Having good options available before you start negotiating is best practice. You'll feel empowered and confident to either reach a mutually satisfactory agreement, or walk away to your better alternative.
“Don’t put all your eggs in one basket” is an old saying that has stood the test of time. To a negotiator, this wise old proverb illustrates that if you only negotiate with one other negotiating team, you may end up with a rotten deal. In fact, you may end up with no deal at all. You need to have a strong alternative waiting in the wings to have the power to say “no.”
Netscape’s BATNA Blunder
This site’s case studies are rife with real-life examples of BATNA being the single biggest success factor or blind spot. This is true in both business and politics. The Netscape Navigator negotiation case provides a now-infamous example. It details how the browser war was won by an inferior product provided by Microsoft to AOL. At the time, AOL was the dominant internet provider in the United States.
Netscape overestimated the strength of their own BATNA. What’s more, Netscape also underestimated the strength of AOL’s BATNA.
Right after our site visitors look up the definition of negotiation, they typically next look up the definition of BATNA. This is where BATNA comes to the rescue for those of us sensible enough to have heeded the sage advice of that old farmer who coined the proverb above many ages ago.
BATNA means “Best Alternative to a Negotiated Agreement.” This is your alternate plan when the talks start to wobble out of control. It can also be your trump card to make the deal happen to your advantage. Having your BATNA prepared can also enable you to walk away from the deal altogether.
Imagine you’ve taken a negotiation training course. From your studies, you know the value of going into a business negotiation meeting fully prepared. Before arranging the meeting, you set up talks with two alternative suppliers. These suppliers are ready and able to handle all your needs.
When you meet with your preferred supplier, you calmly sit back and allow them to finish their spiel. Now, you watch the gleam fade from their eyes when you mention some aspect of their competitor’s offering. You have a BATNA!
BATNA or No BATNA? That Is the Question
The power of your BATNA affords you the leverage to ask for more. If you don’t get what you’re looking for, then you can turn to your best alternative. A strong BATNA is like a warm, fuzzy insurance policy. A strong alternative provides you with two possibilities. Either you reach an agreement with more favorable terms, or you simply say “no deal,” because you have a good alternative plan.
Sarah Talley shared some sage advice after creating more prosperity for her family business. She achieved this through her skillful negotiations with Walmart. She commented: “Try not to let Walmart become more than 20% of your company’s business.” In our Walmart case study, one of the gems to emerge is not to become too dependent on any one supplier or customer. Dependency reduces your leverage and erodes your BATNA.
A BATNA doesn’t come prepackaged. A BATNA is the result of a two-step planning and preparation process. First, it pays to determine all your available alternatives. Then you choose your most attractive and actionable alternative. Next, you realistically assess the other negotiator’s alternatives. Both steps are equally important. Figure out whose best alternative is stronger and more actionable.
You should seek to increase your flexibility. It is important to keep in mind that both your approach and your alternatives should be able to bend in the wind and weather an unexpected storm. A negotiator may enter the talks with a preconceived idea of the best alternatives available to both sides. However, negotiators should not be bound by these preconceptions.
Circumstances can change rapidly. Unexpected changes can be anything from new information, a sudden rise in costs, or new legislation. A sudden shift in conditions can immediately affect the strength of either side’s BATNA during the negotiation process.
How to Determine Your BATNA
How do you determine your best alternative to a negotiated agreement? First, dissect both your position and your negotiation interests. Then, look at the sum of these parts relative to all the alternative options available. Pick the best option. Finally, do the reverse from the perspective of the other side. A well-prepared negotiator views the whole picture in this way.
Some of the most crucial factors that should be considered include:
- Cost: Ask yourself how much it will cost to do this deal relative to the cost of your best alternative. Cost estimation may include both short-term and long-term considerations. Figure out which of your options is the most affordable.
- Feasibility: Which option is the most feasible? Which one can you realistically put into action in time?
- Impact: Which of your options will have the most immediate positive influence?
- Consequences: Determine the outcome of each option that could be a possible solution.
- Stakeholders: Do you need to win over any stakeholders before being able to move to your BATNA?
Egos and Orchestration
Keep your ego in check. After all the work you put into building up your BATNA, you might be feeling pretty smug. Studies have shown that it is an all-too-human tendency to overestimate the strength of one’s own BATNA while underestimating the strength of the other side’s BATNA.
This scenario plays out when one side reveals an over-valued BATNA too early. Having put all their cards on the table too soon, they “call” the other side. Suddenly, they find that their big hand really equates to a pair of deuces facing a full house in a poker game. They can kiss that pot goodbye!
Let’s examine the scenario in which you have the stronger BATNA. Suppose that you know the other side needs to make a deal. You also know the other side has no good, actionable alternatives available.
You may decide to allude to your own powerful BATNA in this circumstance. We advise clients in our sales negotiation training courses to avoid rubbing a buyer’s nose in their unfortunate negotiation position, lest the buyer becomes offended. An offended buyer could start working on a medium-to-long-term alternative to moving away from doing business with your company.
The BATNA you employ can act as powerful leverage while you decide whether to agree to the deal. As always, gage the situation accordingly. Timing can mean everything in determining when to put your BATNA on the table.
Boosting Your BATNA
In the reverse situation, what can you do with a weak BATNA? Can you turn the tables? Yes, you can, and there are two ways this might be accomplished. The first possibility is to strengthen your own BATNA. The second way is to weaken the BATNA of the other team, or at least affect the other team’s perception of their BATNA.
- Be Creative: Ask yourself what other options you might employ that could improve your bargaining position. Brainstorm the situation with all the key players in your organization. Your planning must also factor in the other negotiator’s priorities, interests, and options.
- Improve Your BATNA: Endeavour to expand your options. One possibility is to consider bringing more vendors or buyers into the mix. A new negotiator’s interests may coincide with key components of your interests or those of the other negotiating team. For example, this might mean creative financing that presents a more attractive option to the other negotiator. If you weaken the other side’s best alternative by adding this valuable new term to your offer, the game takes on a whole new slant.
- Use Experts: Neutral experts with their own relevant expertise might be able to analyze your problem and resolve it through a newly designed, highly valued package of contract terms. If your business lacks some area of expertise, get the experts to lend a hand.
Failing to have actionable alternatives when heading into a negotiation is simply not a best practice. Having an attractive, actionable, alternative option empowers you to confidently reach a mutually beneficial agreement. It also allows you to walk away with a satisfactory alternative.