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A couple of months ago, I had an epiphany. I absolutely sucked at negotiating things for myself. It seemed like every time I was involved in a negotiation, I always came out as the loser. To make matters worse, I discovered that when I was involved in a negotiation with an incredibly hot girl, I would doubly screw the pooch.

To remedy this problem I began reading books on negotiating during my free time. That’s when I came across Negotiation Genius by Deepak Malhotra and Max Bazerman. What I discovered was that a lot of my misfortunes were due to a lack of real preparation. According to the authors, most people make their costliest mistakes before the parties’ even get together to talk. They go on to say that if one considers the negotiating process as an art form rather than a science, they will not properly prepare and be ill equipped when they try to strike a good deal for themselves.

To help people prepare for a negotiation, the authors present a five step frame work that I want to share with you guys today and get your opinions on.

Step 1: Assessing your best alternative to negotiated agreement (BATNA)

Professors Malhotra and Bazerman argue that the first step towards a successful negotiation is asking yourself what you will do if the current negotiations end at an impasse. You would start by simply taking a piece of paper and by writing down all of your possible alternative options that you can pursue if the deal falls through. Then you want to estimate the value that is associated with each alternative. Your best alternative on the list is your BATNA

Step 2: Calculate your reservation value

Your reservation value is simply your walk away number. If you are a seller it is the lowest price you would be willing to accept for a deal. If you are a buyer, it is the highest price you would be willing to pay. To come up with a good reservation value, you need to analyze your BATNA. The professors argue that your reservation value should be your BATNA plus an amount that you feel you can safely negotiate higher/lower with another party depending on if you are the seller/buyer.

Step 3: Assessing the other party’s BATNA

Similarly to when you were calculating your own BATNA, you want to think about what the other party might do if the deal does not go through. You want to go through the list of options they may have and select the best one.

Step 4: Calculate the other party’s reservation value

Once you are equipped with the other party’s BATNA, the authors suggest that a good way to come up with their reservation value is to think about what they might do if the deal goes through. You essentially want to figure out what this deal is worth to them. This is where you might have to do a little bit of research on the other party. Some questions you might want to ask yourself are ‘what are the intentions of the other party?’ ‘What do they do? / What are they good at?’

Step 5: Evaluate the zone of possible agreement (ZOPA)

The ZOPA, as the name suggests, is the set of all possible deals that would be acceptable to both parties. It is essentially the space between the seller’s reservation value and the buyer’s reservation value. Your success in any negotiation depends heavily on how much of the ZOPA you can capture for yourself.

Do all you masters of the universe do any of this either subconsciously or consciously when it comes to preparing for a negotiation? Or do you all just prefer to walk into a negotiation like bosses and let your gut handle the rest? Does anyone have an alternative framework that they like to use/have been successful with? I guess the most important question here is how do you go about preparing for a negotiation?

Comments (13)

  • Bankn's picture

    Wow, that was entirely too complex. Reminds me of the Family Guy episode where Peter has a team of scientists figure out how many fingers he was holding up.

    It's all about presenting and using your own value to maximize the possible return.

    Guess it's good to be pragmatic though.

  • lasampdoria's picture

    Good post. Must read.

    "Those who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety."- Benjamin Franklin

  • SirTradesaLot's picture

    Mr. X wrote:
    Do you do any of this either subconsciously or consciously when it comes to preparing for a negotiation?

    I absolutely do this consciously in every negotiation. The bigger the negotiation, the more time I spend on it. It definitely works.

    adapt or die wrote:
    What would P.T. Barnum say about you?

    MY BLOG

  • dest149's picture

    That seems a little too cumbersome to me and by having such a complex model, you make it more probable to stumble and in turn set yourself to fail during the actual negotiating because you will be trying to recall all of that stuff and relate it to the the exact offer they are giving you. I find that it's always best to examine your alternatives and include position/prestige of the other companies in your analysis not just payment, also the ability to move up. You need to realize a lot of times its not how much you get paid to start, its how quickly you can move up.

    Ultimately, if you have just that one offer look up averages for that position in your area on glassdoor and ask yourself if you would be happy with that average. Look and see what the deviations are and roll from there. I would say do not try and negotiate more than 10% of that average unless you are really that stellar of a candidate. i.e. - if they offer anything above 10% of the average I would take it on the spot and consider yourself lucky, if they offer you the average then consider your happiness with that number and consider the risk, if you want you can ask for 5% more (or 10% if you think you can get it or its worth the risk of them being turned off). If they offer you less than the average then ask them why they feel that is a fair number, and tell them that that number is a little surprising as you originally had something slightly higher in mind. I wouldn't say anything like well the average is this or I have friends in the industry that make this as they might see this as a turn off and tell you to GTFO and work for your friends (maybe not literally but still). Also like someone above said, you need to also sell your value added. Don't just ask for more, but tell them why you are worth it, emphasize the skills set you are going to bring to the company even if its something as simple as how much you like their their group etc. (obviously the stronger your points here, the stronger position you will be in).

    Don't forget again that sometimes it's worth taking a little less if its means more prestige and in turn either A) better opportunities to rise in the company or B) better exit strategies as these will pay off in the long run.

    Hope it helps.

    P.S. - remember that if you get a hot girl try and remember that this is a business and not a bar where you tip the bartender more cause she is wearing something cute. Make the plays, don't get played.

  • SirTradesaLot's picture

    Dest149: I think you totally missed the point. There are a lot more things to negotiate than just your starting salary. Often times, you have to negotiate as a regular part of your job. Even to use your example, using this methodology could take as little as 2 minutes. Say you just got an offer from Goldman Sachs and assume it is your top choice. Also assume you are not coming directly from school, because you can't negotiate there anyway.

    1. BATNA: stay in current job or take other offer from Morgan Stanley with $250k total comp
    2. Reservation price: you love Goldman so much, that you would still take the job even if they only paid you $200K
    3. Their BATNA: Who else can they hire that has your exact skillset, relationships, whatever. If a lot of people do, your negotiation power is low. If you are unique, your power is higher.
    4. Their reservation price: What is the absolute highest they would pay you? This is a guess, but you have to do the homework here if you want to get paid. Importantly, is there anything else you can grab here that they don't care about, but you do?
    5. ZOPA: you can negotiate between $200-300K, between your estimated reservation prices. Ask for a little more than $300K so they can negotiate you down and feel like they got a win.

    adapt or die wrote:
    What would P.T. Barnum say about you?

    MY BLOG

  • dest149's picture

    I see what you are getting at SirTradesaLot and I am not saying the system doesn't work, I was more saying that going through all those steps during a negotiation (assuming its live) can hurt you if its not second nature because you may stumble or ask for too much and lose a good position. However, I recognize the point of this was preparation, and I think if you do this analysis before hand (like it was said) and go into the negotiation only thinking about Step 5 (which is really the only important step once you derive it) it holds value. Anyways, be thankful that we have room to negotiate and other job options to consider when many (including people on this forum) are struggling to even secure 1 offer. Always good to appreciate what you have (myself included).

  • In reply to dest149
    SirTradesaLot's picture

    dest149 wrote:
    I see what you are getting at SirTradesaLot and I am not saying the system doesn't work, I was more saying that going through all those steps during a negotiation (assuming its live) can hurt you if its not second nature because you may stumble or ask for too much and lose a good position. However, I recognize the point of this was preparation, and I think if you do this analysis before hand (like it was said) and go into the negotiation only thinking about Step 5 (which is really the only important step once you derive it) it holds value. Anyways, be thankful that we have room to negotiate and other job options to consider when many (including people on this forum) are struggling to even secure 1 offer. Always good to appreciate what you have (myself included).

    Let me clarify, you don't go through any of these steps DURING the negotiation, you do all of them beforehand. You certainly don't let them know you did these things. Depending on the negotiation, you can certainly let them know some of your alternatives. For instance, "the other guy's product has x, y, and z more features than your product AND he is selling it for 30% less than you."

    For a job negotiation, might I suggest reading this?:
    http://www.wallstreetoasis.com/blog/how-to-negotia...

    adapt or die wrote:
    What would P.T. Barnum say about you?

    MY BLOG

  • In reply to SirTradesaLot
    dest149's picture

    SirTradesaLot wrote:
    dest149 wrote:
    I see what you are getting at SirTradesaLot and I am not saying the system doesn't work, I was more saying that going through all those steps during a negotiation (assuming its live) can hurt you if its not second nature because you may stumble or ask for too much and lose a good position. However, I recognize the point of this was preparation, and I think if you do this analysis before hand (like it was said) and go into the negotiation only thinking about Step 5 (which is really the only important step once you derive it) it holds value. Anyways, be thankful that we have room to negotiate and other job options to consider when many (including people on this forum) are struggling to even secure 1 offer. Always good to appreciate what you have (myself included).

    Let me clarify, you don't go through any of these steps DURING the negotiation, you do all of them beforehand. You certainly don't let them know you did these things. Depending on the negotiation, you can certainly let them know some of your alternatives. For instance, "the other guy's product has x, y, and z more features than your product AND he is selling it for 30% less than you."

    For a job negotiation, might I suggest reading this?:
    http://www.wallstreetoasis.com/blog/how-to-negotia...
    Great read, thanks. Some very good points.