If you don’t know what BATNA stands for, you should not be negotiating for anything.
If BATNA means nothing to you then you are probably in the 90% of managers and 93% of entrepreneurs who have never taken a negotiation class. You are also likley in the 80% of senior executives who leave money on the table while doing deals. Having no training in negotiating is very likley hurting your career and/or your business.
BATNA stands for: Best Alternative To a Negotiated Agreement. It’s the cornerstone of all great results as it allows to negotiate in confidence and provides better parameters for assessment. As an example, it’s much easier to push up a price on a used car when you are not in a hurry to sell and already have an offer. On the other hand if you have just 24 hours to sell because of a move it’s unlikely you will sell your car at market value. Many have experienced this in hot real estate markets where the alternative to an offer is often numerous other potential buyers. That knowledge and confidence allows the negotiator to push up the price or improve the conditions.
The key to all great negotiations is to carefully assess then constantly attempt to improve your BATNA. It’s important to note that improving your BATNA does not necessarily improve the chances a deal gets done but it will most certainly improve your result when closing. Ultimately the goal of any negotiation is about reaching your goal.
Another important aspect is to assess the other party’s BATNA. Who is on the other side? Why are they negotiating? What are their alternatives to doing this deal? I use this often when negotiating transactions in our Venture Capital/Angel firm. Some businesses have many suitors while others are desperate for capital. I don’t approach those discussions the same. By spending focused time on the BATNA of both sides I’m usually able to get into a narrow area to convert on a deal.
There are many terms/acronyms in the world of negotiations but here are a few key ones:
Target Point: What you truly are negotiating for. When I personally buy a car I don’t concern myself about the price. They have already set a price and usually new cars sell within 96% of asking. I care about the lowest possible monthly cash outlay (the majority of my capital is tied in our holdings). It’s important to negotiate the right deal so taking the time to understand your true goals is important. Your goal should never be your bottom line (see Reservation Point below).
Reservation point: The lowest term/amount you will agree to. This is your bottom line and will accept nothing less. This is NOT your goal (which should be much higher) and under no circumstances should you ever cross this line. Never reveal this to the other side.
ZOPA: Zone Of Potential Agreement. The place between an offer and a proposal. i.e.: My used car is listed at $10,000 but the best offer is $8,000. My ZOPA is between $10K and $8K. Sometimes the ZOPA will actually be in a deal zone. (Goal was $10K but before listing the price an offer comes in at $11K). Note: i still try and push up the price even if I hit my goal and I’m far from my reservation point. The other side should not know that.
Anchoring: Setting a price or conditions first. Usually those who set first are the winners if they are properly prepared.
Negotiating is a critical skill that requires thought, preparation, structure, practice and coaching. The world’s best negotiators spend hours per week refining their craft and seeking practical experience. In a recent presentation by Victoria Medvec, one of the finest trainers in negotiations, the crowd of seasoned executives and businesspeople was evenly split and asked to conduct a mock negotiation exercise with pre-set parameters unknown to the other side. The deal values in that group of 200 ranged from $63M to $985M. Incredible.
I spend at least 5 hours per week studying, reading and watching videos on negotiating and have spent weeks in classes all over the world. Yet, I still consider myself junior at the skill with much to learn. I suggest you look up the PON (program on Negotiation) at Harvard: pon.harvard.edu. Lots of free content and a daily newsletter.
The focus and consistency has allowed me to generate better value for me and my partners while keeping a strong reputation in the business community. It all starts with a strong BATNA. Vito Corleone in the Godfather knew all about that.
