DEAL-MAKING 101

The anatomy of a deal is comprised of three basic components: the expected return, upside potential, and downside risk. Another way to describe this is to ask: 

• What do I expect to happen?
• What is the best possible scenario?
• What is the worst possible scenario? 

The goal is to have a fair expected return, a huge upside, and very little downside.

To get a good deal, most people believe they must “win” and the other party must “lose. The goal of creating a good deal for both parties is not only possible, but the only sustainable way to do business. It produces the best long-term returns for everyone involved.

A successful deal serves the primary motivations for everyone involved, so figuring out everyone’s real interests is essential.

A fundamental component to deal-making is to not only understand the worst-case scenario under the agreement, but also the worst-case scenario if the deal doesn’t get done. This is commonly called the best alternative to a negotiated agreement (BATNA) and largely determines the incentive each party has to make a deal happen. The question to ask is: 

• What is my alternative if a deal doesn’t get done? 

The better alternative, the less you need the deal and the more risk you can take in negotiation.

The best deals are creative ones. The goal is to give what is less important to you, but more important to them, and to get what is less important to them, but more important to you. The negotiated terms are merely serving the underlying motivations, so think creatively about how to satisfy the other party’s real interests.

Complicated deals hardly ever work, because complication creates confusion, uncertainty, misunderstandings, and, ultimately, hard feelings. The bulk of the negotiation should revolve around a few key points that serve the underlying interests, and the rest should be kept as simple as possible. After agreeing to something, define it. Even the simplest terms, if left undefined, create opportunities for confusion.

Despite the best negotiated agreement, the success of a deal ultimately relies on the people involved. Just because it’s in the contract doesn’t mean the person has to behave, which can cause a good deal to unravel quickly. The larger the deal, the more homework you need to do.

Deal-making according to Trump

1. Aim very high, and then keep pushing and pushing to get what you’re  after.
2. If you're satisfied knowing that you can comfortably make a deal that doesn't require much effort, then you're not thinking big enough.
3. Always go into a deal anticipating the worst. If you plan for the worst, if you can live with the worst the good will always take care of itself.
4. Get into deals that you can afford to recover from if things go poorly, and know when the opportunity cost for making a small deal is lower than had you not made a deal at all.
5. Be flexible. Never get too attached to one deal or one approach. Keep a lot of balls in the air, because most deals fall out, no matter how promising they seem at first. Once you’ve made a deal, always come up with at least a half dozen approaches to making it work, because anything can happen, even to the best-laid plans.
6. Rely on your own research rather than the work of consultants, statisticians, or critics.
7. The only way you're going to make the deal you want, is if you're coming from a position of strength and can convince the other side that you have something they need. Do not be afraid to blur reality to utilize leverage.
8. Rather than overpay for something that is already established, you should consider cheaper alternatives that have the potential to be molded to your taste.
9. Be cooperative and positive, but if it’s necessary be confrontational when the other side is treating you unfairly or trying to take advantage of you. The risk is that you'll make a bad situation worse, and this approach may not be good for everyone. But if you're fighting for something you believe in even if it means alienating some people along the way things usually work out for the best in the end.
10. You can't con people, at least not for long. You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you can't deliver the goods, people will eventually catch on.
11. Throwing money at a project is never the path to success if it was shoddily planned.
12. Successful deal-making should be about the thrill of winning and accomplishing something, not solely for making money.The real excitement is playing the game.