When Deals Go Bad

A friend called recently and recounted a deal that fell apart after four months of negotiation. The question posed to me was, “What lesson can I take from a deal gone bad?”

Fortunately (or unfortunately), I have been involved in both deals that have gone amazingly well and smoothly and others where that was not the case. A few of my maxims are below:

• Ignore sunk costs. The time invested can’t be recovered, and the faster you move on, the less you continue to lose in terms of total cost. This is one of the hardest things to realize while the deal is still new, full of potential, and more exciting than day-to-day tasks.
• Companies can operate in one of two modes: growth or margin. Investing time in a deal is investing in growth; margins will inevitably suffer during that time. Companies can switch modes, but it’s likely not more than once each quarter.
• Gut Feeling. At some point during deals that fall apart, I have a feeling that something is not right or feels off. Over the years, I have gotten better at trusting and identifying this sense. This is one of the lessons learned from experience and is different for each person. The larger question to ask yourself is, “When I get this feeling, do I listen to it?”

Life is always easier in the rearview mirror, and I am far from perfect. However, I firmly believe that 100% of the deals you don’t pursue are lost. At this point, I default to a ‘no’ answer when presented with ideas. Success comes from a laser focus on one idea and avoiding other distractions, so be sure to understand the costs of pursing a deal (e.g. time, money, and focus) before getting yourself, or your staff, emotionally involved.