Jason M. Lemkin, the author of From impossible to inevitable: how hyper growth companies create predictable revenue, and the founder of a $90-million venture fund SaaStR, says he is bad at closing deals and doesn’t feel like a natural when it comes to sales. This is despite his obvious success and him being named by Business Insider as one of the 32 most powerful people in business technology.
When all else failed however, he turned to his sales superpower – BATNA. He attributes his improved sales confidence to BATNA, which stands for Best Alternative to Negotiated Agreement. Put simply, BATNA is the answer to negotiating power and involves the following:
Establishing the course you should pursue if the negotiation fails
Calculating your reservation value – the lowest value deal you are willing to accept
Knowing your BATNA gives you confidence to walk away from a subpar deal and to accept a deal that is better than your best alternative.
Admittedly, this sounds daunting, because it means holding on and holding out when there’s pressure to close a deal, and where a win-win situation needs to be created for both parties at the table.
Jason Lemkin narrates a time he used his BATNA:
“In my first start-up, we had a $5-million contract with a Fortune 100 company in our first 90 days as a new company. This was huge, of course. It’s how we got funded, off the ground, and all that. Then we went to the all-hands meeting to close the deal. All the Big Customer’s SVPs (senior vice presidents) were there. I thought it was to cement a partnership, which it was. But it was almost an ambush — to renegotiate the deal to $2m at the very last minute, when all the pressure was on.
They handed us a new contract across the table for $2-million, instead of $5-million. With some slight sweeteners (paid up front, right now — and actually more than 100% paid up front due to some freebies they threw in that cost them nothing but helped us).
Now we had to close this deal. We had no company otherwise. We had no choice. $2m or $5m, we had to get the deal, or our odds of success would be basically zero.
But that contract was about a 55% gross margin contract. If we took the deal down to $2m, that would drop our margins so low the company, in my mind, would fail - period. I was 100% sure of it. We would run out of money with 100% certainty.
The team, including our Chairman, freaked out in the other room. They told me we had to take it. But they weren’t doing the gross margin calculation the way I was. We’d fail if we took the deal. Just slowly.
I walked back in and told them it actually had to be $6m. I told them we would go bankrupt otherwise, and would be worthless as a vendor and partner to them. I showed them why. Yes, drama ensued. But before the end of the day — they signed.”
This story shows the art and science of BATNA.
For us to fine tune our channel’s sales skills, we know that the best negotiators get the deal by being clear about what their alternatives are if they don’t get that deal.
We need to focus on improving our BATNA. We’re always here as a partner to work on this essential skill. I have also found these articles really informative. If you have a moment with a cup of coffee, you can read them:
Here’s to slaying sales!