What is the cost of Emotion in a deal?
Friday, April 25th, 2008Everything is the answer I would give you. There have been volumes of words dedicated to negotiating and negotiating strategies so I am not going to expound on that topic. I am going to give you a warning. I have never seen a transaction happen where one side or both wins when Emotion plays any role in the outcome.
If you are buying a company – people call it “Deal Fever”. The emotions run high and “Deal Fever” grips you and all of a sudden you start assuming away issues that make the deal “OK” or the deal terms “passable”. Whenever you say, “We have to buy this…” you will end up paying too much. You will miss something or you simply will not do the things the more disciplined you would do. Commit to no “Deal Fever”. If you start getting emotional stop the deal or bring in your trusty attorney. Usually they will help you think rationally.
If you are selling a company – no buyer can ever “Insult” you. If they make a low bid simply don’t counter. Tell them that you are not willing to sell your company for that low of a price but you would be willing to entertain a better offer. I have seen many sellers get caught up in their own hype and miss out on great opportunities. One potential seller was offered a sum of money for his company (my boss got emotional in this case and had to have the company – I was the messenger so don’t blame me) that would allowed his great grand children to never have to work. The seller was 22 years old but he believed the hype – never sold – never went public and his next raise round was a down round. The company flamed out and it ended up being a $400 million mistake. Remember – no emotion! Think about what you want out of your company and what is needed by you and your investors to gain a good return. Focus on that number – do your best to maximize the number but don’t lose sight of the goal.
Emotion makes people do things for the wrong reasons. The best example of this is in litigation or divorce proceedings. Usually the only one that gets rich or is satisfied in the end is the attorneys. We all have heard at least one divorce horror story.
Bar emotions from your negotiation or have a professional help you.