Idea in Brief The Problem Most executives leave value on the negotiating table, for two main reasons: They assume they’re negotiating over a fixed pie, and they focus exclusively on how to claim value from that pie for themselves. The Approach To create value and reach efficient agreements, negotiators should choose from four strategies: Build trust and share information, ask questions, give away some information, and make multiple offers. The Wrap-Up As a final step, consider meeting one more time after the deal has been signed, when people are likely to feel less adversarial, to see if there are additional terms that might make the deal better for everyone. One of the simulations I use when teaching managers to negotiate more effectively involves a technology transfer between two divisions of a corporation. The price of the transfer is central to the negotiation, but there are other important issues to be considered as well. The structure of the deal will affect how much profitability the technology transfer creates for each division and for the company as a whole. Even when running this simulation with seasoned executives, I am continually struck by the degree to which they fail to reach an agreement that maximizes total profitability. During the debriefing, each side compares the estimated profit it would accrue in the deal against what the simulation shows it could have obtained. Had the two divisions made wise trades across the various issues rather than simply compromising on each one, both would have ended up with more profit. But most negotiators don’t do that. Instead, in effect, they throw corporate cash in the garbage can and burn it. The question is: Why? There are two main reasons. First, many executives mistakenly believe that they’re negotiating over a fixed pie and that gains for one side necessarily mean losses for the other. Second, they focus exclusively on how to claim value for themselves (by taking as much as they can of that mythical fixed pie) rather than coming up with ways to increase the size of the pie. The simple genius of value creation in negotiation is that everybody benefits. That principle is not new, but I find that people at all managerial levels have lost sight of it and urgently need to be reminded. In our political, social, personal, and professional lives, we’ve become more polarized and intransigent than ever. We’re less willing and able to see our counterpart’s point of view. We’re less inclined to engage in problem-solving, and without the understanding that comes from that process, we have trouble finding mutually beneficial deals. As the policy expert Heather McGhee explains in The Sum of Us, we routinely forgo the “solidarity dividend”—the gains we could achieve from working productively across boundaries to accomplish what we can’t do on our own. In short, despite what we’ve learned over the years, we keep getting negotiation wrong. Over my career I’ve taught tens of thousands of MBA and executive-education students the principles of good negotiation, and I’ve always tried to instill in them the importance of value creation. Value creators, the evidence plainly shows, are more effective negotiators, develop stronger relationships, have better reputations—and, dare I say it, contribute to making the world a better place. In this article I lay out negotiation strategies that can help you become the best value creator possible. Preparing for Value-Creating Negotiations Before entering into a negotiation, it’s important to think through all the issues that you and your counterpart might care about. Suppose a VC firm is negotiating terms for a $2 million investment in a startup. Although the main issue on the table is the percentage of equity that the VC firm will receive, both sides should think in advance about other factors that affect the attractiveness of various deal options. These might include the value or cost of a board seat, the value or cost of consulting advice from the VC firm, options for additional equity in the future, and so on. The goal is not to create unneeded complexity but to foster the conditions for crafting an agreement that is better for both parties than what they might arrive at simply by haggling over the equity percentage. (For more on this topic, see Deepak Malhotra’s May 2013 HBR article “How to Negotiate with VCs.”) Once you’ve identified a broad list of issues, the next step is to determine their relative importance. Every multi-issue negotiation will require you to make trade-offs, explicitly or implicitly. If you are the VC firm, how much equity are you willing to give up to secure a consulting contract with the startup? How much would you give up for a board seat? Such calculations can be difficult, often involving what feel like apples-to-oranges comparisons. If you rely on intuition to make those trades on the spot—rather than consider in advance how many oranges you would give up for 10 apples—you’re likely to leave value on the table. In my simulations, I often provide participants with a description of the range of issues at hand and a score sheet that weights each according to its importance. The metric might be in dollars or points. Scoring systems help participants evaluate package offers from the other party and structure their own offers strategically. In the weighting process, they usually find that some issues matter greatly to them but don’t matter much or at all to the other side. It’s critical to identify those issues. Say you’re negotiating a job offer. You may be indifferent about whether you start your new job in June or July. But if your potential employer strongly prefers that you start as soon as possible, you’re positioned to give it something it values at no cost to you and get something of value in return (such as a preferred initial project). Or imagine that you’re buying a house, and your mortgage is secured. A contractor friend looks the place over before you submit an offer and confirms that the house doesn’t have any major problems. You are positioned to make your offer on the house without an inspection or mortgage contingencies. This concession costs you little, but it might be of significant value to a seller who wants assurance that the sale will go through. It might also make your offer more attractive than those of other bidders. Many executives I work with point out that no actual negotiation comes with a weighted score sheet. That has been my experience too. When I ask them whether such a tool might be helpful, I see a light bulb go on in their heads: We need to do this. (See the sidebar “Using a Weighted Score Sheet to Evaluate Multiple Offers.”) See more HBR charts in Data & Visuals Strategies for Value Creation at the Table I often ask experienced executives whether they think it’s best to start with the easy issues in a complex negotiation or the tough ones. Many respond that the easy ones should be tackled first. They argue that this allows negotiators on both sides to build trust and gather momentum. If you start with a difficult issue, they say, you might derail the negotiation from the start. Other executives argue that it’s better to begin with the tough issues. If you can’t reach agreement on those, they say, there’s no point in wasting time on less important things. Just move on to an alternative buyer or supplier. A third group says simply, “It depends.” All three groups are wrong. That’s because I’ve asked a trick question: No issue should be resolved first. Any process that negotiates the issues sequentially is a barrier to finding the trades across issues that allow for value creation. This doesn’t mean that you need to talk about everything at the same time. But it does mean that you should avoid finalizing an agreement on any one issue before you’ve had the opportunity to discuss them all. Once you have a better idea of the totality of issues on the table, you can begin exploring relative preferences across issues, finding trades, and creating value. In economics lingo, your goal should be to jointly define the Pareto-efficient frontier—that is, the range of options such that there is no option that is better for one or more parties without making another party worse off. All too often, however, negotiators fail to share information about preferences on the various issues, fearful that they will be exploited if the other side knows what they value. They keep all their cards hidden and assume that this is the secret to being a tough negotiator. To elicit the information necessary to create value, resolve conflicts, and reach efficient agreements, I recommend four strategies. You should have all of these in your toolbox and know how to select the right one for a given situation. Strategy 1: Build trust and share information. Imagine you’re the CEO in the technology transfer scenario. The two divisions are each rewarded for their own profitability; you and the company’s shareholders are affected by the combined profitability across the entire organization. Naturally, you want both divisions to share all their information openly and honestly so that they can make a creative deal that maximizes total profit. Yes, each division will care about how much of the pie it claims for itself, but you don’t want that to keep them from figuring out ways to expand the pie. There is another key issue in the negotiation besides the transfer price: Division A wants to preserve its competitive advantage by keeping the technology out of the hands of its rivals; Division B wants to use the technology in its products to boost sales to customers, including to Division A’s rivals. To make the best deal, the divisions need to reveal to each other how much the restriction on selling to competitors would cost Division B and how value would be created for Division A by protecting its technology. Those assessments should dictate what deal creates the most value for the company. Many executives have told me that they find it tougher to negotiate with people inside their company than with outside suppliers and customers. To me that suggests a big problem. A main responsibility of leaders is to create an organizational culture in which people are trusting, trustworthy, and open about information, including about how much they value the various issues on the table. If you can create a culture of trust, you’ll be well positioned to focus on value creation. In many negotiations, of course, trust between parties isn’t strong enough for that kind of openness. But that doesn’t mean we should give up the pursuit to create value. Strategy 2: Ask questions. Part of your job as a negotiator is to learn as much as possible from the other party about what it wants so that you can make an attractive offer that creates ample value for your side. That means acknowledging openly what you don’t know—and asking questions. The other party won’t always answer them, but it’s certainly more likely to share information if you ask than if you don’t. The trick, of course, is knowing how to pose the right question. “Can you just tell me what you really want?” is less likely to lead to useful information than “Can you help me understand how important various issues are to you so that we can put an offer on the table that will be attractive to you?” or “Of all the issues you have mentioned, which is most critical to your team?” or “How much of issue A would you give up for an extra unit of issue B?” Asking questions is especially important when the other party makes an offer that surprises you or that you’re skeptical about. Suppose the VC firm looking to invest in the startup keeps pushing its consulting services in the negotiation. The startup might view this as either unreasonable or a distraction, given that what it cares most about is funding. But an astute negotiator, recognizing that this is valuable information, would probe deeper: Can you tell me more about your consulting services and why you think we need them? Would you accept contingent payment for the consulting services based on the cost reductions they create? Are you willing to accept a lower equity position in the firm if we accept your proposed consulting arrangement? The VC firm’s answers may provide very useful hints about whether the consulting arrangement is likely to add value to the deal. Strategy 3: Give away some information. What should you do in a negotiation when trust remains low and the other side is not responding to your questions? Consider giving away some information. Humans tend to reciprocate behavior. If you yell at somebody, that person is likely to yell back. If you apologize, you often get an apology in return. And if you provide useful and honest information to the other side, you are likely to find that your counterpart is more willing to share information with you. That’s what’s known as the norm of reciprocity in action. It’s critical to share the right kinds of information, of course. Rarely should you start by sharing your reservation value (the value of the least favorable deal you’d be willing to accept), because that would only help the other side claim value from you. But once you’ve jump-started the process by sharing some of your priorities, the flow of information is likely to begin, whether your counterpart is a skilled negotiator or not. Consider a graduating MBA student who wants to negotiate the location and start date of a job offer. How might she provide information to get the best outcome? Imagine if she said the following: “I hope we can reach a mutually beneficial agreement. I prefer your firm over my other options. But you seem to be leaning toward making me an offer in Chicago, and I would really value spending my first two years in San Francisco, because my partner was just accepted into the MBA program at Berkeley. In addition, my partner and I are getting married in June, and a later start date would allow us to take the honeymoon that we have planned for quite a while.” Notice that the candidate has not refused an offer that fails to meet her preferences, but she has opened up a dialogue about her priorities and what the firm might do to make its offer more attractive than the others she is considering. Strategy 4: Make multiple offers simultaneously. Despite your best efforts, you may find yourself negotiating with opponents who resist sharing information. In those situations, you’ll need a tactic that elicits information without the other party’s directly providing it. That brings us to our fourth strategy: Instead of making just one offer at a time, make several at once. The offers should be of equal value to you but differ from one another on the issues at stake. Our VC firm could simply propose a 27% stake in the startup for its investment. But a more fruitful approach might be to simultaneously make three offers that it perceives to be of equal value: a 27% stake for $2 million; a 24% stake for $2 million and a consulting contract for advice on manufacturing and distribution for a fee of $400,000; or a 20% stake for $2 million, free consulting on manufacturing and distribution, and an additional 8% stake if the startup (a) obtains a viable co-manufacturing agreement within 18 months, (b) gets its products in at least 2,000 retail locations within 24 months, and (c) secures at least $2 million in its next round of funding within 30 months. Note that the last option might ultimately leave the startup with the smallest stake, but that stake would be worth much more overall if all the performance conditions are met. The ball is now in the startup’s court—and its response can be telling. Let’s say the startup responds that none of the three offers is entirely acceptable but the third is the best starting point for further discussion. That response reveals where more value can be created and provides the VC firm with information that it might not have gained by asking direct questions. It also signals the firm’s willingness to be accommodating and its interest in moving forward in the negotiation. Photographer Roberta Neidigh explores the visual dialogue that occurs at the property line where two plots of suburban land meet. Note that the startup does not have to accept any of the offers to signal its relative priorities. Its desire to negotiate the third offer puts the VC firm on a path to a value-creating deal, even if it shaves a good number of percentage points off the up-front stake. From there, the VC firm can tailor the deal in a way that continues to expand the pie. So which of the above negotiation strategies should you start with to create more value? That depends on the context. If you have a great relationship with your counterpart, strategy 1 will be the obvious choice: You share information, turn the negotiation into a problem-solving session, and work together to define the Pareto-efficient frontier. If your relationship is good but not good enough for strategy 1, move on to strategies 2 and 3. In cases where trust is low or the relationship is weak, strategy 4 can help you create value. It’s Not Over Just Because It’s Over There’s actually a fifth strategy that I recommend for value creation, but it’s one to use after you’ve reached an agreement. Many of us have made deals we aren’t fully satisfied with— and perhaps the other side isn’t either. In such cases, there may still be value left on the table. So why stop just because you’ve come to an agreement? Why not try to improve the deal with a post-settlement settlement (PSS), an idea first suggested by the decision theorist Howard Raiffa. Imagine you’ve just reached an agreement with a tough counterpart and want nothing more than to put the long, difficult negotiation process behind you. Resist that urge. Instead, consider telling the other side that you are committed to implementing the agreement as is, but then note that it might be beneficial to meet one more time to see if terms could be added to make the deal better for both of you. You may find that after shaking hands on the deal or signing the agreement, everybody is feeling less adversarial and more open to sharing information. Be sure to clarify that in proposing a PSS you are not reneging on the deal or looking for additional concessions. Be clear that the initial agreement will remain in place unless you identify additional wise trades and come to a new agreement that creates more value. And there’s no reason you have to negotiate a PSS immediately upon agreeing to your initial deal. It might be best for the two parties to work together for a few weeks to give themselves time to establish trust and better understand each other’s interests. Value Creation as a Way of Life We all negotiate constantly. I negotiate with my unit head over my teaching assignments. I negotiate with colleagues on who will do what work on a project. I negotiate with consulting clients about the scope of projects and my fees. As a small-stakes investor, I negotiate with startups. I negotiate with my spouse every day. None of the people I negotiate with would describe me as a pushover. But I hope and expect that they would describe me as a good partner, creative at finding mutually beneficial agreements, and focused on how our agreements affect both of us rather than on whether I “won” or “lost” the negotiation. I do care about claiming a reasonable percentage of the value created for myself, but I find it far easier and more effective to spend more of my efforts on expanding the pie than on claiming it. And I really don’t like waste. In negotiation we waste value when we fail to find mutually beneficial trades. We can, and should, do better. The strategies I’ve laid out in this article are a great way to start. Editor’s note: Max H. Bazerman is the author of Negotiation: The Game Has Changed (Princeton University Press, 2025), from which this article is adapted.
