Are there special issues when friends and family members are involved in negotiations? What are the potential advantages and disadvantages?
When was the last time you negotiated with F&F, let’s say the price of a used car or the service support for a website? How did it turn out? What would have been different if you had negotiated with a stranger instead. Would you have settled on a better price? You probably would have pushed harder for a better deal for yourself when negotiating with a stranger.
Business transactions between F&F can be stressful. Close ties implicitly include the expectation that we’ll look out for each other’s welfare, but not to keep track of what and how much you have invested in them. Quite the opposite is applicable in business relationships. Here, we expect a compensation based on how much effort, time, and money we spend. When these “rules” confront one other - in deals with F&F - most negotiators experience a hard discrepancy with regards to which one to apply in that situation.
The positive aspects of close ties between the bargaining sides include the reduction of dysfunctional competition and the improvement of information exchange.
On the other hand, research has found that most people reach less satisfying and creative deals with F&F when compared to strangers because they are too willing to compromise with those who are close to them.
In addition, rather than dividing the pie of resources based on the mutual value that is created due to the cooperation, friends tend to allocate equal shares to everyone involved - a mistaken logical solution. They seek to avoid an impasse, as well as any sort of conflict that could harm the relationship. This can result in a mediocre agreement.
A research project led by David R. Mandel in the year 2006 in Canada had a simple design: the participants had to sell a music CD to a friend and decide freely which price they would ask for. The researcher found that the sellers asked for less than what the friend was willing to pay. When faced with making a purchase from a friend, participants did not try to overpay. Giving things to friends, even if we’re being paid, apparently triggers a kind of generosity norm that isn’t present when we’re buying things from them.
What is the advice based on these findings? When negotiating with a friend, you should improve the objective quality of your deal and agree in advance that you will rely on the fair market value of an item or a service rather than trying to exchange special favors. Discuss the pitfalls of negotiating together before you start negotiating and accept that you might get a better deal by negotiating with a stranger instead.
If you engaged in a business relationship with a friend, your spouse, your siblings, or children, there might come a point when you want or have to leave the business. The complicated issue here is the question, how to manage the dissolution without damaging your personal relationship to that person(s). There is a smart way to do that.
Mr. Henry Elghanayan, shareholder of a New York City-based multibillion-dollar real estate development company, decided in 2008 - after more than 25 years in business with two of his brothers - to leave the business. The brothers had already developed an action plan to follow, since the fourth brother decided to leave the company in the year 1989. And having learned from that past experience, they were not lucky to have a more efficient plan regarding how to deal with this issue.
In January 2009, they began the process. Fred, one of the brothers, won a mini-auction and was assigned the task of dividing the combined assets into three parts. As Fred would be the last in order to choose a part, he had an incentive to divide them fairly. Then, Henry won a coin toss that gave him the right to choose first. Tom was the second and Fred the last to choose. Henry continued to swap development sites with his two brothers until everyone was satisfied with the final outcome.
What was the key to the brothers’ calm and satisfying business ‘breakup’? Foresight and careful planning. When you start a business relationship with F&F, you should take care to discuss upfront norms, standards, and conflict resolution processes for the eventual case that disputes or significant changes to the business arise. This can be hard when you are enthusiastic about the new business that you’re starting, but it will tremendously improve your chances of maintaining a good personal relationship in the event that you scale back your business dealings.