Why We Suck at Negotiating

Blair has six challenges creative agencies face when it comes to being compensated for the actual value they generate for their clients.

Transcript

David: Blair, today, this is a self-styled title that you gave it, and you said, "Why I suck at negotiating." Oh, I misread that. Sorry. It's why we suck.

Blair: Full disclosure, I don't see myself as a great negotiator. On some things I'm a very good negotiator, but a lot of stuff in my life-- I was just thinking about something else this morning, "Yes, I should have negotiated a better deal." It's not my nature to grind out the best deal possible, but when I set my mind to it, when I'm in the mode I'm pretty good at it.

David: When you're mad or tired, that's the best time to set your prices. You're on a plane coming back from a difficult client, you're pissed off and you're tired, it's like, "This is what's going to change people." The real topic is why we suck at negotiating, and by we you mean those of us in the creative fields, marketing, advertising, PR, design, digital and so on, why we as an industry struggle with this even more than normal. I think this is going to be a pretty interesting one because you've got two perspectives from people listening how they would rate their own ability to negotiate, and then when they look across the landscape, what they think about their peers, too. I'm excited about this one.

Blair: You always sound so surprised when I put forward a good topic. I'm excited too. I'm glad you're excited.

[laughter]

David: Half the topics are ones that you come up with, so it's a legitimate fear I have. You've got six of these reasons. You want to give us a little background for this, first?

Blair: These five things I think about and have talked about a lot. Some of them have come up before, but it's the last one, the sixth one. I feel like I was struck over the head by a couple of key points in a conversation I had in my other podcast. You know I have another podcast, right?

David: Yes, I know. Yada. Moving on.

Blair: Leah and I, Leah Power, my co-host, we were interviewing Rory Sutherland. I'm a big fan of Rory's, vice chair of Ogilvy UK. Anyway, we'll get to it. We'll get to the sixth one. To me that's the revelation, so I'm saying to the listener, stick around until the end.

David: The first one is, we're emotionally attached to the work. I don't think there's any doubt about this, but give us some points to explain what you mean by that.

Blair: I describe our target market at Win Without Pitching as creative firms, you've broadened out your description of the market. The subtitle of this podcast is Conversations on the Art of Creative Entrepreneurship. The reality is that these creative businesses that you previously could put into the very clean categories of advertising, design and then web or digital and maybe PR as a fourth one, they're all blending in with professional services. In some of our client's business, some of the listeners are not creative people, they work in a pure advisory firm of some kind that doesn't have any creative services.

If you are a creative or the firm has some sort of creative output, so you have creative people, typically people who are designing and writing in the firm, then there is this innate tendency for creative people to get emotionally attached to the work, because creators are put on this earth to create, whether that's real or just the feeling, "I'm a creator, I must create." Being a creator of anything, you're not really a marketer if you see yourself as a creator, because a marketer looks at the market and asks themself, "What's missing?" Then they go build the product or service to match the missing or the poorly met need.

Creators are really producers. The producer is basically the opposite of a marketer, where a producer doesn't look at the market and ask themselves, "What's missing?" They say, "I know how to make X. My skill is making these things, therefore I'm going to build a business making X, and then I'm going to hope that there's a market for this." Creators are even one step further than a producer, they're craftsman producer, craftspeople producers. They lovingly hand-make what they do because of this innate feeling, "I'm put on this earth to do this. This is my gift. I must do this, and then I hope I can find people to sell to."

This is my long-winded way of saying they are emotionally invested in the work. "Here's this thing I made. Do you want to buy this?" "Yes, I'll buy it, but I don't want to pay what you're paying." It's really hard for us to negotiate because part of what we're selling, it contains us. We invest little pieces of ourselves, as creative people, into the work that we create. It is an highly emotional exercise to have to get into this back and forth with somebody who's trying to beat us up on price, who's telling us that they don't value our creation the way that we value our creation. We're just emotionally attached and at the root of it, it's because we are creative people or working in creative firms.

David: Yes, it's almost like the difference between a landscape designer and a landscape firm that cuts the grass. It's like one, I'm leaving a part of myself in the design for this thing, but the second one, no, this is really about money. I want to do a good job, I want it to look good when it's done, but it's really about money. There's no personal expression on here. What you're saying is you lose a little bit of negotiating power because you really want to do this and the objection from the client isn't being read as just, "Oh, you don't like my price." It's like, "You're not giving me an opportunity to be who I am."

That's so important to me that maybe I should compromise because once I get in there, I'll show you how good I am, or something. The way you've described that's really interesting. We're emotionally attached to the work, and you're saying this is the first of several reasons why we suck at negotiating, because we are personally invested in it.

Blair: Yes. Your landscape designer versus lawn cutter example, the landscape designer drives by the property for years and says, "I did that."

David: Yes.

Blair: The person who cuts the lawn doesn't drive by and go, "I did that," in the same way, with the same pride, with the same attachment.

David: [laughs] Yes. All right. The second one is this. We've got the wrong people leading the negotiations. I presume this is somewhat attached to the idea that the people leading these negotiations are emotionally attached to the work.

Blair: If you're a solopreneur creative person, then you're negotiating your own stuff. You're vulnerable, you're feeling the personal rejection when a client says no, or tries to beat you up on price, et cetera. As the firm grows, as quickly as you can you want to separate those emotionally attached people from the front lines, from the pricing and the negotiation lines. There are lots of firms that I'm familiar with that have grown large enough to do this, and they don't do it. You know what I'm surprised by? When you get to the large agency, I mean large independent, not even holding company-owned, but certainly holding company-owned, almost all of the negotiating and a lot of the pricing is actually led by the finance department.

I'm surprised that that does not happen at still medium to large firms, but smaller than the largest. I'm surprised that doesn't happen with smaller firms. Obviously, it's not going to happen in the smallest firms, but I think we, as a body of creative businesses, don't move the negotiation away from the vulnerable creative person to somebody more removed, like finance, soon enough. I think part of that lies in the fact that when you have the creative person at the head of the business, they grow it to a certain size. They're under the mistaken belief that they're actually pretty good at negotiating, and they're not.

David: Like that poll I ran in LinkedIn recently. Maybe we'll have to talk about that at some point. Here's what I realized as you were describing that. The individuals in the world who make the most money annually pretty much all have agents.

Blair: Yes, that's a great observation. Are you still there?

David: Yes, I'm here. I'm just swallowing how amazing my statement was and even it made me just silent.

[laughter]

Blair: Marcus, keep that in. The audience needs to know what I put up with. [laughs] Earlier on in my consulting career, I remember when I started to see the correlation between huge profits and creative firms that were owned and run by non-creative people. You get a business person running a design firm, and I remember the first time I saw it. This person bought a design firm, they're not a designer. Hugely profitable. Just not emotionally attached to the work the way the creative director was.

David: I had a client like that in Chicago. He bought a firm, he had no experience in the industry. It was a 17-person firm. He then sold it for many tens of millions of dollars as a 300-person firm later. I found it difficult to work with him because there was so much he just didn't know about the field, but that was an advantage to him. When I think about setting this up-- So your point about, and this is all under the second heading, is we've got the wrong people leading the negotiations. Sometimes you have to have an account person leading the negotiations, but they're in the same category, I think you would agree, of folding too quickly.

Part of to make that system work, you've got to have people internally who have a very matter-of-fact approach to finance and profit. Whoever's on the front lines, if they are missing that component that makes them successful, they better be terrified of that person back in the shop so that if they start giving things away, they know they're going to be in trouble. They need to be more afraid of that person than they're afraid of the client.

Your point here is that we've got the wrong people leading negotiations, and you're saying that it's not necessarily a function of the account people, but that finance needs to be more involved. Now, what is it about finance that makes it more involved in that? Is it because of this first point? Is it they're not emotionally attached to the work and they're driven towards a mandate of profitability? What makes the finance people better?

Blair: Yes, they're robots. They're ruthless, coldhearted bastards who will go get the goddamn money. Oh God.

[laughter]

David: Hey, Leah, how are you?

Blair: Shout out to my other podcast partner, Leah Power, comes from Agency Finance.

[laughter]

David: All right. First, we're emotionally attached to work. Second, we've got the wrong people leading the negotiations. Third, we've got no leverage. This is a pretty big one. What specifically do you mean by the fact that we've got no leverage?

Blair: There are various forms of leverage. Again, referring for the 10th time to the time, many years ago you called me in the snowstorm and said, "Where does confidence come from?" I had a really good answer and you said, "No, that's wrong." It comes from two places, options or deeply held beliefs. Options is the primary source of leverage, and that's a function of your positioning. How well positioned are you in the market? What strategy have you chosen? How well is it working? How meaningfully different are you seen to be? Then the second part of it is your confidence, your deeply held beliefs.

The first part, when you're poorly positioned and you have this fungible offering that's directly interchangeable with that of numerous competitors, you have no leverage. If you ask for a better deal, if you imply that you're going to walk away or you do walk away, the client doesn't care, they're just going to go to the next one because they know one of these three, four, thirty-four different firms they're talking to or thinking about, they'll get their price from somebody else.

Now, I've got this down at number three. 10 years ago it would've been number one, maybe number two. We've got no leverage. This is changing a lot. I would suggest that over half of the listeners to this podcast are in a place of pretty good leverage, certainly better leverage than they would've been in 5 or 10 years ago

David: Because of their positioning?

Blair: Yes.

David: More and more it's seeped into this industry.

Blair: Negotiators like to use this term, BATNA, best alternative to a negotiated agreement. What do you have if this deal doesn't work out? What do you have? That's the option in your model. What's my option? Sometimes your BATNA, or your option, is just your deeply held belief that there's always another deal out there. Just the confidence, we're good at what we do, we've survived this long. Our pipeline might not be deep and rich right now, but things always work out. I'm not going to demean myself, so I'm going to say no, or more correctly, I'm going to push back and push for the deal that I want.

David: Man, there's so much to talk about here, about leverage and withholding your expertise and how easy it is for a client to find a substitute, but I'm going to leave that here so we can get through all six of these points. We've got no leverage. That's that one. The next one, number four is we see the client as the prize. This is a personal confession, I've heard you talk about this and usually it comes across when you say something like, "I am the prize to be won."

I've never really understood that fully. I didn't know I misunderstood it, but it never really hit me until I read the notes that you sent me for this, and I started to see it a little bit differently. This is such a powerful message, and it's not in a silly rah-rah motivational speaker stuff, it's just real. I'm excited about this one. We see the client as the prize. This is the fourth problem we have.

Blair: This idea comes from Oren Klaff in his book Pitch Anything. It's been a while since I read that book. There's some great takeaways in it if you haven't. I remember somebody suggested it to me and I thought "I wrote a book called Win Without Pitching. I'm not reading a book called Pitch Anything." It's really about fundraising, financing. You're trying to raise venture capital, specifically. It's a fantastic book and there are lots of great things in it. This one that I am the prize, I'll just go a little bit more Oren Klaff on this.

Klaff talks about frame control. The frame is the view through which you view the social interaction. Two people come together in a commercial interaction and they're both looking at the situation and the other party through a certain lens. I've talked about this a little bit before. I'll generalize that the client sees themselves as the prize to be won in the relationship and the agency is the vendor. A poorly positioned, poorly trained agency looks through the same frame. There's no clashing of frames that Klaff says often happens. He calls it frame control. At the end of the interaction, one frame will dominate.

The frame that I want our listeners to bring, and our teaching is built around this, is you show up with the view that "No, I am the prize to be won here." Both parties see themselves as the prize to be won at the beginning in the engagement. These frames collide. They never play nice, they always collide. In Klaff's language, "One frame destroys the other," and at the end of the interaction you have the same frame. Everybody knows who's who. Everybody knows the hierarchy and the roles that will be played.

We go into these negotiations. There's no clash of frames because our frame typically is the same as the clients, which is they have the money, therefore they're the prize to be won, when we should really take stock of what we do even if we're just decently positioned, it's likely that we have far greater alternative sources of money than the client has alternative sources of expertise. So why is the client the prize to be won? We make the mistake of thinking they're the prize simply because they have the money.

David: They're a lot bigger than us, you mentioned elsewhere. They're this massive, publicly-traded company, and you're humbled in supplication that they're asking you. You're saying, "No, flip that around." Why is a $10 billion corporation even asking a $3 million company to work for them? Maybe you are pretty special.

Blair: It's a great question to ask. Even a client will flaunt that. "I've got all the money." "Surely you want my money." "How badly do you want my money?" et cetera, and we get into these dynamics. We just lose our heads when there's large amounts of money at stake. We really have to approach these negotiations recognizing and valuing our own expertise, seeing ourselves as the prize to be won in the relationship and embracing ourselves a little bit for that frame control. What I call the polite battle for control.

It is polite, but at the same time, I like Klaff's language around the violence of one frame destroying the other. I think it's helpful to think of it in both ways. I'll continue to call it the polite battle for control. At the end of that engagement, the generalization I've made many times before and we do it throughout our training, is you are either seen as a vendor or the expert, and at the end of the interaction you want to come out of that interaction being seen as the expert. If you don't see yourself as the expert, the prize to be won in the relationship going into the negotiation, it's not going to change. The client's not going to suddenly see yourself that way.

David: Apologize for this framing and come back to you and say, "Let's start over. I'll be a lot more flexible in terms of my schedule." Right?

Blair: Yes. "I negotiated away too much money from you. I'd like to give you some back."

David: The clues to this framing are very evident early in the process, too, because if you were going after something that you felt like was a real prize, this was a coup, you would modify your schedule, you would be more flexible about other things, because you want this thing. Well, if none of that is happening, that's a clue to something. You don't want to read too much into it, but I'm just saying that there are some pretty obvious clues if you're open to seeing them. One of the problems is we don't really want to see those. If we wanted to, we could see them but we're just tentatively keeping our hands together carefully, hoping to not do anything to disrupt this very precious opportunity that we have.

Blair: Precious speaks to another point. In a typical firm you're not closing a lot of new clients in a year, so there's very few of them. To me the analogy is like soccer. Why is soccer such an emotional game? Why is there this history of hooliganism, of fighting, a pent-up violence among the viewers? Somebody explained it years ago and said, 'Well, there are very few goals in a game, so there are very few emotional outlets for the natural pent-up energy that any fan or supporter would have." There are other things going on, too, but generally, that's it. You compare it to a hockey game or a baseball game, or a basketball game where they play 82 or 162 games in a year, it's like, "Eh, what's one run? What's one basket? What's one game?" In soccer, every goal is meaningful because there are few games and there are few goals, and we operate the same way.

David: That's a very important point I'd never thought of. A typical firm is probably closing three or five new clients a year, so puts a lot of weight on that one. It's almost worth compromising just to make this one happen. All right, the fifth one is we are not trained. Why do we suck at negotiating, the fifth reason is we're not trained, and maybe we have leverage but we don't know how to use it, which is different. Having leverage and knowing how to use it is different. The fifth point is we're not trained. Talk about that.

Blair: Even some firms that are well-positioned, even some firms that do see themselves as the prize to be won in the relationship, they go into the negotiation and they just give stuff away. It's because this is a skill, there is a body of knowledge around it, there are frameworks around it. It's likely when you're not dealing at the procurement level, your client is probably about as untrained as you are. Once procurement enters, there is not a procurement person who is not trained in negotiating.

That might not be entirely correct, but you should assume it's true. Your opponent is going to be really well-trained. I wrote an email on this recently, explaining to the reader what training is in this glib, tongue-in-cheek explanation where my point is, listen, you're running a business. Most businesses train their people at certain things. It was a self-serving case for people to attend the Win Without Pitching workshop, May 1st to 4th.

David: To be very specific with dates.

Blair: On this I'm talking about sales training, but we don't even talk about negotiating in basic sales training and negotiating is a skill. If you're the person who is negotiating deals with your clients and your clients are negotiating hard, man, you've got to get some training. You're showing up to this gunfight with a water pistol, not even a knife. It's another one of those areas where I think it's a bit odd how firms of a certain size do invest in negotiation training.

When the firms that are constantly dealing with procurement, constantly renegotiating these year-long or years-long contracts, they tend to be trained. As you drop down in size of firms, the line where you would expect above this line, in terms of size of agency, I would expect most people to be trained in negotiating, it's actually pretty high up there. There's very few firms lower down that are trained at it.

David: All right. We have one more, but I want to review this because the sixth one is in a category of its own. What we're talking about is why we suck at negotiating as an industry. The first five reasons were these. One, we're emotionally attached to the work. Two, we've got the wrong people leading negotiations. Third, we've got no leverage. Fourth, we see the client as the prize instead of ourselves. Fifth, we are not trained, we may have leverage, but we don't know how to use it. This sixth and final one is in a different category. You've had an awakening about this recently. You've called this sixth one, we still think this is a relationship rather than a business transaction.

Blair: I don't think this belongs in another category. I think it does in my mind because it was a new idea to me. I hadn't considered it before last week. Last week, Leah and I are having a great conversation with Rory Sutherland on the 20% Podcast. We're talking about his book, Alchemy, and how the principles apply to the role of marketing procurement. He makes the point that there are two types of capitalism. There's relationship capitalism and there's transactional capitalism. Leah added onto that and made this point specifically. She said, "It's why we're no good at negotiating."

We assumed we were in a marriage because historically the way it worked with ad agencies in particular is we were paid a percentage, we were paid media commissions. Out of those commissions we had to figure out staffing plans, et cetera. That was all internal stuff that never had to be shared with the clients. It didn't have to be negotiated. We had our revenue, and then we could figure out our costs and our profit from there based on the decisions that we made. To Rory's point, when you're in a relationship, and that type of compensation agreement was really conducive to a relationship.

When you're in a relationship, his point is there's some years where the client says, "I feel like I overpaid you this year," and then the next year it's like, "Then you brought me these other ideas, these other ways to create value," et cetera. There's this understanding that over the long run, it's a mutually beneficial relationship. Then one day procurement breaches the marketing wall, takes control of the negotiations, and almost universally-- This is being clawed back now, but back in the day, 20 years ago when this started to happen, almost universally, procurement would not view this as a relationship. They viewed it as a series of transactions.

We thought we were in a marriage. Meanwhile, for the last few years we've been paying for sex. What happens when you're in a relationship, your partner says, "Hey, I need something from you." So the client is negotiating, "Hey, I need you to do this." Okay, we're in a relationship. You need something, I'm giving it to you. "Now I need this thing from you." Wow, you really need a lot. Okay. Here you go. "Now I need one more thing from you." Okay, but I'm trusting that when I need something from you, you'll be there for me. No reply.

David: Long pause.

Blair: Then when we get to that moment when, "Hey, we need something from you." No, sorry. There's nothing left to give. This is a big generalization, but as an industry, we woke up one day and went, "Oh shit, we thought we were in a relationship, but for these last few years,this has been entirely transactional." The client got there first. We didn't get there. We woke up one day and realized, "Oh, this person I'm married to, it's not love. It's not give and take. It's transactional."

David: The client got there first, mainly because they did the training first. They viewed it as a business exercise.

Blair: They got there first because in the era of cost reductions and re-engineering and all this other '80s management bullshit, or maybe '90s management, all the stuff Jack Welch did to drive cost down and make it look like he was a hero, meanwhile, he was destroying GE. It only showed up later. All that cost reduction thinking, it came into our world about 20 years ago, and the more scientific people, transactional people, the spreadsheet people took over. Now, the good news is the pendulum is starting to move back the other way. That's the reason I launched this other podcast with Leah, is we're trying to facilitate more conversations.

We're trying to shed light on the good practices, call out the bad practices, and point out that even though marketing procurement talks a pretty good game about what they do, the reality is that only 5 or 10% of them do that, but I think the pendulum is switching the other way. When Rory said this and then Leah added onto it, it was one of the biggest revelations that I have had in a very long time. You could probably hear it in my voice. I'm actually a little bit saddened by this on behalf of the industry. Probably larger ad agencies in particular, because a lot of the specialist firms that are listening to this, the specialist independents, they haven't really had to suffer through this to the same degree. I am a little bit saddened about this fact that I almost feel like we've kind of been taken advantage of.

David: Yes, no shit. You can remove the "kind of" from that phrase.

Blair: I think the 20%, I keep plugging it, but the 20% Podcast, this other venture. It's like, let's push back. Let's drag everybody to the table. Let's do a major reset on this.

David: Okay, so I own an agency, every one of my clients is getting good work and it's a financial relationship, but none of them are my friends, personally, because when I go into a firm and I see that the principal is good friends with many of the clients, it always creates a certain amount of dysfunction. How do we apply this specifically to if it really is a transaction and not a relationship, should I be friends with any of my clients?

Blair: I'm glad you brought this up, because I don't want to leave people with the wrong message. I don't think we have to accept that this is transactional. I'll come back to your direct question in a minute. We can, if we choose to do so, if it's in our nature, et cetera. I think we push back and we point out that, listen, we're not in the transaction business. We're in the year-long multi year-long engagement business where we work together to help create value for your organization. If you want a better rate on hours or sprints or whatever, et cetera, you can negotiate me all the way to the bone, you're not better off.

I need margin. You have no business knowing what my costs are. I'm not saying you make this case explicitly. This is more your grounding, your thinking about the case that you're making. You need to be paid well. You need the freedom to make mistakes. You need the freedom to bring new initiatives to an ongoing client without having to budget for it, because there is margin in the work because you're being paid at a higher level and there's an understanding that you're in this together. I think that's just the emotional basis for pushing back on overly egregious negotiating tactics.

David: I'm trying to square this with your thoughts earlier about all over agency websites talking about we're a partner with our clients. You've said multiple times that, "No, it's really not a partnership." Is there any overlap between those? Am I confusing the two?

Blair: What I don't like about the partner word is because you use it doesn't make it true. Just because you say we partner with our clients, it doesn't make it true. In fact, I venture to guess that most agencies use that in a grandly aspirational fashion. They aspire to be partners, but they're not. That's why they use the word. If we take the semantics out of it-- Like I've said before, I've written about it. It's not true partnership until your financial incentives are aligned. You're getting paid based on value creation and/or you even have skin in the game. Now, that's a partnership, when your financial incentives are aligned.

David: Got it. I was misunderstanding this a bit earlier. We're not aiming for a world where everything is a pure transaction. We're aiming for a world where there is a partnership, but that it's a real partnership and not just one in terms alone.

Blair: There's a middle ground somewhere between transactional and partnership. Rory used the term relationship, and I think that is the right term, that we're in a relationship. Is it a pure partnership? Yes, maybe it is if our incentives are aligned. Maybe there's this gray area between partnership and relationship. You can pay us for transactions and you can beat us up on every transaction. Are you better off? You're going to show cost savings? What are you doing to value creation? The person who's negotiating that way on the other side of the table, they actually have no insight into the things that you will no longer be able to do.

David: Why we suck at negotiating, particularly so in this industry. Being aware of why this is the case will change things and then getting training and so on and tightening the positioning gaps and so on will make it even better. Thank you, Blair.

Blair: Thanks, David.