Eric Sink, known for writing about the Business of Software and principal of SourceGear has a great post about The ONE Key Thing to Know About Negotation, and he hit the nail right on the head.  Being a business major, I actually had a class on negotiation, and one of the few things I remember from it is the acronym BATNA.  I realize that is a five-letter acronym, but I have confidence that even you CSci guys can remember it. :)

BATNA = Best Alternative To a Negotiated Agreement

Or, as Eric put it, the ability to walk away.  Instead of dreaming about how good things will be when the deal comes together, think about how good can you make it if the deal falls apart.  If negotiations break down, what is your next best alternative?  How good or bad is that alternative?  When you solidly know this, then you know at what point you can still walk away from the deal if you don't like how it's going.

Many people think that they are stuck and helpless in a negotiation when they really are not.  Usually it is a lack of preparation in determining their true BATNA.  I was guilty of this when I bought my Land Cruiser a few years ago.  I had done my homework about what SUV to get and I was pretty emotionally caught up in getting the Land Cruiser.  I wasn't ready to drop the dough for a new one and I was totally unprepared for the apparent shortage of them used.  I had not done my research.  I had not checked other dealers or searched online.  I actually was only going to "stop by and look", but I got caught by a good salesman and test drove the only one they had on their lot.  I was hooked and he was very good at his job, and I ended up buying it that night for more money than I should have paid.  In fact, it was right at the time that the used car market was starting to tank because of all of the 0% financing deals on new cars and I ended up upside-down in that loan for several years.  I made a HUGE mistake because I was not prepared to walk away. I had not figured out my BATNA.

The lesson applies equally to negotiating business contracts.  An important key here is to do some very serious analysis of what your alternatives really, really are.  Too often, we play the role of helpless victim and give up all negotiating power by mistake.  Maybe you're hungry, but are you really on the verge of starvation?  At the same time, we have a natural tendency to think that the other side has it made in the shade.  Remember that the other side is figuring out what their BATNA is, too.  Maybe the company has been trying to fill this employment position, or complete this contract work, for a long time and you are the best candidate they have seen in months.  Maybe the work does not sound that critical, but if they don't get it done, they will forfeit a large contract of their own.  Maybe the car salesman is having a rough month and his manager threatened to fire him at the end of the week if he doesn't make more deals.  You don't know what their BATNA is, but you had better know yours.

The more willing you are to walk away, the more power you have in the negotiation.