Before I dive into what are BATNA and WATNA (two very strange sounding acronyms), and how you invent options for mutual gain, I want to illustrate by explaining that I was having an interesting conversation with a client recently.
The client, let’s call him Zack, was about to enter into a rather important business negotiation worth potentially tens of thousands of dollars.
The client asked what the best route would be to approach an upcoming contract negotiation.
My very first question to the client was, “What’s your BATNA and WATNA?”
He responded with, “Huh?”
I am pretty sure you all have the same reactions right now, but let me explain.
Getting to Yes. Negotiating Agreement Without Giving In.
I took a course in negotiations in university, and during that time I read one of the best business books I’ve ever read, Getting to Yes, Negotiating Agreement Without Giving In by Roger Fisher and William Ury.
One of the principles they discussed in the book is the concept of understanding your BATNA and WATNA. The concept has served me well for the last 30 years. In fact, so well that I never enter an agreement or negotiation without giving consideration to both my BATNA and WATNA.
I then asked Zack the BATNA question in another way.
“If you don’t strike an agreement with your current supplier, who else can provide you with the product and at what price?”
WHAT are BATNA and WATNA?
BATNA definition: the Best Alternative to a Negotiated Agreement.
WATNA definition: the Worst Alternative to a Negotiated Agreement.
What I explained to Zack was that the first thing he needed to do, and even before he started the negotiation, was to understand what the alternatives were in the event that he wasn’t able to negotiate a new agreement with his current supplier.
In other words, what was the best alternative if he couldn’t negotiate a new contract? It might include signing an agreement with an alternate supplier or agreeing to the current rates of the supplier.
I suggested to Zack that he needed to understand all of his alternate options (BATNA). This includes price, of course, but also needs to include other important contract/supplier variables like quality of service, the inconvenience of switching suppliers, payment terms, and so on.
With this research in hand, he would now be equipped to begin the contract negotiations with his supplier.
Why BATNA and WATNA are so important.
Let’s suppose you’re buying widgets from your supplier for $1,000 a widget. You buy upwards of 500 widgets a year or the equivalent of $500,000 of product a year. You’re hoping to negotiate the amount per widget down from $1,000 per unit to $950 a unit, which would represent a savings of $25,000 a year.
You’re also not that pleased with some of the other terms outside of pricing. So that needs to be renegotiated, too. For example, you’re hoping to improve the delivery timeframe from 6 to 3 days and the payment terms from net 30 to net 60 days.
If Zack starts the negotiations without knowing who the alternate suppliers are, and at what price and terms he can buy the product for, then he will be at a disadvantage when he begins the negotiations.
On the other hand, if Zack knows that there’s a supplier who is willing to offer the product for $930 a unit with a 3-day delivery commitment and payment terms of net 60 days, then he’s in a very strong position before he begins the negotiation, and he’s now established a new bottom line.
Let’s say, on the other hand, that he’s found out that the best alternative supplier can provide him with the product at $1,050 per unit with 10-day delivery, then he’s going to be in a very different position when he begins the negotiations.
Once he is fully aware of his options, he will be able to present strong points while negotiating with the supplier for a strong and more beneficial deal.
Similar to the above discussion in regards to understanding the best alternative in the negotiations, you need to also look at the worst alternative, in other words, if you walk away, what would happen? The worst-case scenario. The worst-case scenario, in this case, might be that you have no supplier, or, that the alternate supplier really isn’t that good.
That’s why you need to understand both scenarios, WATNA and BATNA, even before you begin the negotiation process.
The WATNA and BATNA in Negotiation
Armed with enough research, Zack is now ready to enter the negotiations. He knows that he’s hoping to drive some major concessions from his supplier and understands the consequence of not coming to a new agreement with his supplier.
BUT, he’s now going to …
Invent Options for Mutual Gain
It’s very important that both parties in a negotiation feel good about the end position, or as Ury and Fisher suggest, they should “invent options for mutual gain.”
So what does it mean to “invent options for mutual gain”?
Let’s say Zack knows that his supplier might eventually agree to provide the product for $930 a unit, but he believes that if he’s able to negotiate a new price of $930, his supplier might be bitter about the concession.
The concept of “inventing options for mutual gain” implies that there are interests and underlying constraints that both parties have that will likely not be identical. For example, Zack might be very fixated on the price and shipping terms, while the supplier is most concerned about the minimum order quantity of each delivery.
Let’s say it turns out that the supplier is fine with providing a price of $930 a unit, and would even be willing to negotiate down to $910 a unit, but he wants Zack to place order volumes at much larger quantities than what he has traditionally placed. Or maybe the supplier is a public company and needs the paperwork signed in the next 15 days to make their year-end.
Zack might not care about placing larger order volumes or even about signing in the next 15 days. These would be easy concessions for Zack to make. It’s through exploring the concept of “inventing options for mutual gain” that these were uncovered.
The above can be summarized by a Chris Voss quote on negotiations: “Never be so sure of what you want that you wouldn’t take something better.”
Do’s and Don’ts for BATNA
So, just because you have your research done doesn’t mean you will get exactly what you want. This is the main part of the negotiation. You put your point forward and listen to the other party and find a middle ground that works best for you.
Here are the things you should and should not to efficiently manage your BATNA
1. Be Humble and True About Your BATNA
I have met people who have this habit of boasting about their alternate option to get what they want out of a deal. Don’t do it! It is not only unprofessional but also unethical. Instead, be humble about the options you have considered but be present while negotiating.
Making the other party feel comfortable during the negotiation is the strongest way to convince them to work with you according to your preference, I believe. Tell them that you would like to focus on the deal at the table and negotiate considering the mutual gains.
Apart from that, lying and bluffing about your BATNA can taint your and your company’s reputation. Trust me; you don’t want to get your business defamed just for a mere concession.
2. Don’t Present a Weak BATNA
A weak BATNA is a WATNA, and there is no reason you need to present it to the other party. I guess this is the most self-explanatory part of the guide. You wouldn’t really lower your prices for the person who has done zero research and has no better alternative for their future orders.
Telling your supplier that you are in dire need of a new manufacturer/supplier will only make them offer you higher prices. They can definitely take advantage of your desperation and refuse to negotiate a lower price.
As I mentioned before, doing your research about all the possible suppliers beforehand is a must. This is exactly why you need to have more options; to not sound desperate.
3. Continue to Improve Your BATNA
Another thing I suggest to all my friends and clients is to keep improving their skills. While this works for all paths of life, it is essential for managing your alternatives. If you keep educating yourself on how to improve your negotiation skills, sooner or later, you will become a professional in what you do.
Surround yourself with people of your kind and learn their skills that you can utilize in your business. Not only will it help you make a strong BATNA case, but it can also help you connect to new suppliers and manufacturers while you learn and socialize.
Continue to find the best possible alternatives even if you have negotiated a deal with your current supplier. You can always find a better option that fits your requirements perfectly.
4. Avoid Talking About Your BATNA Too Early
If the first thing you mention to the other party is the alternative option that you have, then it is more likely that you are not going to strike a deal. Why? Because it will make you sound so fixed on the other option that you don’t want to discuss anything else.
As a result, you will find the other party uninterested in negotiations as well. I strongly agree with a quote by Dave Waters, “negotiations are worthless if neither party is willing to budge.” Instead, talk about all the possibilities that both parties can consider to improve their contract.
Even if you know that you have a strong BATNA, wait for the other party to put out their offers and concerns. Save it for the end of the discussion to use it as a solid bargaining tool.
5. Don’t Let the Other Party Disregard Your BATNA
The chances are that the other party will try to disregard or defame your alternate option. This is mainly because they don’t want to lose the contract. Don’t let them rule your BATNA out. However, also stay alert about all the possibilities and facts they are sharing.
Do thorough research about the reputation of your alternate supplier before you speak about them during an agreement. Other than that, know when and how to defend your BATNA without falling for the age-old tricks that your current supplier can play.
Check Your Ego at the Door
One other thing to note before you enter a negotiation is to try not to get too ego-invested in the negotiation or the outcome itself. I internalized something that Colin Powell said quite a few years ago. It resonated with me. “Never let your ego get so close to your position that when your position goes, your ego goes with it.”
Doing your homework in a negotiation needs to transcend the most obvious element of price and extend to many other variables like service, terms, quantities, and so on. Understanding these elements, and where each side stands in regards to these elements is part of the negotiation, but having this information—or as much of it as possible—before you begin is the first step to ensuring a successful, win-win negotiation that ideally leaves both sides pleased with the end result.
And then, before you enter into any negotiation, always remember to completely understand the concept of what are BATNA, WATNA, how to use them during a negotiation, and how you invent options for mutual gain.
Before you go, here’s a video I thought you might enjoy on BATNA. Noam does an excellent job of explaining BATNA.
Now good luck at the negotiating table!
On a somewhat related note, I wrote a blog post titled: Sell Me This Pen. I Tackle the Wolf of Wall Street Sales Riddle. Do You Know the Right Way to Sell the Pen? Would you know the right way to sell the pen (taken from the Wolf of Wall Street movie)? Read the post to find out.
Do you know the steps required to get your new business off the ground? Read this blog post: The 5 Steps You Need to Take to Get Your Startup From Paper to Launch and Then to Infinity and Beyond
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