Chapter 61
Other Forms of Power
Apart from the nine forms of power that I taught you in the previous chapters, there are other things that can give you power, such as the power of risk sharing. You can have power over the other side if you convey to them that others are sharing their risk. This is the power of a syndicated investment—the more people you can get to invest the easier it is to get others to sign up.
If I asked you to bet me $5,000 to my $20,000 on the flip of a coin, you ought to be eager to take the bet. I’m offering you four-to-one odds on two-to-one chance. (Professional gamblers will tell you that it doesn’t matter what you bet on, as long as the odds are better than they should be.) However the risk of losing $5,000 on the flip of a coin may be too great for you and you would turn me down. Consider this: If you could get 100 people who were all willing to risk $50, would you then go ahead? Chances are you would, because although the potential gain is the same, you perceive that others are sharing the risk.
The same principle applies in investment syndication. If I asked you to invest $100,000 in a real estate syndication, you would be reluctant to risk that much. Even if I asked you to invest $5,000 you might consider the risk too great. However if I told you that I have 19 other investors ready to put up $5,000 and you would be the 20th, you would be far more likely to go along with my proposal. Also if I suggested that you invest $100,000 in 20 different syndications, you would be far more likely to do that than invest the entire $100,000 in one syndication because you feel that you are lowering your risk.
What can we learn from this? Anytime that you can demonstrate that the risk you are asking the other side to take is being shared, you develop the power to influence them.
The Power of Confusion
There is power in confusion. This may not sound right to you because you have always understood that a confused mind will say no. That is true—it is important to be sure that the person with whom you’re dealing understands what he or she is getting into. However, it is also true that a confused mind can be more easily led.
If you’re negotiating with someone and tell her, “There are two possible options for you and they are very simple to understand. Let me explain them to you and you’ll be able to make a choice.” With that approach, you have little ability to influence her because she can readily perceive the benefits of each option and make her own choice.
However if you said to her, “There are many ways to go here and this can be very confusing. There are 25 different options open to you and unless you are very familiar with them all, you will have a tough time knowing which one is best for you.
Fortunately, I’m very familiar with the options and I have successfully guided many people who are in exactly the same position as you …” she would be more pliable The more confused I can get her, the more chance I have that she will ask me for guidance, provided I can get her to do one thing and that is trust me. A confused mind can be more easily led but only if the person to be led trusts the leader.
Remember when the courts deregulated the long distance telephone industry back in 1984? AT&T ran a series of television ads using a trusted actor who said, in effect, “Pretty soon it’s going to get so confusing that many people won’t even know how to make a long distance call. Fortunately good old AT&T, the company you’ve been able to trust for so many years, will still be around to help you.” Understandably, Sprint and MCI cried “foul,” and AT&T had to pull the ads. It was a blatant attempt to control people by making the situation more confusing than it had to be.
As you can see, there is great power in confusion. The best defense that you have is just to keep your wits about you and don’t let the other person confuse the issue so that you surrender to their ideas. When he starts sailing off on tangents say, “I don’t see how all of these details are germane to my choices. Instead of confusing the situation, let’s just stick to the key issues, fair enough?’
The Power of Competition
You can gain influence in negotiations if you advertise that you have many options and don’t need to make a deal here and now. If you point out that there is competition for your product or services, chances are that the buyer will raise their offer. Especially if you tell them that you don’t need to sell and certainly not for less than you are asking. For example, you could say to prospective buyer, “I wish that I could give you more time to make a decision but I need to know right now because I have two other bids already and it’s not fair for me to keep the other buyers waiting.”
If you are buying, any seller finds it sobering to learn that you have many other choices and at lower prices. If you are responding to a classified ad for a boat or a car for example, you might say, “I have two others to look at this evening, at 7 o’clock and at eight. They’re not asking as much as you are, but I’d like to consider yours anyway. Could I come by and see yours at six?”
Second Largest Corporate Acquisition in History
Michael Eisner, CEO of Disney Corporation, understands the power of projecting that you have options. For years he had dreamed of acquiring a television network so that he would have a convenient outlet for his movie and television show productions. Then General Electric purchased NBC, so they were no longer available. ABC Television would be a perfect match, but its owners, Capital Cities, wouldn’t consider a sale.
In June 1995 he attended a business conference in Sun Valley, Idaho, and ran into Larry Tisch, the chairman of CBS. Tisch mentioned to Eisner that he was about to accept an offer to buy from Westinghouse Broadcasting. “Wouldn’t you rather make a deal with us?” Eisner asked him. At this point Tisch’s wife Billie jumped in and said, “Yes, absolutely.” So, Tisch and Eisner agreed to talk more about it the following weekend.
As Michael Eisner walked away from this conversation, he ran into Warren Buffett, the largest stockholder in Capital Cities. Eisner relates, “I was hoping that the possibility of Disney’s buying CBS might make Buffett more eager to sell us Capital Cities.” When Eisner told him about his discussion with Tisch about buying CBS, Buffett took the bait. He immediately realized that if Disney bought CBS they would never be a candidate to purchase Capital Cities. The power of competition was in play. Buffett walked him over to meet the CEO of Capital Cities, who was heading for the golf course to tee off with Bill Gates. Within a month, a deal was made for Disney to purchase Capital Cities and Disney doubled in size overnight.
In any negotiation, the side with the most options has the most power. The more you can service the perception that you have options, the more power you will have as a negotiator.