Most negotiators confuse their walk-away point with their target. One is a budget number. The other is where walking out costs less than staying in.
Kenny Rogers was onto something with "The Gambler." Know when to hold, know when to fold, know when to walk away. What he didn't mention is how bad most professionals are at figuring out which is which.
Here's the first of Arete Advisors' 5-Minute Prep (5MP) steps for when you really, truly haven't done your homework, or have been caught unaware and are about to walk into a commercial negotiation.
Step one: get your walk-away point right before you kick off and the amygdala hijack kicks in.
Context: a client interaction. Procurement team. Eight-digit USD category spend. Relatively obscure manufacturing input with a limited universe of suppliers. Senior director plus team in the room.
A note to procurement folks: I love you, this is not a hit piece. And to sales folks: I love you too, but you're just as guilty of this.
Us: "So, what's the walk-away point?"
Client: "USD $XXXX per ton."
Us: "OK, so what happens if we can't get the price below that?"
Client: "We don't buy."
Us: "OK, so how much stock do you have on hand?"
Client: "Two months, maybe, globally."
Us: "OK, so when that runs out, what happens?"
Client: "Well, production lines slow or shut down until we get supply."
Us: "OK... what's that going to cost you?"
Client: "A lot."
Us: "So, would you really walk away at $XXXX?"
Client: "The CFO says we can't pay any more."
I can't count the number of times I've seen professionals conflate need with want. Your walk-away point is a need. It's not your target. It's not your fantasy number. It's, as it says on the box, the point where you must walk away because the cost of staying in the deal exceeds the cost of leaving it.
In the case above, the client's "walk-away point" was actually an internal target that someone in finance had set. A number on a spreadsheet. But the real walk-away point, the one that matters, required a much harder question: what does it actually cost us if we don't get this deal done at all?
Shutting down production lines, losing customers, scrambling for alternative supply at emergency pricing. That's the real math. And once the client did that math and wrangled the internal negotiations to prove it, the picture changed completely. Their actual walk-away point was significantly higher than the number they'd been told to hold.
Here's what bugs me about this. The walk-away point in that conversation didn't come from the negotiation team. It came from finance. Someone in a different building, looking at a spreadsheet, set a number and handed it down. The team in the room treated it like gospel because the CFO said so. (There's a whole other article about that particular bias.)
Walk-away points that get handed down from above without the analysis behind them are dangerous. The team ends up either folding on a deal they should close or digging into a position that makes no commercial sense, because somebody upstream decided what "too expensive" means without ever asking what "no deal" costs.
Before you walk into the room, pressure-test yours with one question: "If we actually walk away, then what?" If the answer is vague, you don't have a walk-away point. You have a wish.
Part of the 5-Minute Prep (5MP) series.
We work with commercial teams on exactly these kinds of problems.