9 Business Contract Negotiation Strategies Every Startup Should Know

Negotiation can be tough to get right, but there are many good negotiation strategies that can help. And without the kind of high-drama confrontations you’ve seen in countless boardroom dramas. 

The contract negotiation strategies covered here center less upon brinkmanship and macho posturing and more upon qualities such as clarity, empathy, active listening, and an ability to see common ground. But before we get started on looking at these strategies, let’s examine why contract negotiation strategies are especially key for startups. 

Importance of effective contract negotiation for startups

Startups are, by their nature, vulnerable. They exhibit a high attrition rate.

Because they are just starting out, they usually don’t have the financial buffer some of their more experienced counterparts have. They may have less expertise on hand—this may be their first business contract. They will certainly not benefit from an established brand profile that says something about them to those they are negotiating with. 

This last point is central. A startup will have to start from scratch in terms of impressing itself on the mind of the person on the other side of the table. This can be significant, in that an established company brings all its collateral, including its brand, into the negotiation. If you’re negotiating with a powerful conglomerate, this should be uppermost in your mind. A startup with a profoundly smaller presence won’t enjoy this kind of unspoken advantage.   

As smaller operations can suffer when it comes to negotiating clout, the following contract negotiation strategies can be hugely important. 

9 Key business contract negotiation strategies

Establish your goals before negotiating

It’s remarkable how often a business party will enter into contract negotiations without having a clear idea of what they’re hoping to achieve. In addition, remember that you’re likely going into a negotiation on behalf of others as well as yourself. Therefore, make sure you’ve consulted stakeholders to accommodate all relevant views.  

Think about context-dependent goals. For instance, if you’re running a business and you’re trying to secure a small business hosted VoIP provider, you will have some specific requirements depending on the industry you work in. So, you need to be clear on the features you’ll require in your phone system, to make sure it hits the mark.  

Other essential facets that you’ll want to keep in mind when establishing your goals are:

• Timing
• Quality standards
• Price and payment terms
• Cancelation terms

Depending on your negotiation style, you may want to communicate these goals to your negotiating counterpart so that they know what you’re trying to achieve (and what your red lines are). 

Understand the business relationship dynamics

Your contract negotiation strategies should include a realistic conception of how the parties intersect. If one is delivering products to the other, what are the products, and how are they used? How do businesses interact with each other? Is it a straightforward business-client relationship, or is there more nuance to it?  

Part of this strategy is being conscious of how your negotiation goals will affect the ongoing business relationship. If there’s a real possibility that they will harm the relationship, then you should be flexible enough to adapt accordingly. You’ll also want to consider other elements, such as how aggressive or passive you negotiate or how frequently you will follow-up and chase your contact. 

Similarly, you should be ready to drop aspects of your position if they are stymieing progress or don’t seem appropriate to the situation. This is what collaboration is all about. For example, if you’ve recently made a commitment to work with eco-conscious or more ethical partners, you’ll want to re-think your negotiation strategies so they better align with their ethos and your new goals. 

Research the other party thoroughly

Do your background work on the business you’re negotiating with. This isn’t to identify weaknesses you can exploit. This is to seek an understanding of the position that your negotiating counterpart is coming to the table from. How are they likely to be regarding this contract? What are they seeking? What’s important to them? 

Whenever you are in a dialogue with another party, it’s enormously helpful to try to see things from their perspective. It gives you more of a handle on how they might act next, which can help you conduct a successful negotiation.

Identify and manage potential risks

In the contract negotiation process, a beneficial agreement is the goal, but there will also be attendant risks. They can come in all manner of forms, from micro concerns on how a particular process will impact the workflow in other areas to macro considerations such as how working with a particular outfit with a particular profile may affect your brand (of course, it may be the case that your brand gets boosted by the association).  

To identify risks it’s essential to know your own business inside and out. By using tools like ERP software, you’ll be able to pull detailed reports from across your operation that you can use to analyze the state of your business and where any vulnerabilities may be.  

For example, your HR and time-tracking reports might reveal that one of your teams is overstretched. This could mean that they would struggle to keep up with the new contract demands and, ultimately, risk your reputation as a business. However, as you’ve identified this issue early, instead, you’re able to hire new people and/or alleviate the team’s workload so that they’re able to cope with the new demand.  

The more you can be clear about the dangers ahead, the better you can prepare for them. You may be able to avoid them altogether, with the right forethought. 

Clarify payment terms and pricing

Business is all about the buck, and negotiations should be specific and precise. Payment terms should be explicit so that you know exactly what funds you’re undertaking to deliver and when. The more concrete the information, the better. 

Be aware, however, that figures sometimes have a habit of being a little elusive. This can be the case with, for instance, renewals, which can be somewhat flexibly priced. As the contract lifespan wears on, thoughts will turn to renewal. There is a definite best time to begin negotiations, which will deliver the best results in terms of cost savings. 

Outline performance metrics clearly

In business agreements, there are certain requirements that apply for each party. In other words, you both agree to do stuff. How do you know for sure that everyone’s doing what they said they would?  By outlining and agreeing on performance metrics, that’s how.  

This kind of approach is nothing new, it’s often what makes quality assurance function and helps to clearly set expectations. 

For instance, say you’re negotiating a contract for call center QA services. Your goal is to reduce wait times in business phone systems and raise customer satisfaction levels. As such, you will need to assess the current situation and produce detailed KPIs to create clear expectations for the future. These KPIs should then be agreed upon and incorporated into the new contract. 

It’s important to also negotiate and discuss time-frames for when you expect different targets to be met. This will ensure continuous accountability and allow you to address issues or shortcomings if and when they arise. 

Establish fair dispute resolution

It’s not great to dwell on negatives, obviously, but you should establish what happens when things go less than optimally. If there’s a disagreement regarding the performance of one of the parties, there has to be a mutually agreed method of resolving this quickly and fairly.  

It’s always best to discuss this as part of your initial negotiation, before problems arise and tempers heat up. And the more you can do to ensure that disputes don’t end up in litigation, the better. Why? Well, it takes forever and, famously, it’s hugely expensive. In 2021, the total litigation spent by large companies in the US approached $24 billion. 

Agree on your communication channels

There’s a panoply of communication channels available now, enabling you to do anything from running a conference call on Android to shooting a real-time message via a cloud-based communication platform.  

Agreeing your communication channels is important to discuss and negotiate early on, as it sets the tone for your partnership as well as the level of service and support you expect. 

For example, if regular calls across multiple time-zones are necessary it’s worth asking whether they can accommodate that and how they’ll do it, e.g. do they have a virtual business phone number. Alternatively, you might work with a lot of sensitive data. Therefore you’ll need to know what security measures they have in place to keep shared documents safe or whether they would be willing to strengthen their security infrastructure. 

Know relevant legal and compliance standards

Part of your initial research before you go into the negotiation should be a thorough investigation of the pertinent legal framework for the area you’re about to negotiate on. All your contract negotiation strategies should be conducted with the compliance landscape in mind, otherwise whatever you come out with will be flawed at best, worthless at worst.  

Consult your legal team on the compliance standards that operate where you are, but also wherever else your business has a presence and where the outcome of the contract negotiations will have effect. And bear in mind that laws can change, so what might seem like a straightforward contract renewal can become a more complex contract than you were expecting.  

Winning at negotiations

Contract negotiation strategies can be diverse but most tend to rely on one factor more than any other: preparation. For instance, know what you want out of the negotiation, so that you have a solid foundation and stay focused. 

Know your negotiating counterpart, so that you can see things from their perspective. And know the business relationship so that what you propose at the negotiating table is realistic. 

The other factor essential to a successful negotiation process is a willingness to collaborate. Effective collaboration can mean being ready to sacrifice particular aspects of what you want in the interest of achieving something bigger. So, while it’s good to stay true to one’s core principles, don’t sweat the small stuff.