Today I’d like to get into an absolutely critical piece of the negotiating puzzle, and it’s this funny acronym called BATNA. Anyone who is familiar with the research and strategies around negotiation will know what a BATNA but if you have never heard of it before, keep reading!
BATNA stands for Best Alternative to Negotiated Agreement. The concept comes from the seminal negotiation book, Getting to Yes by Roger Fisher and William Ury, and it’s one of the keys to setting yourself up for a successful negotiation.
Now, as I try to hammer home to anyone who will listen, research and knowledge and planning are the absolute lynchpins in negotiation. You can’t get what you want out of a negotiation if you don’t actually know what you want going into it. And maybe even more important than knowing what you want is knowing how much you’re willing to bargain for what you want – how much to pay, what to trade, etc. Your BATNA – again, your Best Alternative to Negotiated Agreement – is what helps you understand how much you’re willing to give to reach your bargain.
It’s easier to use a concrete example to understand the concept, so let’s return to the job negotiation we discussed in the last post. I won’t use my actual client’s information for this example but we can extrapolate from the same premise:
As a reminder, my client was approached by another company and, as part of her hiring discussion, she was asked what she would like her desired salary to be. We determined that the best way to handle that question was to assess the information level of the negotiation and then to decide whether to make the first offer. Let’s say, as happened, that she made an initial salary offer, and then the company counter-offered very low. After a few back-and-forths, the two sides were still not in agreement. Should she keep negotiating and making concessions? Should she take the last offer on the table? How should she assess these questions?
How do you know when to walk away?
As always, the answer is research and knowledge. For the purposes of this question, though, you don’t need to know more about your negotiating opponent. Rather, you need to know more about your own interests and your available options. All of your options.
Let’s consider the alternatives available to my client as she enters this negotiation.
Identify Your Alternatives
Her first option is simply to choose not to negotiate. She can stay in the same job she has, with the same hours, the same salary, and same work balance as currently exists. That is to say, she can always fall back to the status quo. (Note: the status quo may not always be an alternative, but often it is.)
She may have other options, though. And, better yet, she may be able to create new options.
She might, for example, approach other companies about hiring her. If she were able to receive offers from several companies, she would gain even better information about the market value of her employment. She might be able to bid one company against another to drive up her salary. She might just find, through exploring, another company that is a perfect personality or growth-opportunity fit for her. Having not yet explored those possibilities yet, though, she must currently price in the risk of seeking out new opportunities against the convenience of the company who has already expressed an interest in her and with whom she is about to start negotiating salary.
As another alternative, she might approach her current company, alert them to the fact that another firm is trying to poach her, and try to parlay that interest into a higher salary at her current job - or perhaps a promotion in title or a different workstream, if those were things she was interested in.
Yet another option – because we truly must try to be exhaustive whenever we negotiate something substantial – might be to quit her job altogether. Maybe she is ready to take a year and travel the world and only a certain salary at any company will be sufficient to keep her from her magical sabbatical abroad.
We could go on and on here (perhaps it’s time for her to consider changing industries? Go back to school? Have a baby?), and if it’s your negotiation, you absolutely must. Brainstorm and lay out all of the viable alternatives that you see in front of you.
After doing this, you might realize that the job negotiation you are about to sit down for is in fact not your best option! Better to know that now, though, than feel regret later that you jumped into a new job that was not precisely what you wanted.
Let’s assume, though, that given a successful negotiation, this new job opportunity seems to be the best bet. Now we must use the alternatives we identified to establish the parameters of the negotiation.
Your BATNA sets the limits on your negotiation
For the sake of argument, we’ll say that our client is currently a Senior Manager making $200,000 per year. Ideally, she would like to move to the new company with the title Partner and make $250,000 per year.
Having exhaustively analyzed her alternatives, though, she realizes that her second-best option – that is, her Best Alternative to Negotiated Agreement (BATNA) – is to remain at her current company and negotiate for either a higher salary or promotion or both. Realistically, she knows no one has ever gotten more than a 10% raise in a situation like this before. She thinks she could likely achieve that, i.e., $220,000 salary, but likely no title bump.
In making the comparison calculation, she also must include other factors that militate in favor of one job or another. The new job, for example, may be closer to her home such that she will spend less on gas each year. Or perhaps offer something less tangible, like the fact that she has a great social network at her current job and so she will need some extra bump in salary to compensate for the lost camaraderie if she switches. Again, weigh all the pros and cons here and then try to come up with either a salary number or short descriptive list of requirements that describe your BATNA. Given what we’ve mentioned above, let’s say that the client thinks that her guaranteed BATNA at her current company would be equivalent to a $220,000 salary and no title bump. She thinks the shorter commute is worth $5,000 to her annually, but she would like at least $5,000 extra compensation for the trouble of re-establishing her social network at the new firm, so those factors cancel out. If she is unable to come to a fruitful negotiation with the new company, she is confident that she can fall back on that alternative (and, as a reminder, she has determined that that is her best alternative among all of those that she considered).
Now that she knows what her BATNA is worth to her, she can set her reservation point. Your reservation point is your walk-away number in the negotiation. It’s the number (or set of criteria) below which you understand that your BATNA will be a better alternative for you than the result of negotiating. In this case, her reservation point is $220,000 and no title bump.
Your reservation point should be concrete and specific.
So, now she knows how to structure her negotiation. She should continue to negotiate and try to conclude a deal with the new company so long as the deal lands somewhere better than her reservation point. She may have listed $275,000 in that Desired Salary box, but if they come back to her at $221,000 with no title bump, then she should absolutely accept the deal because it is better than her BATNA.
Because she worked hard to determine what her best alternative was, she knows exactly when to walk away from the deal. She can hope and try to do substantially better than her reservation point – and if she reads this blog, she will pick up plenty of tips on how to do that – but she will also know unequivocally if the new company makes her their best and final offer whether to take that offer or whether to walk away from the bargaining table.
So, to sum up this lesson, we learned about a negotiation term of art called the BATNA – Best Alternative to Negotiated Agreement. The BATNA is a critical piece of the negotiating puzzle because it helps us eliminate doubt and uncertainty in the process of negotiating. By setting our reservation point, our BATNA informs our decision on when to keep negotiating and when to walk away. To determine our BATNA, we survey all of the available options we may have as an alternative to the agreement we are about to negotiate. Remember to be creative here! Consider all of your possibilities. Once you have laid out all of your options, select the one that is your best alternative and define it clearly. What is the value of your BATNA (especially with respect to the parameters you will be negotiating on)? The detailed valuation of your BATNA represents your reservation point, or your walk-away number in your negotiation. Having established your reservation point, you can enter your negotiation confidently, knowing just what your alternative is if the negotiation fails and just how much value you might gain by concluding the negotiation.
Hope that was helpful! Do you have any experience with the topic of the day? If you digest the lesson and put it into practice, what happens? Let us know! If something really helps you – or if you decide that we were very wrong – tell us!
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