This subject came up again recently when a mate’s startup was raising fresh capital. I advised him be prepared in case the VCs you’re negotiating with lead you into a take-it-or-leave-it situation, knowing you’ll be under time pressure as your cash runs out.
The BAFO is a commonly-used acronym for your Best And Final Offer – a.k.a. your “Bottom Line”. What is the worst deal you will still accept?
The value of deciding this ahead of every negotiation comes from taking emotion out of this decision. In a negotiation situation, there are any number of pressures, expectations, fears, and cognitive flaws that can lead you to accept a deal you will regret in the cold light of day. This is why auctions exist.
BAFO sounds trivially simple, but you may find it harder than it seems. You may have to push yourself to decide on this in advance. I find people are often reluctant to even discuss, let alone choose, a BAFO. They’d of course prefer to be positive, to imagine the best possible outcome, and the probabilities of getting that, than face the buzz-kill of looking at worst-case scenarios. Whichever of these routes you take, just make sure its a conscious choice.
Your BATNA is a less well-known term, but one of my favourite concepts. It’s your Best Alternative To a Negotiated Agreement. It’s a more positive way to frame a “fall-back” option, and can remove a lot of pressure going into any negotiation.
What options are open to you if this deal doesn’t get made? What are the potential upsides of not getting this deal?
- Would not signing this deal free you up to concentrate on winning more profitable deals?
- Are there alternative uses for the resources this deal would consume?
- Would not being tied to the commitments you’ve offered to make give you more flexibility ahead?
- Could not getting this job open you up to exploring alternative opportunities elsewhere?
Your BATNA should be an option with no external dependencies, such that it is entirely within your control to choose it.
Your BATNA is your most valuable tool to control the cognitive bias that is equating not reaching a mutually-acceptable deal with “losing”. The bias pushing you to forget your BAFO and take any deal you can get, or to choose between two unpalatable offers.
Get comfortable with your BATNA, visualize life with it, until you can say to yourself: “I know that whether this deal comes off or not, I’ll be OK.”
If nothing else, walking away sends a signal to your sales team internally and to partners or customers externally that you may be flexible but you do have a bottom line and you’re happy to say no to a deal that doesn’t work for your business.
In that example at the beginning where my mate was raising capital, his BATNA could be to keep his equity, cut costs and finance growth out of sales – growing organically.