Hello. This is Bradley Bailyn,. I’m a small business attorney here in New York City. And this podcast topic is going to be about the concept of leverage. A lot of attorneys don’t fully get this concept and certainly a lot of people who are not attorneys don’t get it. But there are many dimensions you need to consider when evaluating the negotiation potential of a contract or a deal, which is not just what are the terms that have been proposed or the terms that have already been agreed to. But what are the options that each side has in this matter?
For example, potentially there’s a contract and I’m representing somebody who has no particular rights under the contract because they’ve signed a very unfair contract. However, it may be that they also don’t have very much money and they always have the option of fighting the case and then filing bankruptcy. And so if the plaintiff wins at the end, they’re never going to see the money and they’re going to owe their lawyer a substantial amount of legal fees.
So sometimes I’ll have a conversation with the plaintiff and say, “Look, you’re right. When you’re right, you’re right. However, my client doesn’t have any money. And so my client is willing to pay you 10 percent of what you’re asking for now or you can fight. He’ll spend the 10 percent on lawyers and file bankruptcy and you’ll end up with zero. So you tell me, what do you want to do?”.
And a lot of times you can turn a hundred thousand dollar debt into a ten thousand dollar debt or twenty thousand dollar debt. Whatever the case may be. But that’s just because you have the leverage of lack of collectability. There’s also times when the plaintiff, for bad PR reasons, is in no position to sue.
For example, whenever someone writes a bad Yelp review and then the person who received the bad review files a lawsuit, it ends up getting picked up by the press. And then there’s all these results on Google about how this person sued a customer for writing a bad review. So at the end of the day, they don’t even really have the ability to sue if they’re trying to make their reputation better and not worse.
Next, you have situations just where you’re getting into a deal with someone and you need to think about what is your buying power and what is your credit and credibility. A lot of times you may, for example, be signing a lease for an office and they’re going to say, “Oh, we always require a personal guarantee.” But it may be that your business has been around for 20 years and it’s very stable and very reliable. And you have a high business credit rating. And even if you don’t, your business financials speak for themselves and you’re in a position to just say, “No, I will not sign any personal guarantees because I’m a very good customer based on my how long I’ve been around.” Or alternatively, “I’d like you to knock the rent down by 100 or 200 or 500 dollars a month”, depending on what it is. They’ll say, “You know, I’ve got three other people who are willing to pay more than market rent for it. And you’re asking me to go below market?”
“Yes, that’s true. But many of them have probably only been in business for ten minutes. And I’ve been in business for 20 years. And the last thing you want is a non-paying tenant.” So I’d say, “Overall, even if I’m paying you less per month, I’m a much better bet.” And you know what? Many landlords will, in fact, go for that. They’ll take a sure thing over a higher paying, high risk situation.
So excellent credit can certainly be leverage. An excellent reputation can certainly be leverage, which you should be certain to use. And we just talked about this in another video. But potentially when you’re negotiating with potential employees, you may have the leverage that your company is more prestigious or you’re in a better location or you offer better training or more responsibilities or a much better culture, more vacation. There’s a lot of things that can be leverage and you need to bring those up.
Someone may say, “I’m looking for ninety thousand a year.” You say, “Listen, I can pay 70, but I’m going to guarantee you never more than 40 hours a week of work, a month of vacation, working with really, really, really nice people instead of the complete jerks you’d be working with over there. I can give you some time to work from home.” And so quality of life can provide tremendous leverage as well.
Basically, what leverage comes down to is thinking from the other person’s point of view, what can they really do? And what’s it going to cost them to do it? Or on the other side, what benefit are they going to receive and what options do they have available? So basically leverage means you’re thinking about what options does the other side have available and what options do you have available. It’s a lot like playing chess. And when you stop just thinking purely about your rights and responsibilities and you think about what the entire chess board looks like, the situation begins to look quite a bit different.
Same kind of situation as when you want to buy something. A lot of times it’s not a bad idea to wait until the last business day of the month because everybody’s got their quotas and everyone wants to make quota. The salespeople. So you wait until the last day. “Hey, how about 10 percent off? How about 15 percent off?” A lot of times they can just make that happen magically because they so desperately, and their manager, their sales manager so desperately want to get the sales made.
Time time can be leveraged as well. Certainly I’ve been in that situation many times where I’m just so busy and I’m under so much pressure and someone is asking for more money for something than it really should cost. But I’m in no position to negotiate and I’m stuck paying twice what I really feel that I should be paying because time is just too short and I don’t have the ability to do research and speak with multiple people the way I would like to. So really you can do yourself wonders by thinking carefully about leverage before you sign your name anywhere.
My name is Brad Bailyn. If you have any questions, please feel free to give me a call and I would be happy to answer them for you privately or anonymously address the issue on my podcast/vlog. And as my standard disclaimer, please don’t watch this video and rely on it and make decisions affecting your legal rights. Please use a lawyer to analyze your situation and then tell you what you should do in your situation. This is just general information. Thank you and have a wonderful day.
