Episode 55: How To Negotiate During A Crisis

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This is the WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

 

Tom Wheelwright:

Welcome to the WealthAbility® Show, where we're always learning how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright your host, Founder and CEO of WealthAbility®. So this pandemic is requiring us to negotiate in new ways, and negotiate things we would not normally have to negotiate. So today you're going to discover, actually we, because I'm in this with you, we're going to discover how to successfully negotiate with your landlord, your tenant, your bank, your vendors, your customers, and your employees. So there's a lot of negotiation that's going on because we have a crisis going on. So we're very fortunate to have an expert in this, a bestselling author on negotiating and it's Peter Barron Stark. And Peter, welcome to the show.

 

Peter Barron Stark:

I'm grateful to be on with you.

 

Tom Wheelwright:

So Peter, if you would just give us a 30 second background of how you got into negotiating and why you think negotiating is so important.

 

Peter Barron Stark:

So the way I got into the negotiation skill development and authorship was, I owned a commercial printing company for about nine years, it was a small company, $3 million in sales, about 25 employees. And doing that job, I was competing amongst 600 competitors in the San Diego market. Any one of them would have sold their mother for a quarter if that could take your business away from you. And so at the same time, I own that commercial printing company, I've taught at San Diego State for 14 years, a bit of leadership, certificate of sales and certificate of management programs and got a really good reputation based on the feedback from the students who all were in business.

 

Peter Barron Stark:

One day I went to the chancellor and said, “I want to teach a class in San Diego State on negotiation.” And he said, “Have you ever done it before?” And I said, “No, I actually haven't. But that's the reason I do want to teach this course. I want to get great at it and I want to be an author on it”. And so that's how I got my start. I went on year seven of the printing business and went through a buy sell agreement with my business partner, which took two years to execute. And then in 1990 I started this consulting firm providing training in the area of negotiation skills.

 

Tom Wheelwright:

That's fantastic. I was an adjunct professor at Arizona State University for 14 years and I too, I was asked to teach a class that was not my specialty and it became my specialty. So I love that you did that. That's kind of the first rule of negotiation, right? You do have to ask. If you don't ask, you'll never get anything.

 

Peter Barron Stark:

Yeah, absolutely. That's a critical piece of it.

 

Tom Wheelwright:

So walk us through, I think it's an interesting time. I was reading an article this morning about tenants in New York who are talking about going on strike and not paying their rent. And you kind of wonder what went on behind the scenes there. Why didn't the landlord negotiate with them already? Which means that you're going to have a lot of people not paying their rent. And then you've also got people struggling with their mortgages and the rules are different all over the country. Some States are saying you can't evict somebody, we have the Cares Act, which gives them the landlords a little bit of relief, if that's a federally backed loan, like a Fannie Mae or Freddie Mac loan. And so where do you even begin?

 

Peter Barron Stark:

So for me, negotiation is all about communication. The definition I use is, anytime two or more people get together with the intent of changing the relationship in some ways, then they're negotiating. And I've always known big things like negotiating a lease, that's a negotiation. Negotiating the purchase of an OB bill, that's a negotiation.

 

Peter Barron Stark:

What I never would consider a negotiation was this morning I was getting ready to drive my truck up my driveway and my wife yelled at me just two words. And the two words were, the garbage, and it's my job to take down the garbage to the bottom of the hill. And I thought to myself at first, you know what, I'm going to tell her no, the cans are not that full this week, I think I'm good for a second week and then I thought, no, because she's going to counter with it stinks and it's got ants. And I sat there thinking about, okay, but I can counter with this. And right there I put the truck into park, loaded up the cans and drove down the driveway thinking this wasn't negotiation, it was with myself. There wasn't a word spoken to her and I lost.

 

Peter Barron Stark:

So anytime we communicate, and I think the communication for me also says this, when we're communicating, we have the basis of a relationship and it's a lot easier to achieve success in a negotiation when you have a relationship.

 

Tom Wheelwright:

So how, let's start with the tenants because the tenants are the ones, we have almost 30 million people without work right now in the US and most of those people, they either have a mortgage or they have rent due. So what do you tell the renter? If it's about communication, what do you tell them about the communication?

 

Peter Barron Stark:

So first of all, I want to separate on, because the mortgage is a very different negotiation, you're negotiating with a huge corporation most often versus negotiating with an individual landlord. And once again, I think that you have to have a discussion so you truly understand the needs and goals of both parties. In some of these universal rent strikes, there are some people actually making more money on unemployment with the $600 ticker than they were prior to this. And so we really have to understand what people's needs and goals are in terms of generating an outcome. And I live in California right now, you cannot evict somebody that is all stopped. Even the serving of people is stopped and so therefore it's forcing people to communicate. Whereas in the old days they may have had no communication, we just evict.

 

Peter Barron Stark:

Going back on the mortgage one, that's a different conversation with me. Many of the financial institutions I'm working with are saying this, that one, can you pay the interest and then we'll roll the payment to the end of the loan. Some of them are saying, well, we can't even pay interest right now, so we're going to roll the interest in the mortgage payments to the back end of the loan. They'll become a point where banks can do that and then where they cannot do that, but maybe somebody only needs that flexibility.

 

Peter Barron Stark:

But you have to have number one, to be successful as a negotiator, a positive vision of the outcome. I'll use one example, when it came to this PPP loans and Cares Act, some business owners took the initiative to file the paperwork even though it was frustrating and move that forward with a positive vision that this is going to build a bridge. Others thought it's going to be too much work, did not have a positive vision of the outcome and therefore didn't apply or didn't get. So the big piece for me is a landlord, most of your listeners probably are landlords in terms of whether it's commercial or individual, that's a very different negotiation whether I'm negotiating with the bank or an individual landlord.

 

Tom Wheelwright:

Okay. So, it sounds to me like the very first step though is we actually have to talk to somebody, right? So let's say that you pick up the phone and you call your landlord, what do you say to them?

 

Peter Barron Stark:

You just tell your landlord I have a problem and I need your help. I am not able to make my payment this month, and if you knew in the latter part of March that you weren't going to be able to pay April, you should have communicated sooner rather than later because you get points for being honest when it costs you something to be honest. If you're not paying in may, you probably should have a week ago informed your landlord that you need help in terms of how we're going to restructure this rent or this payment.

 

Tom Wheelwright:

So if in California they can't evict, why would you even bother to pick up the phone?

 

Peter Barron Stark:

Well, you know what? I've actually thought that through as a landlord and here's how that would work. If you don't pick up the phone and you just don't mail me your check, I want you to know at some point this relationship is going to get turned around and you say at some point they are going to drop the restrictions for evictions and you say, in my particular case, I have two rental houses, probably both below market 500 to $800 a month because the tenants have been in there a long time. I have a relationship with them. I will work with them, but if they didn't communicate with me and they stopped paying the rent, I want you to know whether it's September, October, November, December, probably they're not going to be in that house. For me, having the relationship is what creates an opportunity to work with someone to try and find a win-win outcome.

 

Peter Barron Stark:

There's really five different outcomes that can happen in negotiation. You have the lose-win. That would be where the tenant doesn't pay the rent, the landlord can't make the negotiation payment and one's winning one's losing. You could have the opposite of win-lose. You could have lose-lose where the tenant refuses to pay rent on the house and eventually the homeowner loses the house through foreclosure. You could have win-win. You know what? Why don't you just pay half the rent this month and then what we can do is just add $50 or a hundred dollars on in the future months and I'm going to work with you to get you through this and that would be win-win.

 

Peter Barron Stark:

And then there's a fourth one is this is what I call no outcome, which is probably not going to happen in these rental discussions, but no outcome would be we go to buy a new car, we can't come to agreement at the dealership and we just walk away. And the reason that's no outcome as the dealer can sell that car to another person, that person's going to go to another dealership to buy the car. And sometimes the very best deals you ever make in your life are the ones you do not where you walk away.

 

Tom Wheelwright:

Yeah, that's a good point. You make a good point here. When you bring up the lose lose, that is a trigger for me because I'm thinking about these people who are talking about going out on strike and they want the whole building to not pay rent. And I'm thinking, okay, so let's kind of walk this down the road here. You've decided as a group not to pay the rent. What do you think is going to happen to the landlord? Do you think they have pockets that go forever? That they're so deep that they're just going to keep making that mortgage payment?

 

Tom Wheelwright:

Or even with the large multifamily housing project, some of these are pretty thin. I mean when you consider that in the last few years, the prices have gone up so much that some of these rental properties, they're depending on that rent. And if they don't, they're going to go back to the bank. And I'm going, who would I'd rather rent from? Would I rather rent from a landlord who actually cares about the property or would I rather rent from the bank? And I'm going, I think I would rather rent it from the landlord. So it seems to me like it's in the tenants interest to work something out here.

 

Peter Barron Stark:

So having a relationship, once again I think is in your best interest, at least in San Diego where I've watched these rental strikes, they are where the unions, the renter's union or the banding together of all renters have targeted very specific owners that they've had terrible relationships, one of those paybacks looks like to me. In my particular case, I don't see that happening because of the relationships, doing the right thing, treating people right and working through it. In those ones, if the apartment complex, 200 units or whatever is owned by a large corporation, they may have the financial stability to navigate through that. And I've got to believe if it's an individual owner that has eight units and all eight say we're not paying rent next month, it can have a devastating impact because you're not going to be able to make the payment and there's not much you can do about it for at least 60 or 90 days.

 

Tom Wheelwright:

So, so let's say you're the landlord and like you say, I mean a lot of our listeners are landlords, do you wait for a tenant to come to you or do you go to the tenant ahead of time?

 

Peter Barron Stark:

So I haven't approached the tenant to say, “Hey, I just wanted to make sure you're going to be able to pay rent this month.” I have not done that. I would expect them to come to me if we're going to have difficulty paying the rent. So I didn't want to go to them and say, “Hey, I know these are really hard time. So everybody right now you might not be able to pay me the rent.” I did not want to set up that expectation. I do have a positive vision that they're going to pay the rent.

 

Tom Wheelwright:

Okay. So you would not go to them ahead of time. You wouldn't want to make sure. Now, are there things that you would want to do to build that relationship to maybe encourage them to pay the rent? Because as you were saying that these renter strikes that they've targeted certain owners that they've had bad relationships with. Are there things that you might do as a landlord to kind of boost that relationship even though you're not saying, I'll postpone your ran or take half of it or whatever.

 

Peter Barron Stark:

I think it is legitimate that you could just check in on people and say, “Hey, I just wanted to make sure you and your family are healthy, safe and strong as we go through this coronavirus.” I don't see anything wrong with that. I don't have an intention of doing that. If anything ever goes wrong with one of the houses, they're really comfortable calling me. So I probably am still not going to do that. But if I was a landlord and I had any concerns about my relationship with my tenants, I would do that.

 

Tom Wheelwright:

Okay. Good point. So let's shift to the bank situation. You're negotiating with a bank, very different animal here, not an individual. Not what I call real people. This is a bank and you're not talking to the owner of the bank, you're talking to somebody who might easily make no more money than you do. How do you start?

 

Peter Barron Stark:

Okay, so this is actually what I've been advising a couple people on. And so what's going to happen when you call the bank and let's say you own a retail center or an office building and you call a bank and you say, I want you to know my tenants, including big ones like a Carl Jr's or some of their big national types of tenants have already notified me they're not paying their rent coming up and most of these major tenants have done that, they've notified their retail centers, they're not going to be paying rent in April and possibly May. So as a landlord, you begin to call up your bank and say, Hey, I just want you to know I'm not going to be able to pay rent coming up for April. Or for most of them, it's May. Most of them did pay April. Most of them it's going to be May.

 

Peter Barron Stark:

First thing the bank's going to tell you is you have to stay current or we're not going to have a discussion with you and you say what's going on there is the bank is raising their expectation and their vision that they're trying to motivate you to make one more payment and make one more payment and then hopefully we're going to get through this versus we're going to put the payment back on the end of the loan. And so it's one that it starts out not being very, what I want to call feel good if you are the landlord trying to get this negotiation done. But in terms of creating a win-win outcome, ultimately what we have to do is be able to get either interest paid or interest and the mortgage payment move to the back end of the loan or to make an agreement with the bank where we're only going to pay 50% and then we're going to make it up over three months or six months, something along those lines. But the bank, most of them I experienced the big ones, they're playing hard ball coming out of this.

 

Tom Wheelwright:

So give us a couple of steps, give us two or three steps that we would take. I call up my bank, they say, “Nope, you know you have to pay everything else you're going to be in default.” Then what's next?

 

Peter Barron Stark:

So on the two that I've worked on, both of them, the landlords have not made, they are not going to make the May payment. Okay, these are big retail centers. They are not going to make the may payment because they do not have the income coming in and they believe they need to save cash to be able to maneuver through this. And so it is going to force the bank into some type of negotiation of the outcome that I've predicted. Most of them are going to figure out either to move the payment to the end of the loan or they're going to pay a little bit more each month as we come back and the economy begins to improve. But in this particular case, the worst place you can be as a landlord is one, you're current on your loan, but you have actually no cash to run your business is not going to be healthy also.

 

Tom Wheelwright:

So, so you would say that basically where the bank comes back like that, that you can actually shift the power a little bit towards you by not making that payment.

 

Peter Barron Stark:

Right. It does force them into the communication with you because they don't want to have a bad loan on their books. They're going to help figure out a way because this is temporary, this is not going to be permanent. We will work through this. American's a great country, it's got a lot of resilience, but people are going to need help as we work through that. The bigger concern that I picked up from business owner is getting their frontline employees back when they're making more on unemployment and the $600 kicker than what they made when they were working full time.

 

Tom Wheelwright:

Okay, so let's talk about this. Let's say you decide, so you've gone either gone through the PPP process or you've just decided, you know what, we can make it but we can't make it with a hundred percent of pay. And so you're going to go in and you're going to tell now under the PPP you could reduce their pay by up to 25% with without losing any of your PPP loan. Okay so let's say you want to go in and you want to negotiate, you want to tell your employees, you know what, we're going to reduce your pay by 25% and how do you do that and not have them say, fine, just fire me then because I want to go on unemployment.

 

Peter Barron Stark:

The PPP, if I understand correctly, is helping them for two and a half months of the wages, taxes and benefits for those employees. But challenge is, do you have the work when we opened back up the economy. And so that's a concern where some people are going to end up staying on unemployment to bring them back. If you did have to say, I'm going to bring you back, but at a 25% reduction, I don't know why an employee would say yes to that unless they really love you.

 

Peter Barron Stark:

But I also believe this, if you give them a path of how we're going to make you whole again in the coming three, six or nine months, I think that that may be a path. That's what I call, leading them to a bridge that has a positive vision. And if you have a relationship, you may be able to do that. But if they were a minimum wage to begin with and you're reducing their pay 25% it's going to, I think, be a hard sell. And then we're going to get into the arguments between the employee and unemployment and the business owner that doesn't have a positive vision for me of what that outcome looks like.

 

Tom Wheelwright:

Okay, so let's say they're not minimum wage. Let say they don't make more know employment. How do you have that conversation with employees?

 

Peter Barron Stark:

I don't know, Tom, that I have the best answer for you except I can give them a positive vision of how I'm going to restore them to where we were. To ask them to come back and to work for 25% less with no path of how we're going to gain your improvement back in your life again, I don't know why an employee would say yes to that unless they truly couldn't figure out another job and their unemployment stopped. The thing that will change rapidly is when the $600 kicker stops, that should change and make it a lot easier for a business owner to negotiate.

 

Tom Wheelwright:

Yeah. Although obviously what's going to happen in this next round of negotiations in Congress is you're going to have the Republicans are going to be pretty much taking the side of business, right, including landlords and you're going to have the Democrats arguing for more an extended unemployment. This is what's happened in the past. I would expect this to happen again. And when they're back to negotiating this and may, that's what's going to happen. So what do you do if long run, if Congress comes out and says we're going to extend this unemployment, whether it's $600 or maybe they cut it to four or $500 but what do you do as an employer at that point? Do you just let them go and say, you know what, we're going to survive some other way and pivot your business and change the way you're doing that. What do you do or how, how do you negotiate that with the employees?

 

Peter Barron Stark:

So as we move away from the, what I want to call frontline minimum wage employee, so I have four employees on my team that make up my company. Most of them have been with me for approximately 20 years or more. And so I'm the only person in the office. They are not working right now or working from home. And so in my businesses and consulting, I don't expect it to come back strong probably until fourth quarter, first quarter of 2021. I have a really strong relationship with my employees. I feel if I needed to say, hey, I want to do this 25% reduction, I feel I have the relationship where I could get them to do that. Where I think most business owners, if they've had their business for any length of time and probably have those types of relationships with employees, I could not just cut my employees, I would not do that.

 

Peter Barron Stark:

And so in the case of the PPP, you can apply for that, you got coverage for two and a half months. You can use it for rent, but most often I think people are mostly covering the wages. Here's where employees and so you've taken the, how do we get these people back. Where I think employees are going to be in trouble if you were difficult to work with or you were an ass, I think it's going to be really hard to find a job coming out of this market. And you say why? Because the economy with 10%, 12%, 5% gross product down, that's going to have a ripple effect through it and I think there, there are going to be some employees who are going to be stuck on unemployment for possibly a year or two because they're going to have a harder time finding a job.

 

Peter Barron Stark:

I think most business owners, I do believe this, you started a business because you had a vision and you thought that you could add value and make a difference in this world and the people who have longevity, they have those relationships where they're going to be able to figure out how do we make this work and, when it comes to the negotiation, there has to be what I call give and take. Or else if it's just all one sided, one person's not going to feel as though they're getting a win out of this, which once again, I think long-term when the employee does have a better alternative, even though the business owner was getting able to get them to take a 25% less salary cut, I think at some point the employee when they have options is going to leave.

 

Tom Wheelwright:

Yeah. It's interesting because on the one hand, I have a buddy in New York and he's got people begging him to fire them so they can go on unemployment. And my inclination is to say, you should give them their wish and just never hire them back because clearly you don't have a relationship there, that's not a positive relationship. So you talk a lot about this positive vision for the future. Just walk us through if you can, a couple of steps before we wrap up here, how do you create that positive vision? What are you looking for and what does that do for you?

 

Peter Barron Stark:

So when I use the word vision, it's just a clear mental picture of the outcome. And there's three types of visions and everybody has one. So when people say, well, they're a visionary, everybody's a visionary because the vision number one is tomorrow is going to be even better than it was today and I'm going to help build it and create it. So this would be the example where I am going to go to my landlord and my goal is to get the May rent pushed off and the June rent pushed off and I really will help them build a plan of how I'm going to be able to pay back that rent over time. So that's a positive vision and the landlord's going to work with me.

 

Peter Barron Stark:

Vision number two is just what I call vision of the status quo. And that means I don't want to lose anything. I don't want to gain anything and I guess what I said when I talked about my two rental tenants is I have a vision that they're going to continue to pay the rent and we're going to go on status quo. And then we all know somebody who has the third vision. It's a negative vision and it goes like this. You think today's bad, you wait, tomorrow is actually going to be even worse than it was today. So I joke, I was shopping at Vons and I came through the checking counter, and I said to John, the checker, I said, John, I said, is this thing going to get better? Is going to get worse? He looked at me, he goes, we're going to have martial law. We're in trouble. But that was his vision. This thing is going to go so bad that we're going to have law and the national guard out here to restore order.

 

Peter Barron Stark:

So everybody has a vision. But for me, what makes a good negotiator is the person who has the ability to say, I want to create an outcome that's going to work with me and I'm going to figure out a way to make this work with our landlord because we both have very different goals and we're going to figure out how do we find out about each other's goals and how do we make that work? And my belief is that vision is probably the number one key to being a successful negotiator. And it's also the biggest mistake that many negotiators make when they go in and go, “You know what? They're not going to give me anything. Why should I even try?” And with that attitude, whether your vision is positive or negative, you're right.

 

Tom Wheelwright:

Interesting. Interesting. So any last words for our listeners? I just think this is such a tough time and I love the positive vision of the future. When you say that, I keep thinking of Phil Mickelson hitting that difficult golf shot, which is what he's done, right, he's created a positive vision of what's going to happen with that ball. And any last words for our listeners is as what to do during this really difficult time.

 

Peter Barron Stark:

Okay. So a couple of the things I want to add is one, I want you to go into the negotiation with high aspirations. And so high aspirations mean this, I am going to get my rent waived or restructured for both May and June. I want to go for two months, I'm not just going to go for one month. Because when you go in with high aspirations, you're always going to end up with more. And so when it comes to setting a goal in negotiation, you have to have three points. Number one, you have to have a goal. Okay, so I want to get for sure May rent waved. To come into the negotiation, you actually have to have a wish, so the wish has to be higher than your goal. So I want to get the May rent reduced or removed or put further out and I want to get the June one.

 

Peter Barron Stark:

So that's my wish. May and June. But my goal is just May's rent and then you have to have a bottom line. And the bottom line is the lowest I'm going to agree to is waving or I'm putting further out one half of one month. And so have high aspirations going into the negotiation, you'll always walk away with more. And the third thing I want your listeners to remember is have options and alternatives. And you say what could options and alternatives look like? An option could be this wave rent. Option number two could be half a month's rent. Option number three could be half month's rent but I'll make up the half month over the next six months to make the landlord whole again.

 

Peter Barron Stark:

When two negotiators have options and alternatives, almost always they're going to be able to work out a win-win outcome. The most difficult people to negotiate with are people who are unilateral thinkers and if you go back, we had a grocery store strike many years ago in California and it was over whether the workers would pay anything towards their healthcare. And so they went on strike for 25 weeks and when they finally agreed 25 weeks later, it was exactly what the supermarket gained to put out on day one and you see what happened. They threw their anchor overboard without a chain attached and then they had no options. So develop options and alternatives, it'll make a difference.

 

Tom Wheelwright:

I like it. I like it a lot. I think that communication and those options and really the people who are not just surviving but thriving during a difficult time like this are the ones who have options and who create options and think, okay, well what could I do that I've never thought of before? And always looking at it from a different viewpoint. I think when we do that, I think we're always going to have way more money and of course when we look at the options from a tax standpoint, we're going to pay way less taxes. So I want to thank Peter Barron Stark. Peter, tell us first of all where you can, where we can reach you. How can we get more information about you?

 

Peter Barron Stark:

So I'm really easy to connect with. It's peter@peterstark.com. My website is peterstark.com and there's all sorts of free tools on the site that will help people and I just leave your listeners with one last tip and it's a good one. Don't ever say yes to the first offer.

 

Tom Wheelwright:

There you go. Always great negotiating. Don't ever say yes to the first offer. Thank you everyone for listening to the WealthAbility® Show. Please subscribe on iTunes and leave a five star review if you enjoyed the show. We do want to hear from you, so please also share your comments and feedback and we'll see you next time.

 

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