Fitting together the pieces of making a good deal

Published in the San Diego Union-Tribune,  January 30, 2017

When is “no” no?

Let’s meet BATNA — the Best Alternative To A Negotiated Agreement. We folks here in San Diego have just lived through a mutual BATNA with us and the Chargers.

Harvard Business School Professor Jim Sibenius has some thoughts on the subject. According to Sibenius, the essential idea is to evaluate any possible deal by a simple criterion — “as compared to what.” It is natural and necessary to weigh the alternative. “The reason you negotiate is to produce something better than the results you can obtain without negotiating.” San Diego’s BATNA will emerge over the next few years — and I am quite optimistic (166 acres is not chump change). This will now conclude any further references to the Chargers.

On to the deal business — where I make my bagel and butter (which is my BATNA to a croissant). The BATNA concept for negotiation is very powerful. For example, take a reasonably content married couple who are at loggerheads over a significant issue. The options range from “yes, dear” to divorce and all the stops along the way. In all cases, it is likely that they will have to interact with each other for a period of time (children), so caution in figuring out their BATNA is important.

I am on the board of a software/food delivery company which is about to receive a significant investment from a venture capitalist. My CEO is concerned that some of the “tech world buzz” on the firm is less than stellar. But if we don’t take the money, we go broke in four months, although my CEO says that maybe we could get some more angel money. Bottom line here seems to be take the VC money and run (and stay in control of the board of directors).

In another company of mine, we walked away from a complex deal — without an alternative readily available. In that case the BATNA was to take our chances and hang out — six months later a white knight showed up. Had we taken the other deal, it would never have happened. In that case, delay worked on our side, our cards got stronger during the interim, and the market caught up to our technology.

“Continuing to negotiate” is a tactic. You don’t a draw line in the sand, but you keep making sand castles. A BATNA should not be seen as “the last resort.” Long before that time, you should have found a place you can live. And sometimes when there is no good option, you can try the “strategic no” and threaten to fall into the arms of their fiercest competitor.

I am a consultant to a company where the “founder” is intractable. There is no communication and no negotiation. And of course they are running out of money. So in this case my job is to convince said founder that his BATNA is to settle. Failing to get a calm rational behavior agreement, I will recommend we “put on a black hat” and fire up Louie the Litigator — welcome to cram down, pay to play, common stock conversion, fiduciary — you name it. Throw the book at him, and the hope is that he will see that his BATNA is to get in the boat and row. I need to create leverage. How do I explain that it is better to be in the boat (albeit in the back) than it is to drown in the ocean?

With another company, I am currently battling a tech transfer office, (not my favorite UCSD), and in this case, my job is made more difficult in that the gentleman on the other side is doing his first deal and wants to “make his bones.” I need to explain that his BATNA is simply to not lose the deal. Our founder/genius/scientist is a famous-in-her-field rock star, and if you continue to act like a jerk to prove to your bosses that you are a tough guy, we will disappear and you will be remembered as the guy who let her get away.

Sibenius concludes with the three kinds of no. A “tactical no” (floating a test balloon), a “no to reset” (i.e. no for now, but let’s meet in a couple weeks and try again) and “a final no” (drop dead, you dog, die and pound sand).

Rule No. 495: With wives, “yes dear” is a sure winner.

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