Other People's Money (OPM) is one of the most significant differences between decisions in a private company versus a public company.
Here is an example: If a public company makes an acquisition and it turns out to be a bad decision or if the price was too high, there will likely be ramifications for that manager which could include losing their job. Conversely, in a private company, decisions about acquisitions or significant allocations of capital have a much bigger impact because the buck literally stops with the private company owner. Because it’s their money and not Other People’s Money, the thought and care that go into decisions are much greater because the ramifications are more significant.
The bottom line: People behave differently when it’s their money at risk if they are wrong. When it's your own capital, you think differently when it comes to decisions about allocating that capital.
How do you feel about making capital decisions when it's your own money at risk? Share in the comments.