We’ve Been Negotiating Wrong This Whole Time

Why silence may cost you a vacation to Lake Como.

What’s the first rule of any negotiation?

Particularly, for compensation (although we’ll also talk about how this applies to startups, off-market real estate deals, and consultants).

“Never say the first number,” right?

But why? What’s the rationale behind that?

This is where you answer, “Of course, Jen. It’s because you risk anchoring the other party on too low of a number.”

Ah, yes. Anchoring. The bias that hooks you on the first number you see, even if that number is completely unrelated to your negotiation (don’t believe me? read Thinking Fast and Slow).

Let’s break down the anchoring rationale.

Patrick McKenzie summarized the original idea behind anchoring in a salary negotiation article that I’ve shared dozens of times, especially to engineer-types (emphasis is his).

“Every handbook on negotiation and every blog post will tell you not to give a number first. This advice is almost always right…

If you have to judge someone’s skill based on a series of brief interactions, you’re going to pattern match their behavior against other people who you like. When people with hiring authority think of winners, they think of people like them who live and breathe this business [negotiation] thing. Volunteering a number when asked says the same thing to people with hiring authority that flunking FizzBuzz says to an engineer: this person may be a wonderful snowflake in other regards, but on the thing I care about, they’re catastrophically incompetent. It will also cause them to retroactively question competencies they’d previously credited you with.”

For years and years, I shared Patrick’s advice, which was written in 2012, religiously.

But now? I disagree. With few exceptions.

The “never share the first number” rule is at best dated, and at worst, advice that will cost you multiple exquisite vacations to Lake Como.

And further, if you’re a consultant or startup testing out pricing, you will inevitably be lowballed by prospects. (The funniest story about this was when a prospect out of Chicago sent me 6 emails and called my cell at least 4 times. Each message, phone call, or voice mail, he insisted over and over again how our Yardi data integration service should be free.🙃 Never mind that we had to pay for Azure, Gitlab, etc. He wanted it free, FREE, he said!)

For real estate firms, the rule of thumb for off-market deals has been to get the other party to say their number first. The “if it ever made sense to sell” number.

Also wrong.

That’s what they told us. Here’s why it’s wrong.

The world that I grew up in — and the world back in 2012 when Patrick McKenzie wrote that article — is vastly different from the world today.

We have more information at our fingertips than my 9-year old self reading Encyclopedia Britannica and waiting anxiously for the next edition of National Geographic World could have ever dreamed of. Among our infinitely growing list of information (congrats to those that invested in data centers early to supply this) is salary transparency data. B2B pricing data. Comp data.

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Salary transparency

For example, Glassdoor has tons of employee-submitted salaries. Blind covers a lot of big tech salaries. And more and more employers are posting salary ranges when they hire on sites like LinkedIn, Indeed, etc.

B2B pricing

LLMs are getting pretty darn good at predicting how firms price. Plus, more and more organizations demand transparent pricing, meaning that more and more vendors supply that data online. I wouldn’t be surprised if Revyse starts offering this soon too. Bobbi/Ben, wdyt?

Comps

Sites like HelloData give you comp data like you’ve never seen it before. You can easily estimate financial data from multifamily investments anywhere in the U.S. based on their impressive AI and massive public dataset. And yes, my day job company, Grace Hill, owns HelloData so this is a shameless plug. ;) One of the reasons we bought them is because they’re THAT good at providing data transparency.

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The reason for not sharing the first number is because we used to assume that the information hierarchy was that — an asymmetric, information hierarchy. The employer, seller, buyer (if startup), had more data than we did. They had the power in the negotiation, and we had none.

Our best bet was to sit there, patiently awaiting with fingers crossed, hoping they offered us more than we’d been paid in our current/last job + 15% (or the equivalent for a comparable purchase).

That information hierarchy has all but vanished.

Sure, we may not know how much the specific employer, seller, or buyer may be willing to spend. But we can certainly benchmark it. And if we can benchmark it, so can they.

Why wait for them to anchor us on a lower number, when we could anchor them on a higher one?

Of course, if you truly have zero data or you’re negotiating with a government buyer, still revert to the old rule. But generally speaking, this old-school thinking needs to get with the times.

I learned this the hard way.

I’m going on this rant because I speak to startup founders 1-2x per week. Many come from technical backgrounds and are learning the sales process. Heck, even I’m still learning! It’s not something that comes naturally to many of us.

When I was a startup founder, we learned (the painful way) that our first two contracts were so far below market that people on the buyer’s team questioned our credibility. Fortunately, our contacts convinced their teams we were giving them the discount of the century based on our previous working relationship. And while yes, you can and should give discounts, please don’t discount yourself out of profitability!!

We learned our lesson and adjusted going forward. It’s the same one I hope you take from this. Because whether you’re negotiating a salary, an off-market property, or your startup’s first contract, the rules have changed.

Say your number first. Just make sure to do your research.

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Jen’s Reading Corner

I decided to go on a classics kick, and just started reading The Count of Monte Cristo. The first few chapters have been riveting.

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