That Old Sailor ...

That old sailor my grandfather knew ...

Summary: before negotiating on linked deals, consider the big picture and the value to you of your ultimate desired outcome; think carefully through the implications of various alternative to weigh up the associated risks and potential for value creation and place your major focus on what provides the greatest ultimate success for you.

Which comes first?

Readers who – like myself – were brought up on Christopher Robin and the poems of AA Milne, may remember the saga of the shipwrecked sailor:

“he was wrecked on an island and lived there for weeks;
and he needed a hat and he wanted some breeks ... “.

The problem is a familiar one – which of many inter-related activities to tackle first? The sailor solved his dilemmas by doing nothing:

“And so in the end he did nothing at all; but sat on the beach wrapped up in a shawl ... “.

Some of us, faced with linked business or personal negotiations (for example, should you first find new premises before you arrange to vacate the existing office space; should you accept a large new order before you ensure that your suppliers can deliver), make a similar choice to do nothing: others go to the opposite extreme and try to create the optimum outcome and obtain the best deal for each individual part of a linked negotiation. Despite the encouraging example of the sailor who “did nothing but sunbake until he was saved”, we risk having to settle for a less than satisfactory deal if we simply leave things to unfold as they will.

So how do we decide which issue to tackle first?

Negotiation Principles

In a recent issue of the Harvard Business School Newsletter, Negotiation, (Volume 8, Number 1, January 2005) Michael Wheeler, Professor of Management Practice at Harvard Business School, proposes a six-step process to assist business owners and individuals to generate optimal value in linked negotiations.

Wheeler summarizes his advice in the following three principles:

• “Don’t assume you must nail down one deal before starting the next. Look for hedging opportunities. For instance, if a person sells his current boat before finding a good replacement, he can rent something else for the summer.

• Invest most of your effort in the area upon which your ultimate success hinges. Usually one negotiation will have a bigger upside than the other.

• Craft a strategy that allows you to adapt as the process unfolds. If you’ve done your homework carefully, you’ll be better prepared to grab opportunities that you might not have foreseen.”

Have a BATNA and a benchmark

Suppose you have decided to sell your home in order to downsize to a small more manageable dwelling now that the children are grown. As in any negotiation, it is important before you start to consider your BATNA (Best Alternative To A Negotiated Agreement), a concept first elaborated by Roger Fisher and William Ury in their classic book on negotiation, Getting to Yes.

A BATNA is not to be confused with a bottom line. In selling your home, you may decide that your bottom line is that you will accept no offer under $300,000. While this may prevent you from accepting a poor offer, it may also prevent you from being creative with your options and you may still be trying to sell your property while having passed up a rare opportunity to buy a home that would suit you much better.

A BATNA, on the other hand, is an answer to the question, what will I do if, by a specified date, the house is not sold and I haven’t found a home I want to buy? Will you stay put, place it on the market for a further period, reduce the price, explore alternative locations/options for your new home ... The advantage of a BATNA is that it provides a standard by which you can assess offers that are made to you and opportunities that come your way and also allows you flexibility to explore imaginative solutions. It allows you to be much clearer on what is likely to happen if you do nothing, i.e. if you decide not to negotiate.

Having considered your BATNA, how much are you prepared to outlay for the new home? What will then be the overall value of your assets and resources? What are the tangible and intangible benefits that you will enjoy from the downsizing? What opportunity costs relating to alternative uses of your hard earned cash might you factor into your analysis?

By getting clear on these matters you create a benchmark against which you can weigh your subsequent decisions.

Compare apples and oranges for value, opportunity costs and risks

Next, find out as much as you can about the current state of play in each of the linked negotiations. In the example of downsizing your home, you might gather information on the prices of homes comparable to the one you are selling as well as prices of homes that you would consider buying. It may be that there is an oversupply of houses comparable to your home and an undersupply of the type of home you wish to purchase. Or the reverse could be the case. Either way, this will provide an indication to you of where your efforts might be best directed.

For example, if there is an undersupply of homes of the type you wish to purchase, then it may pay you to put more effort into sourcing a good buy than in making the best sale of your existing home. Trying to maximize on both fronts, while it appears desirable, may leave you worse off than if you had focused on the one that appears to offer the greatest potential to maximize value.

This type of comparison of the different sets of information relating to your linked negotiations also allows you to familiarize yourself with and assess the financial and emotional risks associated with each that factor into the negotiations.

This is a stage where you may benefit from asking for information from expert sources.

Test the market

Wheeler suggests that we keep in mind two objectives when making an offer: first to reach a deal and at the same time to get a general feel for the market.

As you continue to monitor your negotiations, bear in mind that things change and life doesn’t stand still. This means that you should continue to gather as much information as you can so that you can make take advantage of opportunities that may arise.

If your house hasn’t sold after many months, should you get desperate and drop your price or should you sit patiently and wait for the buyer who will see the value in it? This is where having given thought beforehand to your BATNA pays off. And where actively continuing to probe the buyers’ market puts you in a better position to assess offers made to you.

Look at the links

Remember to look at the big picture when evaluating what you will count as a successful outcome. Don’t just consider the individual parts – notice how they relate to each other and how each affects the other. Be creative while keeping things as simple as possible.

And Wheeler’s final words of advice: “Though it’s not smart to leave untapped value on the table, tweaking each and every contract provision can reach a point of diminishing returns.”

If you'd like to explore further how these negotiating principles can assist you to achieve more successful outcomes in your personal or professional life, ring me on

61 (03) 9525 3409

or email

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I have just finished reading Success Engineering by Phil Gosling, a nuclear physicist turned entrepreneur. Gosling explains how he applied some of the principles he learned in nuclear physics to turn his own life around and achieve his dream life. If you would like to read more,

Click here

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