Nobody had.

“Why?” he asked.

We assumed those details were only for us.

“Why?” he asked again. “I didn’t tell you that, and it’s not in the instructions for the exercise.” 

It was a humbling lesson for us and I’ve since learned to see if I can grow the pie before I start slicing it during business deals. I’ve also learned that most business executives are like the people in my MBA class: the minute you put a deal in front of someone, they go into kung fu mode and begin fighting for more, entirely skipping the whole “grow the pie” phase. 

Negotiating with allies

Look, there are times when you need to protect your information advantage and focus on getting as much of the pie as possible — especially if the situation is particularly contentious or if there’s clearly no upside to collaborating. However, in distribution, most of your negotiations are with suppliers and customers — channel partners with whom you want to enjoy long-term, mutually beneficial relationships. So, it’s important to make yourself delay your kung fu mode and start by figuring out how you can grow the pie before you slice it. 

Plenty of opportunities exist when negotiating for rebates and marketing co-op. In my many years working with and for big distribution companies, I’ve seen that most executives have the same tendency my business school class had: the supplier and the distributor enter a discussion about a strategic buying agreement and both parties start fighting for as much of the pie as they can get — as though the pie is fixed. 

This is not rational. If the purpose of rebates and co-op is to drive better performance, why don’t we spend more time talking about how to use them to do that? In my experience, these funds are viewed as entitlements by the distributor and the cost of doing business by the manufacturer. The conversations about using them to actually drive growth rarely happen. 

How to grow the pie

To grow the pie, someone on either side of the table needs to say, “Hey, before we talk about the tiers and percentages of rebates and co-op, let’s explore what we can do to grow together.” I find people are startled by this in the moment, but they like it. It’s hard to argue with this suggestion. 

Almost always, the people in the negotiation are willing to engage in this discussion. Although if you’re working with a very senior executive with a huge ego, that person sometimes wants to show how powerful he is and won’t go along. 

Of course, if you do this right at the end of the negotiating process, there’s not a lot you can do to grow the pie before you sign the deal. A much better approach is to work with your suppliers months in advance, long before you negotiate terms around co-op and rebates. For most distributors, meeting with the suppliers that make up 80% of their purchases is a reasonable goal. 

Get to understand their priorities, plans and goals for their relationships with you. Look for places where you can align your efforts and grow the pie. 

Kung fu time

Of course, at some point in the negotiation, it’s time for kung fu mode as you fight for the financial interests of your company. It’s OK; that’s capitalism and everyone expects that behavior. However, if you’ve grown the pie from, say, $1 million to $2 million, it’s very likely that any slice you negotiate is much larger than it would have been otherwise. 

Also, I’ve found that when the two firms spend time talking about how to grow the pie, the players tend to become more long-term focused and thoughtful about the relationship. You still negotiate hard to grow your slice of the pie, but the conversation is often less contentious. I think it’s because as you come to know the people you’re negotiating with, you find yourself caring more about their goals, too. 

Growing the pie is a win/win conversation; that orientation often carries through to the slicing-the-pie phase. 

I’ve learned to make myself pause and assess the situation any time I find myself across the table from someone in a negotiation. More often than not, there’s an opportunity to increase the size of the pie, and we would have jumped over it if not for what Max Bazerman taught my business school class years ago. 

If you already practice this approach, I bet you find it valuable, too. If not, give it a try and let me know how it goes. 

There’s not much everyone agrees to anymore, but I think we can all agree that more pie is better.