Negotiating using the BATNA technique is huge for saving you money or making you more money.
Last year, after playing an afternoon tennis match at my club, I decided to switch on my Uber driver app to try and catch a fare heading home. Making money by going in a direction I planned to go anyway feels great if it works. This was before Uber came out with their new tool to allow for direction-based rides based on a pre-inputted destination address.
My tennis club is in the middle of the city, so I knew my chances were less than 30% to head back west since 70% of the population of SF lives on the eastern half. I’m a gambling man and this time I lost. I picked up a mother daughter couple close to my club who were headed northeast to their hotel at Fisherman’s Wharf. Oh well, at least I’d make about $15 and perhaps catch some surge fares down there heading back west.
The daughter told me she just started attending Cal Berkeley, my business school alma mater, so we got into an engaging discussion on the importance of figuring out how to leverage the internet to make a a better living if she learned only one thing in college. She agreed.
LOST AND FOUND: BATNA
About 20 minutes after dropping them off at their hotel, I noticed something deeply wedged between the cushions of my front passenger seat. It was her black iPhone 6S. Drat! Nothing is worse than losing a wallet or a phone. But, by the time I noticed her lost phone, I was all the way on the other side of the city.
I would have gone through the normal “lost item procedures” through my app once I got home, but luckily, the daughter called her phone, and I picked up immediately. She was incredibly relieved. I gave her my phone number and address so she could come pick it up at her convenience.
After four hours of tennis and almost an hour on the road, the last thing I wanted to do was fight traffic back down to Fisherman’s Wharf during rush hour to drop off a phone, even if I could catch a $20+ fare on the way. I was tired and starving for some black bean noodles at San Tung, one of my favorite Korean/Chinese fusion restaurants in the Inner Sunset on Irving and 12th.
Hannah the student was just relieved she found her iPhone and had my contact information. Given I told her I’d keep it safe, she told me she planned to go to dinner with her family between 6pm – 7pm and could swing by my house after. I told her I’d be home, and let her know that a non-surge fare would be between $15 – $20 to come to my house or $18 – $26 if she was unlucky.
I was going to respond to her and say, “Alternatively, if you want to pay me $40, I could drop it off where you guys are dining at 7pm,” since I’d be done eating my black bean noodles by 6:30pm, but I held back. I didn’t want to appear to be profiting from her mishap. I really just wanted to go home and relax after a long day.
$40 is a fair amount since I’d have to drive down to her restaurant and then drive back home. Her coming to my house and back to her restaurant would cost at least $30 – $50 anyway plus her time depending on surge pricing. I really wanted to just stay home and rest, but when there is something outstanding, it bugs me enough to come up with a fair solution.
I wrote to her the following instead, “I guess you could make me an offer to drive down to your restaurant to drop off your phone. Either way, your phone is safe with me, so don’t worry if you’d like to stop by later.“
She immediately responded, “How do you feel about $60?“
I hit the bid. I was thinking of just wasting another one hour of my time delivering it for free, but I was just too exhausted. Besides, it’s dangerous to drive while tired. Grabbing some dinner and taking a quick 15 minute nap is safer for everyone.
When I got to their restaurant a little before 7pm, Hannah and her mother were ecstatic. They didn’t have to re-arrange their tight weekend vacation schedule to retrieve the phone, and they were probably willing to pay $100 or more for me to deliver her phone.
They were so thankful that they paid me another $10 in cash to give them a lift to an area close by. All in all, I made $100 during this roundtrip hour long journey because I was able to give a couple more rides. $100 an hour is not bad given I was only making about $30/hour net after fees. But $100 is still far less than I charge for my personal consulting practice.
KNOW YOUR BATNA
My favorite MBA class at Berkeley was Business Negotiations. Here’s the semester in a nutshell.
BATNA is a term coined by Roger Fisher and William Ury in their 1981 bestseller, Getting to Yes: Negotiating Without Giving In. It stands for “Best ALTERNATIVE TO a negotiated agreement.” Said another way, it is the best you can do if the other person refuses to negotiate with you.
* What is your best alternative if you do not go through with the transaction.
* What is their best alternative if they do not go through with the transaction.
You become the best negotiator when you not only know your own limits, but also the limits of others. You must have the ability to walk away from a purchase or a sale. He or she who cares least, usually always wins.
The iPhone exchange wasn’t a typical business negotiation. But given time is money, it became one. We negotiate much more often than we think e.g. promotions, raises, job offers, deciding where to go eat with a significant other, scholarships, when to meet up, and more. So learning how to negotiate is a crucial skill for building wealth.
My preference was simply to go into a food coma on my sofa after dinner, earn no money, and wait for Hannah to pick up her iPhone after 7pm. I basically had zero downside because I didn’t have to deliver her the phone all the way across the city since it was her mistake for leaving it behind. My BATNA was negotiating some type of payment to deliver her phone, even though I’d much rather just stay home and relax.
If Hannah didn’t take a ~$20 Uber ride all the way to my house when we first corresponded, Hannah’s BATNA would have been way worse. I might have disappeared with her iPhone. This would have obviously caused her a lot of stress and wasted time getting a new phone. And if I finally did respond, I could have easily asked for a much higher price like $200 if she wanted it back. Wouldn’t you pay $200 to get your new $800 phone back that contains all your precious information? Probably, because you can only get a subsidized rate on one iPhone if you sign up for a 2-year plan or lease it for a higher cost.
But because I allayed Hannah’s fears by providing her my contact info and told her all is safe, she decided to entrust the phone in my good hands for three more hours while she and her friends enjoyed a show. Could you have done that if your phone was lost or in the hands of a stranger? I don’t think so, unless the person who I spoke to was an incredibly nice and trustworthy person. I’d skip the show and want to meet up ASAP. For $60, Hannah got a deal. It would have been much more costly for her if I was a scumbag.
For me, $60 was just the right amount to get off the couch after dinner and not feel bad for accepting her payment. Thinking about Hannah’s BATNA and the true cost of replacing an iPhone 6 only came after I wrote this post because I often reflect on things that don’t normally happen. During the time of correspondence, I was basically trying to come up with an easy way to conveniently get her phone back.
For bigger negotiations, like buying a house, negotiating a business deal, buying a car, or trimming your neighbor’s tree that’s blocking your view, really think about BATNA. It’s always an extremely gratifying feeling when both parties feel like they’ve gotten a deal.
Readers, what are some of your negotiation strategies? Do you consider yourself a good negotiator? Any tough negotiations in your life you can share where you used BATNA to come to an agreement?