As a business buyer, you want to be fully and accurately informed about the business you’re buying. As a business seller, you need to know that the person you’re sharing your business model with is trustworthy and is negotiating in good faith. Out of all the challenges to manage in a negotiation, trust is perhaps the most critical.Out of all the challenges to manage in a negotiation, trust is perhaps the most critical. Click To Tweet
While There’s a desire to negotiate with a trustworthy counterpart, and a need for both people to have accurate information from the other, there are also incentives for both parties to not be fully transparent, and perhaps, even lie and mislead.
The partially transparent part might not be malicious. You might decide to not share the entirety of your business model with everyone you speak with out of concern for your intellectual property. The lying and intentionally misleading part is a problem. A person selling their business might intentionally omit major risks, or an interested buyer might negotiate for the sole purpose of learning your business model so they can replicate it.
While differentiating between trustworthy and untrustworthy negotiators is critical, it’s not easy. Research on lie detection illustrates that even experts (i.e police investigators or judges) struggle with accurately predicting whether a person is deceiving them or not.
Trust is key, but knowing who to trust and how much to trust is difficult. Below are some research based strategies on how to navigate the trust challenges in your negotiations.
Honest Information Sharing
One way to initiate honest information sharing is through collaborative and friendly attitudes towards the other. Research suggests that people tend to remember and disclose greater amounts of information when they feel comfortable and at ease. Being cordial, sincere, and empathetic by showing interest and actively listening can encourage the other to share. Additionally, disclosing your interests and goals first, can also incentivize the other to reciprocate and share more about their interests.Being cordial, sincere, and empathetic during a negotiation, by showing interest and actively listening to your counterpart can encourage them to share information they otherwise might not divulge. Click To Tweet
Trust development is especially risky in negotiations where both parties don’t have a previous relationship and the prospects of future interactions are limited. This is usually the case in negotiations on Flippa. Both buyers and sellers meet for the first time via this platform and it could likely be the last time that they ever interact.
Initiating honest information sharing is the first step- but it has to be coupled with a strategy that mitigates your risk of exploitation. Research suggests that the best approach to the trust challenge is to be mutual, incremental, and cautious.
- Mutual and Incremental: If you’re unsure about the attitude of the other side, test their willingness to share information. If you initiated the negotiation with disclosing information about your business or about your acquisition interests, follow up with an inquiry about their interests. Reciprocity is key to create a climate of trust. If sharing is reciprocated and both parties continue to put key cards on the table, opportunities for building a sound deal increase. If your effort of sharing information is not being reciprocated, try probing the other about their interests, repeatedly and in different ways. Question asking can be an effective tactic at getting them to open up more. If your inquiries are rejected and your counterpart has not revealed much, it might be time to be more vigilant with your information.
- Cautious: Before your negotiation, identify the types of questions you will be asked, and how much risk revealing the answers to those questions poses for you. Share away with the less risky information, but be cautious with information that could give away bargaining power, or information that can expose you to unnecessary risk. Ie. You might not want to reveal the exact recipe of your business model, but sharing general characteristics of your customers probably won’t risk your business.
- Bonus: Research shows that people are more inclined to lie by omission (not revealing the whole truth) than by commission (falsely answering a question when asked). So when asked to elaborate and thereby make direct statements that are lies, some people cannot do it and will back away from earlier statements. If you suspect the other negotiator of not revealing the entire truth, inquire as much as possible to identify the consistency of the information being provided to you. If the narrative and key facts continue to change, be cautious.
Trust presents opportunities and challenges in negotiations and needs to be managed carefully. You can manage these challenges by setting an environment of open and honest communication, and by minimizing your risk through incremental and calculated information sharing.
For more negotiation tactics when looking to buy a business, check out this article.