When You Should (and Shouldn’t) Use an Ultimatum in Negotiation
The art of getting a room full of big egos to think they each got a fair deal
When I launched Paychex in 1971, I had no intention of providing payroll processing services outside of my hometown of Rochester. But when Phil Wehrheim, a former colleague of mine, asked to partner with me, we struck a 50–50 partnership deal (without lawyers), and he opened offices servicing Buffalo, Syracuse, and Albany. Then Chuck Wollmer, the employee of a client, came to me wanting to open a franchise. That was how Paychex started to grow from a small local business into a national organization: one territory at a time.
By 1979, there were 17 of us, both partners and franchisees, across the country. Finding a good deal for everyone has always been my guiding principle for negotiation, so I had ensured that every partner and franchisee was happy with the partnership or franchising deal we had made. But we had reached the point where it was time to take Paychex from being a bunch of partners and franchisees and turn it into a corporation.
The 16 partners and franchisees, plus me, all met in Nassau to discuss consolidating into a single company. It posed a significant challenge: If I wanted them all to agree on consolidation, each and every one of them had to believe they were getting a fair deal. The big question was, how would I decide who got what percentage of the new company?
There was simply no way to negotiate a deal with 16 partners and franchisees with big egos who possessed a skewed view of their actual worth. It would have been a moving target; as soon as I made a deal with one person, I knew details would get back to someone whom I’d already reached a deal with and then that person would want to renegotiate. My only chance was to create an acceptable no-negotiation situation.
“Never negotiate with an ultimatum,” is a rule I agree with in principle. If you are trying to buy a car and you tell the salesperson that you are only willing to pay a certain amount or you will walk, you better be prepared to walk. Most of the time, however, you may be closer to a deal than you think. If you are both willing to give a little, a good deal could be achieved by both parties.
If every owner still owned the share of the company they were given that day, the one who received the lowest number of shares would now own a stake of in Paychex worth $250 million.
In this case, however, I knew I had to break the rule. The most important decision I made was not to negotiate with anyone. With the help of two of my partners, I thrashed out a good deal for all partners and franchisees the best we could by taking into consideration the size of their territory, what they had accomplished to date, and their future potential. The formula we used was complex and interconnected, so changing one individual’s share of the new company would require us to reassess everyone else’s. So I knew the minute we started negotiating with one of the 16, we would end up having to negotiate with them all — and that wasn’t going to happen.
I handed out the offers, and the next day we gathered around a boardroom table in a private room at the hotel. I opened with, “This is it, this is the deal — we’re not changing it. If you don’t want to join us, that’s okay. We’ll protect your city and we won’t go into your territory. No hard feelings.”
I went to each person in turn and asked them whether they wanted in or out. By the time I finished, every single person had agreed to accept the package and join the new Paychex corporation. And so you know what a good deal it was, if every owner still owned the share of the company they were given that day, the one who received the lowest number of shares would now own a stake in Paychex worth $250 million.
The key to good negotiating is to do your homework and know, before you start talking, what the other person is likely to consider a good price. You also have to know what price you feel represents a good deal for your company. There have been complete books written about the art of negotiating, but when you strip away the smoke and mirrors, it’s simply about finding that sweet spot where both parties feel they can sleep content. Anything else is fool’s gold.