Three Tests For Negotiating A Software Deal

Negotiating a software deal–from either side of the table–is different from many other negotiations: here are three tests to apply.

Three Tests For Negotiating A Software Deal

Negotiating a software deal, from either side of the table, can be different from many other negotiations that you enter into. I have been surprised over the years at how folks who are successful in other domains can fail one or more of the following tests as they negotiate a software deal.

1. Have You Created the Basis for an Ongoing Business Relationship?

Software is the promise of a relationship: software typically involves getting your custom information into a new format (or creating information you would later like to translate into other formats) and almost always involves process and habit changes. The expectation on the vendor side is that the customer will contribute not only bug reports and enhancement requests but also additional maintenance and license fees over time. The customer expects the vendor to continue maintaining and enhancing the product in response to general changes in the business and technology environment and specific customer requests. If the negotiation leaves such ill feelings on one or both sides that a mutually beneficial relationship is out of the question, it’s not a good deal.

2. Have You Assessed Both Yours and the Other Party’s BATNA?

In their 1981 book, “Getting to Yes,” Roger Fisher and William Ury coined the term “Best Alternative To a Negotiated Agreement,” abbreviated as BATNA. All parties have a BATNA. It describes the status quo ante or likely result for a side if an agreement cannot be negotiated. You must continually assess the BATNA for everyone involved in a negotiation, including your own.

• Explore the other side’s perception of their BATNA from the beginning. Their perception of their options will shape their negotiating position.
• Be careful in multi-way negotiations as a smaller firm, you may have been brought in just to give the appearance of adding a key feature or a lower price to the other side’s BATNA. For example, your offer may be used to induce another bidder to cut price.

3. Are You Withholding Material Information You Plan To Keep Secret After The Deal is Signed?

Assume everyone finds everything out! It’s rare that a negotiating ploy can be kept secret over the long run. Active misrepresentation, in particular, can be destructive to any ongoing relationship. However, you are not testifying during a negotiation. While I believe you should tell the truth and nothing but the truth, you don’t have to tell everything you know, only facts that would materially affect the other party’s assessment of the deal.

• You do not have to disclose trade secrets, source code, or other proprietary information. But you do have to meet your commitments.
• Don’t assume that the other side is telling the whole truth: trust but verify.
• In “Negotiations and Resolving Conflicts: an Overview” Prof. Edward G. Wertheim of Northeastern University includes this guideline from a British Foreign Service Manual on diplomatic negotiation: “Nothing may be said which is not true, but it is as unnecessary as it is sometimes undesirable to say everything relevant which is true; and the facts given may be arranged in any convenient order. The perfect reply to an embarrassing question is one that is brief, appears to answer the question completely (if challenged it can be proved to be accurate in every word), gives no opening for awkward follow-up questions, and discloses really nothing.”

Related Blog Posts

• Address Technology, Management, and Executive Concerns To Close Enterprise Deals
• We Help Teams of Experts Find Leads and Close Deals
• Legal Advice: Start With a Plain English Agreement That Covers Key Deal Points
• Crafting Deals with Customers and Partners