1. Don’t engage in positional bargaining. Dig in where you have extreme conviction and don’t budge.

To start, it helps to understand Steve Job’s approach to negotiation. Which was an all-out rejection of the standard approach called “positional bargaining.”

The natural tendency in negotiations is to engage in positional bargaining. This means taking a position knowing that it is not a final position, and holding in reserve a backup position.

The danger of positional bargaining is that it forces you to think about backup positions, which weakens your conviction in your original position. It's like negotiating against yourself. Plan A may be your optimal outcome, but inwardly you have already convinced yourself to settle on Plan B.

Both Steve and I had a strong distaste for approaching negotiation this way. We preferred to develop our positions without thinking through a backup. Once Steve decided what he wanted in a negotiation, he developed something akin to a religious conviction about it.

In his mind, if he didn't get what he wanted, nothing else would take its place, so he'd walk away. This made Steve an incredibly strong negotiator. He would dig into his positions with a fierce, almost unbreakable grip.

The risk, however, was in so overreaching that we would end up with nothing. If we were not going to have a backup plan, we had to be very careful about knowing what we wanted.

Know what you want and what your non-negotiable items are. Then don’t bargain with yourself and hold onto those things with an unbreakable grip.

2. Understand the difference between strategy and tactics when negotiating.

I found this breakdown of leverage versus tactics incredibly insightful.

In business relationships, or virtually in any relationships for that matter, there are two factors that determine one’s capacity to effect change: leverage and negotiation.

Leverage means bargaining power. It is the muscle you have to bring about change in your favor. The more leverage, the better your chances to get what you want. In poker, leverage would be the equivalent of the actual strength of your hand.

Negotiation describes the tactics you employ to extract the best terms you can, given your leverage. It is about how you play the hand. Courage, fear, tenacity, trustworthiness, creativity, calm, the willingness to walk away, to behave irrationally—these all play into negotiation.

Leverage is an assessment of bargaining strength; negotiation is how you put that bargaining strength to work for you. A good negotiator can make more out of the same leverage than a not-so-good one.

In Pixar’s first agreement with Disney, Pixar had fared poorly in terms of both leverage and negotiation. Pixar had not had much leverage because it had just closed down its hardware business, was struggling to remain afloat, and had never made a feature film.

In terms of negotiation, I felt Steve had been caught in a rare weak moment. This was more than four years ago, though. Steve liked to cite the adage “Fool me once, shame on you; fool me twice, shame on me.” What had occurred four years earlier was not going to happen again.

Understand your bargaining strength and then how you’re going to put it to work for you.‍

3. Analyze where you stand in relation to the other party — especially your points of leverage.

Analyze your leverage compared to the other party rationally. Then make a judgement call on if it makes sense to proceed with the negotiation.

One Friday in late January 1996, when Steve was at Pixar, we stepped into the small, windowless conference room near my office to discuss where we thought Pixar stood in relation to Disney. As we often did, we wrote down the main points of discussion on a whiteboard. There was one in the front of the room, with a wooden casing around it.

We had discussed all of these points before, but it was helpful to see them in one place. Steve took a whiteboard pen and made two columns: Disney and Pixar. Under the Disney column, he would write the points that gave Disney leverage. Under the Pixar column, he would write the points that favored Pixar.

The column-by-column breakdown ended up looking like this…

‍It was difficult to assess how this would shake out. Both of us had leverage. But did Pixar have enough to force a negotiation now, and on favorable terms?

I felt we had enough to find out. Just one of our points might be sufficient to bring Disney to the negotiation table. And we were not afraid to wait if it didn’t materialize now. “I think we should go for it,” I said to Steve.

First understand your position, then create a strategy to make the most of it.‍‍

4. Get clear on what you want and why it’s important to you. You have to know what success looks like.

‍Before you enter a negotiation, it’s paramount that you know exact what you want and why it’s important to you. Here’s how Lawrence and Steve got clear about what they wanted their new deal with Disney to look like:

Steve changed the whiteboard pen for a new color, and in a different part of the board he wrote: NEW DEAL

Below that he wrote: 1. CREATIVE CONTROL

"We need control over our creative destiny," Steve asserted. "We’ve proven we can make a great film. We can't go on indefinitely beholden to Disney to approve our creative choices."

Unless you were Steven Spielberg, Ron Howard, or another celebrity director, it was almost unheard of for an independent production company whose films were being funded by someone else to have creative control. That usually belonged to whoever was putting up the money. We had already decided that John Lasseter and his team would have creative control within Pixar. Now we wanted to diminish any outside influence over them.

"It will help that we are willing to fund our films," I added, "but Disney will be nervous about this so long as they're putting up even some of the money."

Nevertheless, we both agreed that creative control was essential to Pixar's future.

"Another must-have is favorable release windows" I said.

It mattered a lot when films were released, especially big-budget family films. There were two optimal dates: early summer and Thanksgiving, which runs into Christmas. No other time periods came close in terms of box office opportunity.

Any contract we entered, with Disney or anyone else, would have to guarantee that Pixar films enjoyed optimal film release windows. Steve wrote on the whiteboard: 2. FAVORABLE RELEASE WINDOWS

"Disney has to treat Pixar film releases like its own," Steve added to emphasize that point.

Then he wrote: 3. TRUE 50/50 PROFIT SHARE

This was a big one. All of our financial projections told us that we had to keep at least so percent of the profits from our films.

"A true fifty-fifty," Steve said. "Calculated fairly."

"Not using ancient Hollywood accounting terms that favor the studios," I added.

"That leaves the branding issue," I went on. "Pixar's films under Pixar's name."

We had discussed this endlessly. Steve wrote 4. PIXAR BRAND

"We made the films," Steve said. "The world needs to know that." That was the fourth pillar of Pixar's business plan.

"Anything else?" Steve asked.

"Of the big issues, no,” I said. “These are the ones we stick to, no matter what."

Now the whiteboard had a column that said:

NEW DEAL

1. CREATIVE CONTROL

2. FAVORABLE RELEASE WINDOWS

3. TRUE 50/50 PROFIT SHARE

4. PIXAR BRAND

We understood there would be many other issues in any renegotia-tion, but on these four matters our plan was to hold firm. If we gave up on any of these, Pixar's future would be jeopardized too much. These were our deal breakers.

"I think we're ready," I said.

"I'll call Eisner," Steve replied. "I'll tell him what we have in mind."

Map out what’s non-negotiable for you and stick to those items. You have to have conviction in every item on this list — no exceptions. And you have to be able to articulate why they’re important to you, so you can articulate them clearly to the other party.

5. Wait to negotiate until you have maximum leverage.

Once you’re mentally and physically prepared to negotiate, wait to begin until you have maximum leverage. At Pixar, this meant waiting to reach out to Disney until after the release of Toy Story — which was a smashing success. The halo effect of Toy Story’s success, significantly improved Pixar’s odds of getting the terms they wanted.

Always wait to negotiate until you’re in the most advantageous position possible.

This is how Lawrence and Steve reasoned through timing when to renegotiate with Disney:

“If we’re going to make a move to renegotiate with Disney,” I suggested one night in early January 1996, “we should start thinking seriously about it right away, while Toy Story success is still fresh.”

“Or maybe we’re better off waiting,” Steve said, “until we’re free to negotiate with other studios and have more flexibility to pick our best distribution partner.”

Making the move now made sense only if we thought we could negotiate a deal that would be strong enough to justify giving up our options in the future.

They ended decided to negotiate rather than wait until the end of their original contract with Disney. And they were able to achieve a fantastic outcome.

Timing matters.