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Posts Tagged ‘Fear in business’

The Art of Balancing Fear and Trust in Dealmaking

As a corporate lawyer, I spend a large part of my time writing and reviewing contracts and advising clients on opportunities, risks and on their legal rights, responsibilities, and obligations related to their business dealings. However, what I often find most fascinating are the emotions that impact business deals and the resulting group dynamics that often go unnoticed by the participants. While most participants consciously focus on price, timing, problems and other terms, their actions and decisions are often driven by emotion — fear, anger, expectation, hope, disappointment, and so on.

Two emotions that commonly impact business deals are fear and trust. Frankly, I don’t know which is scarier, because either emotion can make people act irrationally.

Acting out of fear, a participant is likely to overreact to a perceived threat in the negotiation or overanalyze an agreement to the point of losing out on a potentially good deal. On the other hand, participants who are overly trusting may enter into an agreement without carefully thinking it through and later regret their decision.

A healthy balance of fear and trust leads to better outcomes.

The 4 Steps to Diagnosing Fear in Business

I often write about fear dynamicsthe behavior and communication patterns that emerge during interpersonal interactions involving fear or anxiety that any or all involved parties are feeling. For example, I was working with a client who repeatedly took hard line stances on negotiation points as his initial opening position. However, when there was silence in the negotiation or it appeared the other party might walk, then my client would cave and give in to the demand. I had observed this type of negotiating tactic before (as I am sure many have), but the consistency of this behavior and almost complete capitulation on virtually every issue was unusual.

As I engaged with my client, I stated that the dynamic he was creating was making each negotiation point more and more difficult because he was teaching the other side that he would give in whenever there was a pause or a fear that the deal might die. My client was self-aware enough to understand this and, to his credit, he admitted to engaging in this behavior. He also stated very clearly that he did not want to lose the deal regardless of the terms. This insight was very helpful to me in understanding the situation; knowing that my client and I understood each other alleviated my anxiety. It allowed me to be more aggressive in stopping my client from speaking and in avoiding breaks and other moments of silence that would eat away at my client.

Ultimately, we worked through the deal and were able to close the transaction. I believe that my client got a better deal after he and I were able to understand the tension between the two of us, and I was then able to act to mitigate my client’s fear response.

Fear dynamics play a role in what is often referred to as

Managing Emotions in Buy/Sell Negotiations

Business transactions, especially mergers and acquisitions (my specialty), involve both head and heart — cognition and emotion. However, we focus far more on the price and terms in an agreement than on the emotions that almost always play a major role in the outcome, even to the point of determining whether negotiations end in a deal or a deadlock. Instead of understanding emotion and using it to our benefit either through insight or action, we often let emotion drive an outcome, usually to the detriment of everyone involved.

Photo by Tommaso Urli (sourced from Unsplash)

I am not suggesting that we leave our emotions outside the door of the conference room, if that were even possible. Emotions play a valuable role in negotiating. For example:

  • Desire pulls parties together to initiate a transaction.
  • Eagerness gives us the energy to persevere when the negotiation drags on.
  • Fear can encourage us to examine a contract more closely.
  • Disappointment can signal the need for further discussion.
  • Anger is sometimes used to make an overly aggressive party realize they need to back off.

What is important is that we maintain our poise and manage the emotions (both our own and our counterpart’s), so these emotions do not control us or the deal.

Alleviating Anxiety

In a study entitled “Can Nervous Nelly Negotiate? How Anxiety Causes Negotiators to Make Low First Offers, Exit Early, and Earn Less Profit,” Alison Brooks and Maurice Schweitzer of The Wharton School of Business at the University of Pennsylvania, conclude

Fear Dynamics 101: Part 4, Reaping the Benefits of a Fear Audit

Welcome to the final part of my four-part series: Fear Dynamics 101. In Part One, “Defining Fear Dynamics,” I introduced the concept. In Part Two, “Recognizing the Warning Signs,” I illustrated several common symptoms of fear that arise in group settings, so you know what to look for. In Part Three, “Counting the Costs of Fear Dynamics,” I discussed the potential consequences of failing to address the fear factor in business. In this part, I encourage you to take the first step toward identifying and addressing fear in your organization and business deals — by conducting a fear audit.

A fear audit provides an objective analysis of interactions within an organization, between among parties involved in a business deal, or between an organization and its clients or vendors in order to identify and correct fear-driven behaviors and communications that often undermine business deals and that hinder performance and productivity. A fear audit is a four-step process, preferably conducted by an objective, third-party observer with expertise in fear dynamics:

Fear Dynamics 101 — Part Three: Counting the Costs of Fear Dynamics

Welcome to Part Three of my four-part series: Fear Dynamics 101. In Part One, “Defining Fear Dynamics,” I introduced the concept. In Part Two, “Recognizing the Warning Signs,” I illustrated several common symptoms of fear that arise in group settings, so you know what to look for. In this part, I discuss the consequences of allowing fear to govern business behaviors, relationships, and interactions.

I would not be discussing the problems associated with fear dynamics (the behavior and communication patterns that emerge during interpersonal interactions involving fear) if there were no costs that people and organizations suffer. Unfortunately, the potential costs of fear dynamics are quite substantial.

When fear operates unchecked or acknowledged, people often respond in the following ways:

Fear Dynamics 101 – Part Two: Recognizing the Warning Signs of Fear Dynamics

Welcome to Part Two of my four-part series: Fear Dynamics 101. In Part One, “Defining Fear Dynamics,” I introduced the concept and presented an example to illustrate how fear dynamics threatened to derail an acquisition I was working on for a client with the help of an accounting group. In this part, I describe common fear dynamics warning signs, so you know what to look for.

(Photo by Fineas Anton on Unsplash)

Perhaps what is most sinister about fear dynamics (the behavior and communication patterns that emerge during interpersonal interactions involving fear) is that they arise from causes unseen. Like a tsunami that swells from shifting land masses miles below sea level, fear dynamics wash over everyone involved, often without them ever sensing the cause.

Note: Although I recommend ultimately working toward eliminating fear dynamics through proactive processes, learning how to mitigate or manage existing fear dynamics can be equally beneficial and is often a necessary first step — a step that requires the ability to recognize when a fear dynamic is at work.

One of the first steps in managing fear dynamics is to learn to “smell fear” when it is influencing the behavior of one or more parties in a group. (The “group” may be an internal group, a client service group of several companies, or a group working on a transaction in an adversarial setting.) Here are a few of the most common warning signs that fear is influencing a person’s behavior or a group dynamic:

Fear Dynamics 101 – Part One: Defining ‘Fear Dynamics’

Fear is an unpleasant feeling that tells us when someone or something is potentially dangerous — that it threatens our being or well-being or is likely to cause pain of some sort. It serves the useful purpose of keeping us out of trouble; it can motivate us to take much-needed action — fight, flight, or freeze. And it is useful in various aspects of our lives, warning us of threats not only in the physical world, but also in our personal or business relationships, our careers, our finances, or even our freedom.

However, if it is unwarranted or excessive, fear can warp perception, stifle innovation, erode confidence, undermine trust, and trigger conflict. Left unchecked or misunderstood, it can paralyze an individual or an entire organization and lead people to make poor decisions with potentially catastrophic consequences. Yet, fear in the business environment is rarely addressed in any formal way. In fact, most do not even recognize the warning signs. As a result, many suffer the consequences —

Fear as Business Friction

In the vast marketplace of ideas, you can easily find several concepts or key words that have staying power and typically attract attention and investment. For example:

  • Trust
  • Accountability
  • Vision
  • Goal
  • Strategy
  • Efficiency
  • Innovation

Entire industries are built around these kinds of words. Consultants evaluate companies to determine whether they have these characteristics. If they determine the companies do not have these attributes, they generate significant income by creating plans to inculcate the business with the “missing” ideals.

At the core of these concepts is to enable a business to achieve its full potential. Improvements may take the form of operational changes or cultural shifts. The focus may be on the individual, a sector, a business unit, or the entire company.

The Goal: Eliminate Business Friction

The goal of improving trust, accountability, efficiency, and so forth is to reduce business friction — anything that blocks progress, impairs productivity, or slows the pace of innovation and business itself. In physics, friction is the resistance that one object or surface encounters when rubbing against or moving over another object or surface. In a car, friction reduces fuel efficiency. Energy needed to move the vehicle is partially used to overcome friction and is lost in the form of heat. Friction and the resulting heat cause wear and tear on the car that eventually results in the need for repairs.

In a business, friction results in a loss of focus, creativity, confidence, and direction, and negatively impacts productivity. Moreover, organizational friction inhibits innovation, which often results in decreased sales. All of these make a business less efficient and therefore less productive. Secondary effects of business friction may include

How Fear and Avoidance Kill a Great Deal

As I am working on several year-end transactions and stress mounts, I’m reminded of a past transaction that involved two parties who were eager to make a deal happen but became paralyzed at a crucial point by fear — not fear of each other, but fear of losing the deal. Neither side could bring itself to trust or empathize with the other. As a result, vapor lock ensued, and the deal died even after numerous issues they confronted resolved.

Fear in business

The fears of the parties doomed this deal. It was too far along and would have required at least one party to travel well outside its comfort zone, but what could have been done earlier in the process to change the fear dynamic that killed the deal?

Confronting the Fear of Losing a Deal

When I work on transactions, I quickly work to identify deal breakers. I notice them during initial client meetings and phone calls and as I