Madlener’s high price

Villa & Hut founder Franz Madlener tried his hardest today to put a positive spin on what must loom as one of the toughest days in his career.

Today he will face two separate court hearings involving bankruptcy petitions from angry Villa & Hut creditors, and there are a string of similar claims still to come. As he told SmartCompany this morning, it is almost certain he will be declared personally bankrupt.

To make matters worse, Madlener’s bid to buy back the Villa & Hut brand from collapsed franchise brand manager Allied Brands – and effectively save the group’s 22 franchisees – is in some doubt.

Madlener claims that this morning, Villa & Hut’s administrators shut down the company’s Melbourne head office, where its franchisee support operations are run from.

Madlener says he is trying to re-employ the staff and provide on-going support to franchisees, but whether he can pull off the buy-back remains to be seen.

But he has made the decision that fighting the bankruptcy action and to save the franchisees is not possible. He’ll effectively sacrifice himself to bankruptcy, get those proceedings out of the way and then try and get a deal done with the administrator.

It appears to be quite a noble stance, but entrepreneurs should also realise that Madlener is paying a huge price for a few mistakes.

The first big one was selling to Allied Brands, which should now be recognised as a terribly incompetent company. While the sale was in some ways forced upon Madlener by the fact his bank removed his funding at the height of the GFC, the fact is that he entered the downturn with too much debt, and this greatly reduced his options.

The second big one is around the use of personal guarantees. As Madlener told us this morning, he provided personal guarantees to landlords, to suppliers and to finance companies, and it is these guarantees that he is now paying dearly for. As we always tell entrepreneurs, personal guarantees should be avoided as much as possible – smart business owners should prudently separate their business and personal affairs as much as possible.

Finally, entrepreneurs must remember that details matter. Madlener says that many of the personal guarantees were put in place when he owned the brand, and were not changed when Allied Brands took control. When you are flat out growing a business and integrating it with a new owner, these small details may fall by the wayside.

But that’s just not good enough – as Franz Madlener is sadly now discovering.