A special phenomenon that I regularly encounter in (sales) purchasing processes in SMEs is what I call "the shifting balance of power. By this I mean the shifting of negotiating power during the sales process from seller to buyer.
Not always, not always obvious either, but too common not to ignore.
So what's the situation?
At the beginning of a sales process, there is a seller with a business that is of interest to a number of buyers. Those buyers do their best to capture the seller and convince him to sell to them.
The seller is spawned, the company is extolled, the buyers behave as in a "beauty contest" and do their best to negotiate exclusivity in their bids. At that stage, the seller is the upper party, whose hand is being competed for.
Shifting relationships
At some point, one buyer is chosen by the seller (with the best offer and who is the best fit) to negotiate further with him in exclusivity and complete the transaction. This is recorded in an LOI (Letter of Intent) or term sheet, which is signed by buyer and seller.
That is when the relationships slowly start to shift. The buyer starts doing due diligence, comes up with lots of questions, finds things that are risky and becomes critical(er). Upon completion of due diligence, the findings are discussed with the seller and the buyer sets further requirements and conditions on the proposed transaction. It often happens that he wants to renegotiate the price and the agreed terms.
The seller does not like this, but in his mind he was already saying goodbye to his business and was already thinking about his future after the sale. Moreover, he now has a good buyer, has already invested the necessary money in the sales process and has that tedious, time and energy consuming due diligence process behind him.
He balks at this development, but to blow up the process now is just a step too far for him. Ultimate freedom beckons. The seller sighs, concedes (somewhat) and wants to move on toward closing.
Upper party
The buyer (especially the experienced buyer) knows what is going on in the mind of the seller and tries to take advantage of it in the negotiations. He too has invested the necessary (time and money) in the buying process, but knows that if he plays it skillfully, but business correctly, the seller is willing to concede. The buyer is now the superior party.
Of course, the game must be played subtly and with sensitivity. If the buyer goes in too hard, the seller drops out and there is no longer a balance of power at all. If the seller won't respond to reasonable demands in the negotiations, the buyer will drop out and the same applies. But undeniably, it is often the seller who starts to cave in at that final stage of the negotiations, while the buyer starts to take a harder line.
Again, not always and not always clear, but there is generally a shifting balance of power during the (sales) buying process in SMEs. Where the seller is the dominant party in the first phase, the negotiating power shifts towards the buyer after the signing of the LOI/termsheet.
A fascinating psychological process....
