3 Biggest Mistakes of MBO

3 Biggest Mistakes of MBO

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While some may claim that there is nothing worse than allowing your talents go to waste, one can also argue that it is much more humiliating to see them underappreciated. Sometimes, the management gets held back by the owners of the company and once these differences become too great, there are only two ways out. The first one is that everyone goes their separate ways, which is quite bad seeing how everyone is at a loss. The second one is for the management to try and buyout the company. For those who found themselves in the latter scenario this can still seem like biting more than you can chew. Here are the three most common mistakes that occur during and after an MBO (management buyout).

1. Sharing Power on Equal Parts

Management buyout usually means that more than few people pitched in to gather enough funds. Naturally, this would mean that, since they are all owners now, they should also share the power on equal parts, right? Actually, this is one of the biggest mistakes that the new ownership can make. Even if everyone gave the exact same amount of money, someone should still be in charge. The best course of action would be to choose the one who would be the most capable leader. If this is something you think you won’t be able to agree on, sometimes it is better to avoid getting involved in such a matter altogether. Keep in mind that just because you have a mutual interest doesn’t necessarily mean your goals are the same, so choose your partners wisely.

2. Ignoring the Source of Capital

In a situation where people are desperate for money, it is quite possible that they completely ignore the problems that its source may cause. The loan you take may have an interest that will on its own eat away most of your profits. Additionally, the asset you sell to get the capital may simply be too valuable and you might be completely unable to rebuy it at a later date. Where the money comes from can be just as important as whether you actually have it or not. One of the safest approaches to this problem is to look for private equity funding firms and see what they have to offer. Be as it may, they are much more likely to offer a better alternative than the two aforementioned methods.

3. Refusing to Make the Tough Calls

Finally, when it comes to business, people usually act on their interest. Sure, there might have been something terribly wrong that the previous owners did, so now will be your time to do this. Talking about making tough calls is one thing, but actually making them is something completely different. This usually consists of breaking partnerships, backing out of resource devouring projects and laying people off. All of the above mentioned are quite unpleasant and extremely dangerous, seeing how there are so many ways in which they can backfire. Keep in mind that there is probably a solid reason why the previous owners refused to undergo them, but if you are going to introduce some changes into the business, this is the way to do it.

Conclusion

The fact that you have lead a company from the position of a senior management, doesn’t necessarily mean that you will keep doing the same once you have 100 percent control over it. There are only three choices that you will have from the day you agree to the buyout: lead, follow, or get out of the way. In your case, only the first one will get you where you want to be. Always remember that and keep your eye out for the three abovementioned traps that most MBOs walk right into. Good luck.

Image credit: Business Mistakes

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About Author

Dan Radak

Dan Radak is a marketing professional with ten years of experience. He is currently working with a number of companies in the field of digital marketing, closely collaborating with a couple of e-commerce companies. He is also a coauthor on several technology websites and regular contributor to Technivorz.