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Why Leverage Matters

When it comes to negotiations in mergers and acquisitions, or even business disputes, you want to come to the table with leverage and a strong position.

One of the best ways to strengthen your hand is through BATNA.  The acronym means best alternative to a negotiated agreement – in other words, your most advantageous options if you don’t reach an agreement.

BATNA levels the playing field.  It empowers you to walk away.  It also provides a comparison for evaluating a possible deal.BATNA

Here’s a simple example: Bob is selling his business and is negotiating an agreement to sell to Jim, a friendly competitor for $1M.  However, Jim wants Bob to accept a three year payment schedule.  In order to be well prepared, Bob’s team conducted a process to find additional interested buyers.  They found one that will offer $975K for an all cash transaction, and they found another that will offer $1.3M with a four year payment schedule.  These other options give Bob a BATNA and allow him to walk away from the conversation with Jim.  If Jim won’t improve his offer, Bob has two strong alternatives to explore.

“Your best alternative to a negotiated agreement, or BATNA, is often your best source of bargaining power”, according to an April 19, 2019 blog by Harvard’s Program on Negotiation.  “By cultivating a strong outside alternative, you gain the power you need to walk away from an unappealing deal.”

Developing your BATNA is vital to preparing for negotiations.

The Harvard Negotiation Project developed the concept to bring principled negotiations to conflict resolution.  BATNA was first introduced in the 1981 book, “Getting to Yes: Negotiation Agreement Without Giving In.”  Written by Roger Fisher and William Ury, the book is often assigned to college students.

Developing your BATNA goes well beyond simply brainstorming viable alternatives.  It requires deep research and due diligence on potential prospects.

It means investing time and resources to identify real, actionable and attractive alternatives to your negotiating counterpart.  Anything less has no chance of meeting your goals, and could be revealed as a bluff, ruining your negotiating position.

Your BATNA is an essential element of preparation, not just a last resort, according to a 2016 paper by Jim Sebenius, a Harvard Business School professor and former director of the Harvard Negotiation Project.

“One’s BATNA must be properly understood as the best alternative with respect to the negotiation at hand and not with respect to any negotiated agreement elsewhere.” the paper states.

Here are some key issues to consider in developing your BATNA:

  • First, be clear about what you want to achieve in the negotiations and the outcome that will best serve your interests.
  • Make sure all the stakeholders in your organization agree with the strategy and will support your decision in you walk away from the deal.
  • Enhance your BATNA by soliciting other parties at the start of negotiations with one counterpart.
  • Because BATNAs can fall through, cultivate at least two or three of them.
  • Consider your counterpart’s BATNA.  Do research to build scenarios they might adopt.
  • Be careful not to overestimate your BATNA.  Sometimes, it can build a sense of entitlement, skew negotiations and burn long-standing relationships.