It sounds like a great situation—playing with other people’s money (OPM). In gambling parlance it’s called playing with house money.
However attractive that OPM sounds, it can be very risky business, even when most of the risk is shifted to the person or company with the deep pockets.
There are several factors about OPM that are discomforting and even troubling. For one thing there’s the care factor: many times when companies have other people’s money their attention to due diligence and value might not be at the same level as it would if the dollars were coming out of their own pockets. A perverse attitude might emerge: They can spend carelessly because they often do not have to live with the consequences.Or alternatively, they are cheapskates in the name of “cost savings initiatives” without regard to value because they might not be around to actually see the consequences.
Other OPM factors involve collaboration and self-interest. Some companies and their managers strive to play with OPM as much as possible—for them it’s an article of faith and the way they regularly do business. Actually self-interest is at work on both sides: “I have the money and I’m trusting you to use your talents well so that we both profit.”
That’s the ideal situation—but how often does it play out that way? The proper safeguards are necessary, and that’s where the Vested mindset can help in a situation where there’s an investment imbalance, because the parties are aligned—if not monetarily—on their relationship goals and they have a governance framework in place that features transparency, flexibility, trust—and an exit strategy!
Image: Money by Dave Barger via Flickr