negotiating – Scalable Startups

How to succeed with fixed price projects

Overhead costs

When thinking about costing of projects, there are a lot of hidden costs. For fulltime folks, there is the cost of overhead around office space, supplies, training, liability & health insurance, retirement, time off and even severance in some cases.

There is also the cost of time, to hire the right team, manage them, and bring all the pieces together to success product out the door.

Lots of intangibles.

Evolving scope

When looking at a project, to come up with a realistic fixed bid, the scope must be carefully considered. If the bridge has two spans at either end and you decide to add one in the middle, does that mean a project of twice the size?

Both the vendor and manager must together attempt to break down the full scope into smaller pieces. Inevitably there will be some amount of emergent tasks and the scope will change and evolve.

Both consultant and customer must be realistic about this. You can call them product features or in the agile universe stories, but at the end of the day when you have many pieces surprises will happen.

The devil is surely in the details!

Horse Trading Skills

Given that we know things will change, the customer and vendor should plan for change.

If both parties have a realistic perspective, there is the possibility of exchanging original scoped items for emergent or evolving scoped surprises.

That is both need to be comfortable doing some sort of horse trading, to keep the levels balanced. The client then gets some leeway, as does the consultant in deliverables.

It’s not easily, but truly necessary in a fixed priced project. Because a scope never really sits still.

Underbidding

Another approach that may work is underbidding to win the project. Here your scope is expected to change, and it becomes a painful process each time. If you are strong on sales, this may work, but you’re sure to get an endless stream of change orders, and many many scrapes and bruises.

Business lessons from brokering a half million dollar deal

I’ve had my Manhattan loft in the market for some six months now. After dropping the asking price a couple of times, buyers are finally circling, and I’m close to finalizing a deal. In that time however, I’ve learned some big lessons. Real Estate, is the epitome of cutthroat capitalism and as such has some very potent lessons to teach about business.

Understand Interests – Two Sides to Every Argument

Brokers have an interest – to make their fee; buyers have an interest – to lower the selling price, sellers have an interest to get the highest selling price. On the surface this may seem self evident. But dig a little deeper and you’ll learn more. Brokers are somewhat aligned with buyer and seller, but like a cab driver preferring lots of short trips, their incentive is to do more deals. Fewer deals with higher margins would actually cost them. A 1%-2% higher selling price may be significant to your bottom line but meaningless to theirs.

[quote]Business Lesson 1 – Pay close attention to each party’s interests and you’ll understand the negotiating dynamic more clearly.[/quote]

In brokering, like war, no one plays fair

Each industry has it’s own ugly side. No one calls back. No one emails back. There are no pleasantries. In some businesses where credibility and reputation are built over time, people do care–little bit. But in brokering a large deal they don’t. Silence means “Hey, thanks for going out of your way to give us an hour of your time even though we were late. We don’t care. We no longer need you & we’re not gonna respond.” Got it, heard you loud and clear!

[quote]Business Lesson 2 – Be prepared for selfishness and deception. In some cases watch out for cheaters and even fraud. Don’t let this color all your interactions, but be aware that some parties may not have the same scruples as you do and some may even break the law. [/quote]

Markets are bigger than you are

You may think your house or apartment has some intrinsic value, based on renovations or the time you’ve held it, or some other more personal metric. However the market is ultimately what sets the price of the asset. Market trends can swing wildly and irrationally so be prepared to “get real”, as they say in the business.

[quote]Business Lesson 3 – Market forces set the price of a good or service. The door swings both ways so when there is a greater supply be prepared for the price to go down, and when location, asset or skills are in great demand, be prepared for the price to go up.[/quote]

Buyers move on emotion; facts get you only so far

Salesmen tell stories. It’s their job to engage, stir passions, get people to move. Sometimes these yarns are taller than you or I might like, but if people knew exactly what they wanted, brokers wouldn’t exist. This occurs across the spectrum in sales.

[quote]Business Lesson 4 – Pay less attention to the facts and arguments a salesmen presents to you. Only the underlying interest of each party will tell a clear story of motivations. Weigh that along with the market appetite and you should have a good idea of the right price.[/quote]

Protect your interests and time

Over the months I’ve been on the market, I’ve had countless brokers try to sell me their services. An exclusive seller agreement is valuable to a broker as it allows them to control the process and control the fee distribution. One broker made an appointment to come by with their buyer over a holiday weekend. Following up at the appointed time, they explained that they were running late though frankly the broker sounded hung over. Upon arrival they brought no buyer. Seeing my irritation, they quickly fabricated a story about a phantom buyer and their specific requirements. After wasting a few hours of my time and breaking up my holiday weekend, I never heard from them again. Not fun.

[quote]Business Lesson 5 – Qualify your prospect before you grant them your time. There are many parties who can and will waste your time if you’re not careful. Be diligent about weeding them out before clearing your schedule for them.[/quote]