The Sweet Art of Negotiation

Paul Wineman’s story is incredible:

• Born in Hollywood
• Moved to Iran at about two
• Speaks two Middle Eastern languages fluently
• Back to the US for college
• Green Beret in Iran
• Taken hostage … Got out
• Left the US Army
• Lived in Lebanon for eight years
• Hired by everyone to negotiate for them in the Middle East
• Eventually moved to Marina del Rey

I got to experience a “meet the author” with this one. Wow!

We listened with rapt attention as he described two mentalities:

1. United States (3% of the World): This is our price. Take it or leave it.
2. 97% of the World: Everything is Negotiable

The first time he saw a price tag was at 18 years old – when he moved back to the States.

I met the author and then read his book.

Biggest take-away on the idea of US mentality is: Yes. or No.

Everyone else: Yes, or No,

For example:

• Yes, I will take X if you will Y
• No, but I will take X if you will Y

The Sweet Art of Negotiation

http://www.negotiationtraining.net/

Pricing on Purpose: Creating and Capturing Value

Finished another book on being proactive – this time with regards to pricing.

The book was a long exploration on recognizing the value of what you’re creating, and figuring out how to charge appropriately for it.

I’m in the intellectual capital business. I’m constantly solving people’s one-off problems. There’s something specific about their problem that requires my problem-solving skills.

How to charge for this?

Let’s pick a common answer – Hourly Rate.

Hourly Rate looks at it like: Desired Yearly Income / Number of Hours = Hourly Rate

And bam. Now we’ve just tied my motivation to how long it takes to solve the problem. Now I’m stuck in a cage with every thought being measured every 6 minutes. This isn’t 1984, but it’s close.

What happens if I have two clients? They both happen to have the same problem. How do I bill them?

Half equally to both? What if the first one comes a month before the second one?

It’s a hard question to discern what’s fair: is it more fair to give a refund to the first client and charge half to second, or charge the second only for the time it takes me to consult my notes? Is that fair to me?

Pricing on Purpose suggests doing away with the hourly rate entirely and charging for the value received. With both clients, they both received the same value: their problem was solved. With this model, I could reasonably charge both clients. It’s not based on hourly rate, it’s based on value received.

I made a move awhile ago from hourly rate, to daily rate, and then to monthly rate. Life was much better. Clients and I were both thinking in terms of months. But it was really just an expansion on the old model of:

Monthly Rate: Desired Yearly Income / Number of Months = Monthly Rate

The book argues it’s important to decouple the time is money mentality and charge based on value the client received.

As an etymology on the Time is Money phrase. The book says it originated with Ben Franklin. He was speaking about Opportunity Cost. It’s a snippet of a quote to a young man who is thinking about taking half the day off. Ben is saying that the man shouldn’t look at just the dollar he spends that afternoon, but also at the 5 dollars he could have made by working – so he’s out 6 dollars that afternoon not just 1.

Want the book’s answer to the hourly rate question?

I wouldn’t want to spoil a book for you.

From their website:

The book presents the theory of value—long established in economics—and details how any business can use various pricing strategies to create, communicate, and capture the value of their products and services. It takes a new approach of focusing on the external value as perceived by the customer and advocates matching price to value. Written in everyday language so it’s valuable to beginning executives as well as professional pricers and marketers, it covers:

· What and how people buy

· The fallacy of commodity thinking

· The five Cs of value

· The market share myth

· The difference between cost-plus pricing and value pricing

· A comparison of the Subjective Theory of Value and the Labor Theory of Value

· Customer segmentation strategies

Online at: http://www.verasage.com/

The author also has a blog which you can follow.

Blue Ocean Strategy

Just finished reading Blue Ocean Strategy (BOS). It’s in the vein of corporate strategy – so it’s particularly interesting to me.

I thought it was a great read on making the competition irrelevant – by being proactive with how you’re different. Versus “oh we’ll just compete on price” the book articulated well the idea of value innovation. Not simple innovation for its own sake, but a focus on creating value for the customer.

I liked their approach with the Strategy Canvas - where you figure out “what are the competing factors in my industry” and then “how am I creating a value curve that’s different from everyone else”

It prompts you to ask the questions:
1. Which of the factors that the industry takes for granted should be eliminated? (e.g. the idea of the airline industry assuming you needed reserved seats with hub and spoke was questioned by Southwest)
2. Which factors should be reduced well below the industry's standard? (Southwest reduces the frills)
3. Which factors should be increased well above the industry's standard? (Southwest thought more on-time arrival – their model is “wheels up”)
4. Which factors should be created that the industry has never offered? (direct flights)

The decision between “should I drive to Vegas” versus “should I fly” has obvious tradeoffs between cars and traditional airlines. Southwest created a unique value curve that says “we can be cheap, depart on the hour, have no frills, and still make coin” And they’re doing ok.

So perhaps think of the strategy canvas and “ERIC” in your industry.



From their page:
1. BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years (1880-2000).
2. BOS is the simultaneous pursuit of differentiation and low cost.
3. The aim of BOS is not to out-perform the competition in the existing industry, but to create new market space or a blue ocean, thereby making the competition irrelevant.
4. BOS offers a set of methodologies and tools to create new market space.
5. While innovation has been seen as a random/experimental process where entrepreneurs and spin-offs are the primary drivers –BOS offers systematic and reproducible methodologies and processes in pursuit of innovation by both new and existing firms.
6. BOS frameworks and tools include: strategy canvas, value curve, four actions framework, six paths, buyer experience cycle, buyer utility map, and blue ocean idea index.
7. These frameworks and tools are designed to be visual in order to not only effectively build the collective wisdom of the company but also to effectively execute through easy communication.
8. BOS covers both strategy formulation and strategy execution.
9. The three key conceptual building blocks of BOS are: value innovation, tipping point leadership, and fair process.

Their site is: www.blueoceanstrategy.com