When to walk from a deal

Posted on July 15, 2014. Filed under: startups, venture capital |

Negotiating a deal is an exercise in reasonability. As long as the other party continues to be reasonable and as long as you continue to be reasonable, the odds are good that you will get to a deal both are satisfied with. Giving a little and getting a little back and forth are expressions from either side of reasonability. Drawing a hard line in the sand is an unreasonable action unless it is absolutely real and you are prepared to walk if your terms are not met. I have no problem employing this tactic in a negotiation and do it all the time. The good part of this negotiation method is that you can clearly articulate your needs and they are often met. The unpleasant part is that you often have to deal with the pain of walking from something that you genuinely wanted to happen. Even when you sit down rationally and say “this deal doesn’t make sense at any terms beyond x” when you face the operational reality of not doing it there is a cost. You already decided you were willing to incur it when you drew the line in the sand…but it’s unpleasant to pay it nonetheless.

I was having dinner a few weeks ago with a friend 30 years senior to me who runs a company in a very different field from ours, and we were talking about this dynamic of “being willing to walk.” When all posturing is put aside, there exists the point where any CEO/investor/whatever is willing but doesn’t want to walk from a deal they value. I asked him about a big deal he was working on in which he had clear leverage “when it really comes down to it, are you willing to go through the pain in the ass and inefficiency of finding an alternative if they don’t agree?” and his answer was I think what most CEOs feel in these situations…he made a snake like motion with his hands as he said “nooooo….but maybe yes.”

We have this natural instinct to avoid the pain of walking…it’s a more basic instinct…lower level in the emotional stack…if you will…than the optimizing/strategic mind…and there is a dance between this preservation instinct and optimization that is probably healthy. Instinct governs you to be reasonable and work toward a shared goal at the cost of optimization…and the strategic mind is the kill switch that can override preservation instinct when the avoidance of pain has a smaller absolute value than the gain in optimization from walking.

So when do you actually walk from a deal? When your strategic mind tells your preservation instincts to shut the fuck up and go find the better deal that’s out there…

p.s. this post has nothing to do with Wildcard….be cool