(The following is an excerpt from Steve Miller's book, Confessions of a Corporate Real Estate Hitman: Killer Negotiating in Business and Life, Creating my Unfair Advantage.)
If you’ve studied negotiations at all, you’re familiar with the acronym BATNA, the Best Alternative To a Negotiated Agreement. I think the term was first coined by William Ury and Roger Fisher of the Harvard Program on Negotiation and made popular in the book, Getting to YES. It was described as an alternative to your least acceptable deal terms and what to do next if your deal fails. The problem is that markets aren’t static, and it’s unlikely you’ll have a backup solution of any merit in your back pocket unless you’ve been working on it all along.
That said, you need to have a sense of what your oppositions’ BATNAs are so you know their opportunity costs for losing you – what it’s going to cost them not to do a deal with you. Time on the market, commissions, legal fees, new TIs, whatever, but again, know none of it is static.
My program, the better program, is to Be Always Negotiating Another New Agreement, your BANANA, parallel with your target negotiations, and the bigger, the better. Better yet, have a bunch of BANANAs. You should always be looking for better leverage and valutility.
You can let your opponent know that you have a BANANA or more, but not what they are.
Having quality BANANAs lessens your risk and instills greater confidence and solidifies your negotiations. Run two or more negotiations parallel for the same requirement so you can move seamlessly between them as necessary. With no BANANAs in place, failure to achieve your primary objective can be devastating. That danger can impact the level of risk you’re willing to accept to achieve your objectives.
BANANAs can, of course, be stalking horses, but as with stalking horses, the details are always to be kept confidential. Your counterparts’ knowledge as to the existence of your Stalking Horses can be helpful to you, but any specificity as to details or identities of either group must remain confidential. Revealing your BANANAs, stalking horses, or any alternatives can cause you to lose leverage and mystery. BANANAs are for your protection, in case you need to stick it to your counterpart.
-- Steve Miller