Successful Negotiators Don’t Fall in Love

Have you ever been in love? You just feel different. That’s because your brain starts activating the pleasure center of your brain. The reason that’s so significant is explained by Dr. Pat Mumby, a professor of neurosciences at Loyola Chicago. She says that chemically speaking, falling in love leads to a one-track mind, hyper focused on whoever you’re in love with.

• The Federal Trade Commission has a great write-up explaining why competition is good for the marketplace. They use the example of a grocery store, explaining that if there was only a single one they wouldn’t have any reason to lower prices or improve quality. You can certainly ask them to, but they know you’ll keep coming back regardless because there’s no alternative. So, by dealing with a single person, you give them an unfair amount of power. That’s an important economic principle and a great mentality to bring into negotiations. More options can lead to more value, so make sure you’re keeping options open. Now let’s apply that concept to a small-business scenario.

Keeping options open allows you to rebalance the power during business conversations and unlock value. That’s the power of knowing your “B.A.T.N.A.,” the best alternative to a negotiated agreement.

Keeping options open allows you to compare all aspects of a deal until you find the right fit. That’s something DaimlerChrysler found out the hard way after their failed merger in 1998. The companies had high hopes, with Daimler competing in the luxury market, Chrysler in the value market, and both hoping to strengthen their foothold on the other’s continent. There was a natural synergy at first glance, but they didn’t take a close enough look at other factors. Chrysler typically paid their executives higher salaries. Daimler maintained higher quality standards.

Exploring a few different options gives you such an advantage that sometimes people actively try to prevent it. They do this by requesting exclusive negotiating rights.

Before you fall in love with an opportunity, do your due diligence. That’s just a fancy way of saying that you need to check into everything while you’re keeping options open. The specifics will flow from the opportunity, but you’re pretty much just doing both a technical and a common-sense analysis. Let’s say you make laundry detergent and are looking to buy 20,000 eco-friendly containers every single month. That’s a huge transaction. Have you visited their factory and does it look like it can handle the volume? Have they ever filled an order this large before? Have you talked to some of the other people they’ve done business with? Have you met the people running the project? Are they easy to deal with? Have you looked at a sample and is it high-quality? Is this a cultural fit, or a fail, like we explored in the DaimlerChrysler example?

Don’t fall in love with the brand before doing your research. Evaluate your opportunities on multiple fronts, so you can always pivot if it looks like it’s time. Let’s take a look at one especially helpful tool that makes sure you’re evaluating every opportunity in an unemotional way: an investment thesis.

Bain, a global consulting firm, says you should carefully outline exactly what you want out of a transaction before you start negotiating. Newell, a consumer products company, could’ve done a better job of that before acquiring Rubbermaid. Newell loved Rubbermaid because they fit their general strategy of acquiring consumer goods companies with high margins. But Newell rushed the process, and quite frankly, failed to see what Bain called “A raft of problems, from extensive price discounting for wholesalers, to poor customer service, to weak management.” Simply put, Newell fell in love, rushed their evaluation, and overpaid. But that won’t happen to you. Because once you make an investment thesis, you’ll be able to anchor your evaluation in logic. You won’t get swept up in the moment. Instead, you’ll make sure each opportunity checks the boxes you’ve created with a level head.

You might’ve heard Marcus say, “If you don’t have emotion and you don’t have passion, then you shouldn’t be in business.” He’s basically saying that your emotion can be a great thing. And it is. It’s exactly what makes you a go-getter. But it can also play tricks on you. So, you just want to make sure it’s not contaminating your decision-making process. Below are a few things to consider to make sure you’re not looking at negotiations through rose-colored glasses.

There’s a great article in The New Yorker explaining that new information doesn’t always change your mind. Your brain has a tendency to weigh new information more heavily if it confirms what you already think. So, be aware of this psychological factor that might be drawing a disproportionate amount of attention to a variable that doesn’t deserve it.

Gary Klein, a Ph.D. in experimental psychology, pioneered an exercise called a “premortem.” He was concerned that when teams fall in love with an idea, no one speaks up about the negatives. So, in his premortem exercise, you project yourself to an imaginary point in the future and take your best guess at why the project failed. It’s just a helpful risk-assessment technique that forces you to look at every angle.

You obviously want to make a deal, but if it’s not there, it’s not there. The last thing you want is to make a deal just so you can feel like you’ve succeeded. Because if you succeeded in making the wrong deal, did you really succeed overall? Never forget that you always have the freedom to walk away, and you fortify this freedom by keeping options open.

For a lot of small business owners, closing a deal with an investor is a dream come true. But before you get hearts in your eyes, apply what you’ve just learned about negotiating. Way back in 1998, two Stanford students had developed a PageRank system for the internet. They tried to sell it to AltaVista for $1 million, cash the check, and focus on school. But Altavista declined. As did Yahoo. At the time, that was probably a crushing disappointment for the young founders. But don’t shed too many tears for those guys. Because those kids were Larry Page and Sergei Brin. Their system evolved into what we now know as Google, and as of January 2020, was valued at over $1 trillion. So, rewind back to the conversations they originally had with AltaVista. Were those young college kids falling in love with the prospect of $1 million? Did they think AltaVista saw the full potential in their product? Were they ready to walk away if AltaVista came back with an unfair offer? We’ll never know what they were thinking, but it’s a good reminder to do your research and weigh all of the options before “falling in love” with an offer.