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    Read Chapter 2: Negotiating

In poker and business, it pays to keep your cards close to the vest. Letting your opponents know what you’re thinking gives them an edge.

You’re negotiating with a prospect, and your job is on the line to close this deal. In the proposal, you quoted the client a price of $30,000, but you’d be willing to go as low as $20,000. So do you walk in the door and say, “Oh, by the way, we always quote the retail price, but my bottom line is really twenty grand?”

Any good negotiator will tell you that it doesn’t pay to let your adversary know what you’re thinking. An honest person would contend that it’s wrong not to offer your best price up-front. A realist, a poker player, or anyone still in business would tell you that keeping your cards close to the vest is all part of the game. Being crafty doesn’t mean Iying or being manipulative. It does mean keeping a poker face and applying the same techniques that a poker player uses every day.

Few people know how to handle conflict, and even fewer enjoy it. The ones who can conquer this fear are the ones who thrive as negotiators. If you’re negotiating in the first place, it’s because you want to do business with a person, not against him. That’s why the first step is to take the time to step into the shoes of your opponent. The second step is to recognize what motivates people. Fear and greed is the easy answer, but you have to dig deeper and get to know the person before you can leam his hot buttons.

At the end of a negotiation, the key is getting what you want, while still allowing your opponent to get what he wants. You must be willing to compromise and make concessions—as long as you don’t make a concession without getting something in return. The ultimate test of a negotiation is when you can say yes to the following questions:

Did I get what I want?

And will they want to do business with me again?

“I study people, and in every negotiation, I weigh how tough I should appear. I can be a killer and a nice guy. You have to be everything. You have to be strong. You have to be sweet. You have to be ruthless. And I don’t think any of it can be learned. Either you have it or you don’t. And that is why most kids can get straight A’s in school but fail in life.”
Donald Trump

“Throughout history, human nature has been sold short.”
Abraham Maslow

Don’t Make a Concession Without Getting Something in Return

You’ve finally done it. After spending eight months on a business plan and another year soliciting investors, you have convinced Victor, a partner in a venture capital firm, to give your company its first $1 million of seed capital. Just before you shake on it, Victor says, “Oh, by the way, we want thirty-five percent of the equity in the business, not thirty percent.”

You’re so shocked when you hear it that you’re not quite sure what to say. Balk at this proposal, and your business may never get off the ground. Accept Victor’s terms and set the precedent for being taken advantage of at every turn.

Throughout your presentation, you were studying Victor’s body language to pick up tells and reading his poker face. He pretended not to be listening at times. He talked about other big projects he was working on. He stressed how few new ideas the firm was embracing. On the surface, things looked grim. Fortunately, you know the first rule of reading people: Strong is weak and weak is strong.

You read Victor as weak when appearing to be strong, and you were right. He wants to back this deal, but he wants it on his terms. He also saw something in you that makes him feel like he can get away with it. Perhaps in your eagerness to win the deal, you didn’t keep a good poker face and acted like you needed the money. Victor sensed your desperation and went right for the jugular.

The problem is that you have nothing else lined up. You just flew 3,000 miles for your one and only meeting in Silicon Valley, and if you don’t go home with cash, your partner has vowed to go back to his day job. You’re operating from a position of weakness, and Victor seizes the advantage.

You have three options: call, fold, or raise. Folding would mean saying no thanks and walking away—clearly not the outcome you want. Calling would mean taking the deal on Victor’s terms, which isn’t ideal, but still viable. Raising would mean coming back with a deal of your own.

You stop to think about the risks. If you insist on thirty percent, there is always the chance that he will play hardball and counter by saying, “If you want to negotiate like that, make it forty percent—take it or leave it.” You decide that based on your previous dealings with Victor, this is unlikely. You further reason that if you just call, you have shown weakness. You know that your “table image” is important and it’s critical to set the tone right now that you are a strong negotiator.

You check Victor’s body language, and it tells you that your grace period has expired. It’s time to speak, and any further hesitation will show confusion on your part. You calmly state, “Victor, the reason I was so thorough in going over the numbers was so that you precisely understood the valuation. Wasn’t it clear that $1 million would buy thirty percent of the equity?”

Depending on the type of poker game you’re playing, there are between two and five betting rounds. Your action in each round is used to set up the subsequent rounds. This type of strategic thinking has bought you some time. Rather than try to strike a deal right away, you have taken the initiative in the next round by asking a question. Good poker players know that you don’t win the hand on the first round of betting. The first round is used to set your opponent up for the final round—when it’s time to win the pot—the equivalent of closing the deal.

Victor doesn’t take his eyes off of you and starts to stiffen up. You sense that he wants this deal and won’t lose it over a few percentage points, but at the same time, he wants to win this little battle. It’s his way of showing his power and putting you in your place.

Poker players often say, “When you win, you lose.” Like when you win a big pot, but it so disgusts the biggest sucker at the table that he decides to cash in his five grand in chips and call it a night. Or in business, when you win the bid on a big construction project but, because you underestimated your costs, end up losing money on the deal.

Your purpose is to win in the long run, not win a few hands. If you become so intent on beating him in this negotiation, you just might lose the real game, which is getting money for your business. You decide that you have to find a way to let Victor win this battle, and still get what you want. Doing so means making a concession.

When he again says that he wants thirty-five percent, you nonchalantly say, “Victor, if you want to relinquish the two board seats and agree to invest another $1 million in six months, you can have thirty-five percent.” You know that this hand is far from over, and you have set Victor up for the next round.

“That’s not possible,” Victor responds, and with a laugh adds, “But if you’re going to be such a damn tightwad, I suppose I can agree to thirty-three percent.”

Victor blinked first. Rather than show the patience and strategic thinking that a poker pro would exhibit, he tried to win the hand right there, too early in the game. Now that you are thinking like a poker player, your thoughts have moved ahead to the next round of negotiating. The reason a good poker player doesn’t bet all his chips right away when he has a great hand is that he’s not trying to merely win the pot at this point in the game. He’s trying to position himself to win the most from the pot.

Victor also made the big mistake of giving up something without asking for something in retum. You now know you have Victor right where you want him, but you also realize that it’s too early to try to win the pot. You feel like thirty-two percent is a fair number, and you know you’re going to have to concede something in order to get this deal done. You also know that if you bluff and say you have other meetings set up, you run a high risk of getting caught. And if you lie to Victor about meetings that don’t exist, you very well may ruin your name in Silicon Valley—the equivalent of getting caught marking cards at the Bellagio.

To get Victor to thirty-two percent, you decide it’s going to take two more rounds of negotiating, and so, after a short pause, you say, “Thirty-one percent if we can get the deal finalized by the end of the week—and I’m never going to hear the end of it from my partner about that one percent.” You then reach out your hand and say, “Do we have a deal?”

You stuck to the rule about not giving something up without getting something in return by agreeing to take a smaller percentage in return for a prompt payment. And with the statement about your partner, you have introduced a “bad cop” into this scenario. Victor has already made a mistake by telling you, through his actions, that he doesn’t need approval from anyone else. Unlike you, he can’t play the “bad cop” card. Just as you anticipated, Victor says, “Let’s split the difference and make it thirty-two percent.”

“That was easy,” you say to yourself. In spite of what you told Victor, you now have a deal that both you and your partner can live with. You also know two very important things:

1. Don’t give anything away without getting something in return.
2. Let your opponents feel as if they have won.

Victor isn’t going to feel good about the deal unless he feels like he has won. By agreeing too fast, Victor won’t enjoy his power trip, and even worse, he’ll second-guess himself for not negotiating harder.

So matter-of-factly, you answer, “Thirty-two percent and you give up one of the board seats. If not, I can still live with thirty-one percent.”

Victor hems and haws, and finally says, “Look, thirty-two percent and we keep both board seats—and you’ll have a check for $1 million before the end of the week. Take it or leave it.”

You think you may be able to get him down to 31.5 percent, but know that he won’t walk away feeling as good. By staying focused on the important battle, you have accomplished your goal. Now you just have to finish the hand in such a way that cements your future. Conceding, you reach out your hand and say, “You drive one hell of a hard bargain, Victor. More important than the thirty-two percent, it’s just great to have you in our corner. You got yourself a deal.”

Under-Promising and Over-Delivering Enhances Your Negotiating Power

Ace’s Grandpa Herb ran a hosiery business in downtown Baltimore. His office doubled as a poker hall in the evenings, and his guidelines for extending credit were simple. Break a promise once, and he’d never lend to you again. If you couldn’t make a payment on time, being honest about it was enough to stay in his good graces.

As a businessman, Herb’s strategy was to sell his inventory before he had to pay for it. This was long before Michael Dell, the founder of Dell Computer, was born and the term “just-in-time inventory” became fashionable. If Herb could convince the factory to extend him credit, he could get products, sell them, and collect from his customers, before he had to pay for them. “Just-in-time” means that inventory arrives just in time to deliver it to customers, without it piling up in a warehouse. To pull this off, Grandpa Herb had to build the trust of the owners of the factory.

If he had thirty days to pay and knew he was going to be late by a week, he’d call the factory before the thirtieth day and say, “I’m sorry that I’m going to be late, but I don’t want you to worry. You’ll have the check within two weeks.” Then, he would send his payment one week earlier than promised. The factory perceived that he was a week early rather than a week late, and he kept getting better and better terms.

When he would travel from Baltimore to a dry county in North Carolina, he would bring bottles of Crown Royal and pounds of premium chocolate for all the employees. He was their friend, someone who bought gifts for them and their families. When it came time to negotiate, they almost felt indebted to him.

Before getting involved in a negotiation, he would start by saying, “I would never ask you to take a deal that I wouldn’t take myself.” Not only was it a philosophy—it was also a strategy. By sounding reasonable, he let them know that he wanted to make sure they were happy as well. It set the tone for a win-win situation.

Here is Herb’s list of negotiating dos and don’ts:

Don’t . . .

 Argue, insult, or swear.
• Blame the other person.
 Make a promise you can’t keep.
• Threaten.
• Give an ultimatum.
• Disclose too early.
 Be a messenger.

Do . . .

 Pick up the check.
 Have a list of questions.
• Act confident, be confident, and be cool.
 Take a break when you feel the tension.
• Know when to walk away.
 Know when to shut up.
 Know when you’re in over your head
 Ask for everything you want.

Applying this list was the key to Herb’s business. He kept getting more and more credit and was able to turn over his inventory before he had to pay for it. It wasn’t because he was a tough guy—it was because he was a fair negotiator.

Wear the Right Face at the Right Time

All the cards had been dealt in a game of Texas Hold’em, and all Ace had was a pair of 4s. When Doc bet $30, there was now $300 in the pot. Even though there had to be a ten-to-one chance ($300 in the pot over $30 to see the bet) that Doc was bluffing to justify calling the bet, Ace was all but sure that his pair of 4s had no chance.

Instead of folding right away, he stalled and tried to pick up a tell from Doc. Ace thought about how the betting had gone on previous rounds, and everything pointed to Doc having a straight. Then he looked at Doc, who had been keeping a good poker face. After staring at him for a solid thirty seconds, Doc tilted his head and said, “Ha,” in a way that suggested, “You’re not really thinking about calling my bet.”

Mike Caro’s Great Law of Tells states: “Players are either acting or they aren’t. If they are acting, then decide what they want you to do and disappoint them.” Doc’s gesture made Ace think that Doc didn’t want him to call. Based on the Great Law of Tells, Ace knew that he had to disappoint him. He threw in $30 to see the bet, and sure enough, Doc had been bluffing and couldn’t even beat a pair of 4s. A player who had kept his mouth shut would have been able to pull off the bluff. Not keeping a poker face cost Doc $300.

Boxers are trained to bounce on their toes or even smile after they’ve been hit hard so that the judges won’t think that the opponent scored a blow. It’s called smiling through the face of adversity, and it begs the question: Is bluffing lying?

A lot can be said for good old-fashioned honesty, but it often behooves you to keep your feelings to yourself. As much as you are dying to buy that new car today, all you have to do is tell the salesman that you’re in no hurry, and he will chase you out of the dealership, dropping his price with every step.

Should you lie? Well, not exactly. Just know that showing weakness under duress can only make the problem worse. Your ability to conceal your hand is often your best negotiating tool.

Four Reasons to Keep the Right Poker Face in a Negotiation:

 Let your bankers see that you are worried about cash flow, and it’s a safe bet that they will cut off your credit just when you need it most.
 Let your employees know that you are worried about the future, and they will start sending out resumes.
 Give any indication to your suppliers that sales are slow, and be prepared for them to insist on payment before replenishing inventory.
• For a public company, in which asset values are tied to future eamings, analysts and investors are always making projections based on what you tell them. Let them know that you are experiencing the slightest bit of trouble, and your stock may plummet.

“In some poker games in England, they have a rule that you’re not allowed to talk about your hand during play. That’s sick. Poker is a game based on the concept of talking your opponents into and out of pots. As I’ve said many times, there’s nothing wrong with a wagering game involving pairs, straights, flushes, and full houses that is played in silence. Just don’t call it ‘poker.’ That name is already taken.”
Mike Caro

Bluffing Is a Skill—One That Is Situation-Specific

The labor organizers were as tough as they came. They spent years mobilizing the employees and went to Grandpa Herb and said it was time to go union. They braced themselves for a lengthy negotiation.

Herb knew their reasons were sound, and he didn’t have a rational way of defending his reasons for staying non-union. He also knew that a union might cripple him, but if they strong-armed him, he wouldn’t have a choice. Rather than articulate these thoughts, he took his keys out of his pocket, threw them on the table, and said. “If the business goes union, you can have it.” Then he walked out.

It was a stone-cold bluff.

He knew the labor organizers couldn’t go back to the workers and tell them that Herb was thinking of closing the business and that they’d be out of a job. Faced with the choice of the same working conditions or no working conditions, Herb thought the employees would choose the former. By taking the time to walk in his opponents’ shoes, he was able to bluff. To this day, there still isn’t a union.

In his memoir A Passion to Win, Viacom chairman Sumner Redstone describes his dealings with Wayne Huizenga, the man from whom he bought Blockbuster. When Huizenga, who had built Blockbuster by buying out local video stores around the country, would come to an impasse in negotiations, he would say, “Sorry we couldn’t do a deal. Good luck to you,” shake the guy’s hand, and take off.

Invariably, the video-store owner would run after him and always catch him. Huizenga got his concessions by playing into the fear of missing out on a big deal and playing into the greed of wanting to make it rich. His bluff of walking away proved to be effective.

Huizenga pulled the same stunt when he was selling Blockbuster to Viacom—except when he walked away, no one ran after him. This technique may have worked on unsophisticated negotiators, but Viacom’s Redstone was another story.

“One time he waited there for fifteen minutes before it dawned on him that we weren’t going to chase him,” writes Redstone. “He got to his car. Nothing. He would soon find some excuse to call—he left papers in our office waiting for us to say, ‘Why don’t you come back.’ Still, nothing. Once he was literally on his plane, perhaps even circling the neighborhood, when he phoned and said he had to be back in New York for a Merrill Lynch dinner anyway and maybe we could get together.”

Unlike a champion poker player who uses different techniques on each opponent, Huizenga didn’t read his opponent and adjust his strategy accordingly. He ultimately sold Blockbuster to Viacom, but his unsuccessful bluffs cost him credibility and leverage.

Start from a Position of Strength

Doc took every penny he had and decided to play in a high-stakes game at the Taj Mahal in Atlantic City. There was $4,000 in the pot, and he was down to his last $1,000. The only other player left in the pot, Jake, bet $1,000, and Doc had an easy decision to make. With $5,000 now in the pot, if he had a one-in-five chance to have the winning hand, he should call.

He thought he had a fifty-fifty chance of winning, so the odds were clear that he should risk $1,000 to win $5,000. The problem was that if he lost, he would be out of business. He was playing with “case” money (everything he had) at stakes far above his means. Even though the right percentage move was to call, it also meant that there would be a fifty percent chance that he would be broke. A lack of cash means fear. Surviving and optimal negotiating do not go hand in hand.

By running low on cash Doc put himself in a position where he could jeopardize his livelihood. He thought fast. “You want to cut a deal?” he asked Jake. “I’m pretty sure I got you beat, but I can’t afford to take the loss. How about I take $1,000 out of the pot right now, and you can have the other $4,000?”

Cutting a deal is something you’ll occasionally see in a high-stakes game when one hand can break a player. Jake knew that it was a sign of weakness, since if Doc had him beat, he would have called the bet. Jake still took the time to think. If he took the deal, he was assured of winning $4,000. If he didn’t take the deal, he would have a chance to earn an extra $2,000, but at the expense of losing a sure $4,000.

Mathematically, Jake’s decision was easy. Because he had plenty of money, the fear of losing didn’t affect him, and he was able to concentrate on making the optimal decision—not just surviving. Because Doc showed so much weakness, Jake decided to negotiate an even better deal.

“I got you beat, Doc, but I don’t want to see you go broke,” said Jake. “Take $500 and let’s play the next hand.”

Doc had little choice. Because Doc came from a position of weakness, the terms of the deal were dictated to him, instead of by him. By taking the deal, he would preserve the $1,000 he had in his stake and take another $500 from the pot. “Okay, Jake, we got a deal,” he said as he took the $500 from the pot, while Jake grabbed the remaining $4,500. The last thing Doc wanted to know at this point was that he had cut a deal when he really had Jake beat, but his curiosity got the best of him. “By the way, Jake, what’d you have?”

“I’ll show you if you show me,” Jake said. And in unison, they turned their cards face up. Jake wasn’t bluffing. He had the “Dead Man’s Hand,” aces over 8s—the hand Wild Bill Hickok was holding when he got shot in the back. Doc had him beat with aces over jacks. Had Doc not been so afraid of going broke, he would have called the bet and taken the whole pot. Even though he had the winning hand, starting from a place of weakness cost him $4,500.

Your adversaries—and even your allies—are constantly judging your reactions and are ready to pounce at the first sign of weakness. When you enter a negotiation needing to win and not having any leverage, you’ll get taken advantage of at every turn. The best way to avoid this is to play within your means. Nobody pushes Doc around in a penny~ante game—a sure sign that that’s where he belongs.

Chapter Aces:


By focusing on the larger picture, you avoid trying to win a small battle that may prevent you from maximizing your return on the important terms of a negotiation.

By giving something away, you strengthen everyone’s position. Just don’t make a concession without getting something in return.

The easiest tell to spot on a person is desperation. Starting from a position of strength is the first step to wearing the right poker face in a negotiation.

When you can get what you want and the other party still wants to do business with you, you have negotiated successfully. You set the stage for this when you take the time to walk in the other party’s shoes.


“[Sumner] Redstone has a great intuitive grasp of people. . . . This kind of insight is hardly rare among people who make their living at the negotiating table. It’s the skill of the poker player. But poker is a game of manipulation and exploitation—and Redstone doesn’t seem to manipulate or exploit. He persuades and seduces: he would concede that your straight flush beat his three of a kind, but then, over a very long dinner at Spago, he would develop such a rapport with you that you’d willingly split the pot with him.”
Malcolm GladwellThe New Yorker