Six Habits of Merely Effective Negotiators
ward risk and time, assets, and so on, there would be little to negotiate. While common ground helps, differences drive deals. But ne- gotiators who don’t actively search for differ- ences rarely find them.
finding differences can break open deadlocked deals. Consider a small technology company and its investors, stuck in a tough negotiation with a large strategic acquirer adamant about paying much less than the asking price. On in- vestigation, it turned out that the acquirer was actually willing to pay the higher price but was concerned about raising price expectations in a fast-moving sector in which it planned to make more acquisitions. The solution was for the two sides to agree on a modest, well-publi- cized initial cash purchase price; the deal in- cluded complex-sounding contingencies that virtually guaranteed a much higher price later. Differences in forecasts can also fuel joint gains. Suppose an entrepreneur who is genu- inely optimistic about the prospects of her fast- growing company faces a potential buyer who likes the company but is much more skeptical about the company’s future cash flow. They have negotiated in good faith, but, at the end of the day, the two sides sharply disagree on the likely future of the company and so cannot find an acceptable sale price. Instead of seeing these different forecasts as a barrier, a savvy negotiator could use them to bridge the value gap by proposing a deal in which the buyer pays a fixed amount now and a contingent amount later on the basis of the company’s fu- ture performance. Properly structured with ad- equate incentives and monitoring mecha- nisms, such a contingent payment, or “earn- out,” can appear quite valuable to the optimis- tic seller—who expects to get her higher valua- tion—but not very costly to the less optimistic buyer. And willingness to accept such a contin- gent deal may signal that the seller’s confi- dence in the business is genuine. Both may find the deal much more attractive than walk- ing away. A host of other differences make up the raw material for joint gains. A less risk-averse party can “insure” a more risk-averse one. An impa- tient party can get most of the early money, while his more patient counterpart can get considerably more over a longer period of time. Differences in cost or revenue structure, tax status, or regulatory arrangements be- tween two parties can be converted into gains for both. Indeed, conducting a disciplined “dif- ferences inventory” is at least as important a task as is identifying areas of common ground. After all, if we were all clones of one another, with the same interests, beliefs, attitudes to-
Mistake 5 Neglecting BATNAs
BATNAs—the acronym for “best alternative to a negotiated agreement” coined years ago by Roger Fisher, Bill Ury, and Bruce Patton in their book Getting to Yes —reflect the course of action a party would take if the proposed deal were not possible. A BATNA may involve walking away, prolonging a stalemate, ap- proaching another potential buyer, making something in-house rather than procuring it externally, going to court rather than settling, forming a different alliance, or going on strike. BATNAs set the threshold—in terms of the full set of interests—that any acceptable agreement must exceed. Both parties doing better than their BATNAs is a necessary condi- tion for an agreement. Thus BATNAs define a zone of possible agreement and determine its location. A strong BATNA is an important negotia- tion tool. Many people associate the ability to inflict or withstand damage with bargaining power, but your willingness to walk away to an apparently good BATNA is often more impor- tant. The better your BATNA appears both to you and to the other party, the more credible your threat to walk away becomes, and the more it can serve as leverage to improve the deal. Roger Fisher has dramatized this point by asking which you would prefer to have in your back pocket during a compensation negotia- tion with your boss: a gun or a terrific job offer from a desirable employer who is also a serious competitor of your company? Not only should you assess your own BATNA, you should also think carefully about the other side’s. Doing so can alert you to sur- prising possibilities. In one instance, a British company hoped to sell a poorly performing di- vision for a bit more than its depreciated asset value of $7 million to one of two potential buy- ers. Realizing that these buyers were fierce ri- vals in other markets, the seller speculated that each party might be willing to pay an in- flated price to keep the other from getting the division. So they made sure that each suitor knew the other was looking and skillfully culti-
harvard business review • april 2001
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