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For many managers, a management buyout (MBO) represents a way to find personal satisfaction by controlling your own destiny. It doesn’t hurt to know that it’s also one of the quickest ways to become an entrepreneur and achieve financial success. However, just like any business venture, it doesn’t come without significant risks. To help you learn how to successfully manage a management buyout, here are the biggest mistakes you need to watch out for.
Losing Sight of Your Core Business
When it’s all said and done, buyers usually spend anywhere from 3 to 9 months on an MBO. This takes into account target prospecting, negotiating a deal, arranging the finances and paperwork which takes up additional time. During that entire period, you can get caught up in the pending business acquisition that you lose sight of how much of the internal resources it consumes from your existing business. Keep your eye on your core business at all time, while using the remainder of your resources for the buyout.
Succumbing to “Deal Fever”
“Deal fever” is just another term used to describe managers who get so emotionally tied up in the process that they start ignoring the negative aspects of the deal in front of them only to complete it quicker. As a buyer, your main focus should be making the right deal, regardless of the time, energy and resources you invest.
Weigh the “pros” and “cons” and re-evaluate the deal regularly during the MBO. If you notice something’s off, potential deal breakers that you can’t re-negotiate, it’s better to walk away than strike a deal you’ll regret later on.
Not Creating an Extensive Shareholders Agreement
A Shareholders Agreement is the most important document in a management buyout. Creating a quality Shareholders Agreement includes a discussion on all the “what if” scenarios you and your managers might encounter during your MBO. These include: what happens if someone is fired, gets sick, or dies; what are the issues that will require a majority consent from all the shareholder; how does a shareholder exit and at what value are their shares sold.
When it comes to your own Shareholders Agreement, you need to spend as much time drafting it as possible. Openly discuss every possible situation and outcome of that situation with your partners, and only include the solutions you all agree upon. At one point all these issues can become reality, so it is important to get them out of the way now to protect the security of your future business acquisition.
Not Considering All Potential Financial Partners
There are numerous financial sources that can fund an MBO: banks, term lenders, vendor financiers, private equities, or subordinated debt providers. Banks, for example, are considered the cheapest option but have a strict return policy, unlike private equities which are more lenient and more expensive.
One of the leading private equity firms in Australia suggests you consider all the financial sources available before choosing the best one for you. Identify any potential short-term problems your new business acquisition and the effects your financial backing can have on your long-term goals. This evaluation will allow you to avoid the wrong financing mix for your MBO.
Not Making Hard Decisions
Many MBO companies have a hard time growing their business because managers don’t know how to make the hardest business decisions. You need to understand that fate of your new assets rests in your hands now. You will need to make tough decisions to expand your business in order to achieve a return on your capital investment. Number-driven decisions like downsizing or further investment need to be made to expand your business. Despite technically being a part-owner of the company, you might have to fire a member of your MBO team, or step down yourself. To achieve success, you need to do whatever it takes.
Not Being Patient
Ultimately, when it comes to MBOs, you need to understand that this is a long-term investment. And just like any long-term investment, it requires patience. You can’t expect a quick ROI, even in the best-case scenario. The best thing you can do is to focus all your initial efforts into paying out your financial debt ASAP. Afterwards, you can expect some return on your capital investment, but the more you grow and invest the more you will earn. It’s just a matter of time.
Ultimately, management buyouts represent a great financial opportunity for any businessman or manager with an entrepreneurial spirit. The key is to never lose perspective and to always keep an eye on the game. Some mistakes are going to happen, but learning from them will help you and your company grow. In turn, this will allow you to reap all the financial rewards that attracted you to a management buyout when you began your journey.
Marketing your new start-up company is very important. A good marketing campaign can make or break new companies, especially if they are in competitive industries like technology, media, professional services, etc. But a lot of people don’t have a budget to finance multimillion-dollar marketing campaigns that will “guarantee” them a success.
Luckily, there are some creative and cheap ways you can market your start-up and reach the audience you want. We will cover four ways that are proven to be most successful and require little previous knowledge in marketing strategies.
Be present in media
Firstly, media is still the driving force in marketing and you should take full advantage of it. But what’s hard about it is making yourself stand out from the crowd. Media has always looked for the most interesting stories to report on, so your job will be to craft a unique story about your business for media and consumers. Be precise and target places where your business matters. If you spread yourself too thin or focus on wrong places you won’t get a single client out of your whole marketing campaign.
Additionally, don’t hope to start with newspapers and other top-tier press immediately. Their attention is pretty hard to attract, but if you start with blogs and build your way up, at one point they will certainly notice you and hopefully report on your business.
Use cross promotions
Cross-promotion is a great way to spread the word about your business. There are a number of creative ways to approach this kind of marketing, but probably the best and the easiest one is to advertise your company in places your potential customers might be. For example, if your targeting audience is elderly people, then give out information about what you are doing in the form of flyers, pamphlets, etc. at retirement homes, parks and other local gathering places. You can also do this online by visiting websites that are frequently visited by your target demographic.
You should always start simple and give information about your company only, but later this cross-promotional stuff can grow. You can even partner with other businesses that are in the similar industry as you and advertise your services as a part of their package and vice versa.
Make promotional merchandise
This is an old-school marketing strategy, but still very much effective. Promotional merchandise is used to spread the word about your company and to remind your clients that you are still there and relevant. You don’t need to go overboard by ordering hats, t-shirts, and bags, but small items like pens, cups, calendars, lighters and slap bracelets are a perfect way to promote your start-up business.
Hire a professional company that will design and make all these items or you can design them yourself. Either way, make sure that they’re of high quality and unique design. No one wants to hire a company that can’t even make proper promotional merchandise.
Get a website
Lastly, if you don’t already have a website then make sure you get one as soon as possible. A lot of companies undervalue the importance of having a website and rely only on their Facebook page, Twitter account, etc. This is not a good marketing strategy. Even though social media platforms can generate a lot of traffic, you always need to have your home base, a place where you have complete control.
If you can’t afford custom designed websites, then you should use platforms like Squarespace that offer templates and easy ways to create your own website. With these platforms, you will have a professional looking website in no time.
And that’s it from us. As you can see marketing campaigns don’t need to be expensive. There are plenty of ways to advertise your start-up business and not spend your entire budget on it. Just remember to be creative and unique so you can stand out from your competition.