Negotiation Lessons: When CEO Meddling Degrades the Deal

It’s easy to become emotionally invested in a deal, especially a complex one that requires a significant time and resource commitment from you and your team. Nobody wants to simply walk away from something they have cultivated for months—even when the value of the deal begins to degrade.

This problem was vividly illustrated during an engagement between a mid-sized software and services firm that creates solutions for the financial sector and one of their potential customers, an Australian bank. This firm had a unique solution for managing accounts, cross-border trading and currency exchanges across time zones. Security, data integrity, uptime and regulatory compliance were all of paramount importance to their customer, and the software and services company had all the bases covered.

Their $6M proposal showed that waiting to do the deal carried an immediate multi-million dollar impact. There were alternative providers, but none that could get a solution up and running faster than the 90 days with which the software and services company had committed, which was critical for regulatory and operational reasons. To make their case even stronger, they had a track record of successful projects with the Australian customer and had done similar projects for other banks. Everybody on their team believed that the target close date of Dec. 15 would be met, especially since that target was confirmed in emails with the bank.

“Keep emotion out of it. Your individual motivations may be compromising the value equation your team has worked hard to formulate.”

Discussions came to a screeching halt on Dec. 1 when the sales VP received an email from the bank’s head of procurement stating that the software and service company’s commitment to the deal was inadequate. The customer demanded $300,000 of additional “free” resources for their data center in Hong Kong—in addition to $600,000 off the total price for the already agreed-upon project scope.

The CEO was stunned. “I thought the deal was done and we were just looking at paperwork,” he told us. This was easily the largest transaction of the year for them.

Granting the concessions was not advised, as the business case was compelling and the project needed to commence in the bank’s interest. Any concessions would lead to additional requests. The problem was that the CEO needed this deal to make the year-end numbers he had promised to his board of directors. He rationalized and seceded on one concession—providing the free resources in Hong Kong—by saying that it would be good for customer satisfaction and provide good “intelligence” for future sales to the bank.

The outcome was as predicted: The customer asked for more concessions, including repeating the $600K discount request. It was then that the software and services company CEO decided to stay firm. The deal closed, but was delayed until December 30th, when the bank reluctantly realized their request would not be met.

Let’s look at how the CEO handled the situation. He had already informed his board that this important deal would close prior to the end of the year. Unfortunately this projection created a level of pressure to book the deal, even if it meant closing on bad terms and leaving money on the table. This transferred the time pressure to the CEO and his team, when in fact the customer had a greater urgency to act.

A high-leverage position had been partially squandered, resulting in a deal with which both sides were not as happy as they could have been. The deal likely could have closed on much more favorable terms, and sooner, had the CEO trusted the sales and client services team members.

In the end, there was nobody that could counterbalance the CEO’s impatience, which brought in a short-term win at the cost of a more lucrative sale.

Staying focused on the merits of the transaction is tough to do when you become emotionally invested. Follow these 4 tips to prevent your deals from getting derailed.

1. Don’t blink. Customers are experienced at calculating when you might be approaching yearly or quarterly sales deadlines and will delay deals accordingly in seeking concessions. It’s your team’s role to illustrate and quantify why waiting hurts them, too.

2. One is never enough. If you grant a concession that is not attached to a credible business rationale or trade-off, be prepared for a flood of follow-on demands. After all, if you gave a concession so easily, why shouldn’t they ask for more?

3. Keep emotion out of it. Recognize when you have a personal, psychological stake in a deal. Your individual motivations may be compromising the value equation your team has worked hard to formulate.

4. Build your team and trust them. Establish a process at the outset of negotiations that clearly delineates “head chair” responsibility and outlines how senior leadership will be informed and involved.

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Mladen Kresic
Mladen D. Kresic is President and Chief Executive of K&R Negotiations, a consulting firm specializing in structuring and negotiating business transactions in the computer, software, Internet and other industries. Mladen has more than 25 years of global experience in negotiating business transactions as both a lawyer and a businessman.

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