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Manage any negotiation, Part 2: The Energy Budget

In part 1, we gave an overview of the four budgets of every negotiation, and we discussed the time budget. In this part, we will discuss the energy budget of every negotiation.


The Energy Budget

Why are some people are just ready to do a deal, while others always have another ask for more information? Let’s describe the energy budget that’s a part of every deal, what you can do to manage yours, and how you can avoid exhausting your counterpart’s and losing the deal. 

Bob has a small but thriving healthcare SaaS company that he wants to sell. One of the reasons he wants to sell is that the business is taking up too much of his attention. The buyer has made the usual requests during due diligence: financials, pipeline, access to source code, and Bob was able to fit those into his schedule. But the buyer seems to be nervous about the purchase, and is asking Bob to set up interviews with his customers, unrelated documents, and even old tax returns from years ago. Of course the buyer wants it all immediately.

The buyer was unintentionally using up Bob’s energy budget, which was very small to begin with. Bob walked away from the deal and refused to to business with the buyer ever again. It turned out the buyer was very nervous about the purchase and would probably have kept asking for more and more detail, never getting around to purchasing the company to begin with, so Bob cutting his losses may have been his best option. 

The energy budget measures how much effort each party puts into the negotiation. Either party can use the energy budget to drive up the perceived likelihood of the deal going through, to scuttle the deal (as above), just as either party can refuse to expend more energy as they focus on other priorities. 

When your energy budget is getting low, you can sometimes conserve it by having a discussion about how the negotiation is proceeding. Start by labeling some of the behaviors you’re seeing: “It seems like you’re concerned about the quality of our financials.” Or try an interrogative like, “What are you looking for in our customer history that you haven’t seen?” Those kinds of questions can help expose a hidden agenda that’s holding back the deal. 

It’s important to manage your energy budget for each deal, keeping in mind what you’re giving up by focusing your energy on satisfying your counterpart’s requests and avoiding biases like sunk cost fallacy that keep you pouring energy into negotiations that aren’t worth it. Likewise, keep an eye on how much of your counterpart's energy you’re using up with your own requests, as you might inadvertently lose an important negotiation yourself! 

By keeping tabs on your energy budget and your counterpart’s, you can get better deals done faster. 

Are you ready to take your negotiations to the next level? You’re in good company! I work with leaders like you to build better business outcomes. Contact me right now and let’s get started!