Are you a business owner that thrives on being the person who makes the business successful?
When you vacation with your family, are you inundated with phone calls from your business back home? Or you can’t unplug to enjoy rest? Do you often tell your friends, spouse, or partner, “working 80 hours a week is normal for business owners”?
These phrases are symptoms of a severe problem in your business – owner dependency. You and your business tethered together. It cannot survive without you, and possibly you without it. This problem is exposed when it comes to selling or transitioning the business. You are ready to leave the business and hand it down to the next generation, but it takes a lot of work to do that when you are the business. If you are the only one who knows everything, what happens to the value of that business when you walk out the door? It plummets.
Owner dependency is one of the biggest obstacles to business transitions. A lower middle market business ($5M to $100M in annual revenue) that is owner-dependent will take a “haircut” on valuation. A micro business (under $5M in revenue) might be worthless. Buyers hate the word RISK, and something they work hard to limit. Owner dependency is a massive risk to potential buyers. It causes questions like: “Is the company successful because of the owner?” “Are key client relationships tied to the owner?”
I have said this many times: your company’s value is what someone is willing to pay for your company without you. If your business can only function with you, that negatively impacts what someone is willing to pay.
Take this little quiz to see if you are owner dependent.
If you answered yes to any or all of these questions, your business has owner dependency disorder. Don’t worry. There is a cure. Here are 9 ways to overcome owner dependency and maximize the value of your business.
1. Build A Strong Management Team
Getting the right people in the right seats is crucial to running a healthy business, maximizing value, and reducing owner dependency. This team has a thorough understanding of how the business works. These people build on your foundation – contributing ideas, hard work, and taking responsibility for long-term, sustainable growth. This structure allows your business to run whether you are there or not smoothly. I highly recommend the book by Dan Sullivan, “Who Not How,” to clarify how to proceed. If you are around me very long, you will undoubtedly hear that the secret of my success is not being the smartest person in the room. I surround myself with the best. Buyers usually have an excellent network to find individuals to manage the books and keep trains running on time. They want to keep critical relationships and revenue.
2. Instill Confidence and Capability in your team
You can hire the right people, but if you don’t give them the tools, the freedom (within the fences), or the authority to act, you are the problem and will limit your business growth potential in the short-term and its value and sellability in the long-term. Don’t fall into the dangerous trap of “you know best.” It creates an unhealthy work environment, and the only thing that grows there is your ego. Buyers need reassurance that their business will operate well without you being there. The best way to demonstrate that is for your team to run it without you there.
When I started my career, I worked in my family’s business. My father was the owner, I was sales, and my brother was operations. Our long running joke (sort of) was that I made ridiculous promises and my brother kept them. Truly, he was amazing and could deliver on all of my hair-brained growth strategies! It was a great partnership. My brother and I would devise a new strategy and take it to my father (the owner and the boss). To his credit, he would tell us to go for it. Even though (unbeknownst to us) he had tried the same exact thing before, and it had failed. When we succeeded or failed, it reinforced the value of the effort, the innovation, and the ownership we had in making the business successful. And that’s what happened. The business grew, and he successfully sold it and retired by age 55. But even more important, we grew more confident and capable.
3. Delegate, delegate, delegate.
It’s important to delegate some of your daily tasks but also delegate decision-making and problem-solving. Delegate that customer’s question to someone on your team. It builds their experience, confidence, problem-solving skills, and knowledge. Delegate the day-to-day decisions. Remaining in the nitty-gritty details reduces your ability to step back and keeps you from steering the ship. Make a list of everything only the owner does. Usually, that includes managing key relationships, including banking relationships, sales, and key customer or vendor relationships. Train your team and delegate responsibilities so that they can do that work.
The captain of the ship is rarely in the engine room. They aren’t even steering. Instead, they guide and direct the person who is steering. They are focused on the waters ahead. That’s exactly what an owner|investor should be doing.
4. Don’t meet with customers alone.
Have other team members come along or be a part of client meetings. Let them handle customer conversations and issues as much as possible. The customer believes that the business (not just you) can address their needs. It shows that the team is heavily involved and invested in them. It also instills confidence and capability in your team. Two birds, one stone. Correction. Three birds, one stone. (Keeping key clients is high on the value charts of buyers.)
5. Document processes.
You got that figured out, but can you prove it? Documenting processes is painful at best, but like any workout, this consistent habit of documenting your processes adds value to your business now and in the future – especially when you are ready to sell. Having clearly documented processes now helps provide consistency, improvement, and efficiency in delivering your product or service but also on the people side when you bring someone new on board or need to hold someone accountable for their work. When you are documenting, be sure that it outlines how things work AND why they work. I know of several deals where the buyers put significant value on this company’s processes because they recognized the amount of work and were buying years of experience and trusted, proven processes that they used with their other companies. It pays off handsomely. Prospective buyers want to see well-documented processes, so they get up to speed quickly. So take the time to get it down. Still trying to figure out where to begin? Check out our podcast on documenting processes.
6. Build a Sellable brand.
Branding plays into the salability of your company. If your surname is in your company name, consider rebranding. Having your name as part of the business means people will automatically want to reach out to you. Be careful that your business is known for your products and services, not just for who you are.
7. Spend less time in the office
Reduce your working time. We know this is your life, your livelihood. Set a boundary and choose a time you will not be working – daily, weekly, or when your vacation will be. During that time, don’t respond to emails, employee calls, or client questions unless there is an emergency. It might be painful at first, but the best of your team will step up and take ownership and start making decisions on their own. Your team should be able to run the business for up to several months without the owner’s day-to-day involvement. Many business owners lose themselves because they don’t know who they are without their business. Test driving what you will do with more free time will curb a common problem with business owners’ dissatisfaction after they sell their business.
8. Build it with the EXIT in mind.
Work with the mindset that you will eventually leave your business one day. You can count on this to be true. Whether it’s transitioning to the next generation, selling your business, funding your retirement, or dying at your desk. Make no mistake, it will eventually happen. When you approach everything in the business intending to create enterprise value, it will help you or your family when that time comes. I get calls every month from attorneys or spouses managing the affairs of a business owner’s passing. They need to sell the business. After expressing my condolences, the first question is, did the owner have a team? No? Who has been running the business since his passing? No one? There is little we can do. It’s worth little if anything. We will try to liquidate it or find a buyer who will get the business at a bargain. This situation happens all too often. It breaks my heart and makes me angry at the same time because it is 100% preventable. Listen to the Maximize Business Value Podcast on The Green Box Exercise or get a copy of my first book, Maximize Business Value, Begin with the Exit in Mind. That will go a long way toward helping you get your mind right. It is a mind shift. Once you make that shift, you can’t unsee it. Everything about your business needs to be about sustainable long-term value.
9. Plan your EXIT
It is always good to have a plan. That’s true for exiting your business, too. Planning now allows for a smooth transition later, whether one year, five years, or ten years. Planning now will enable you to become owner dependent and implement many other value adds to your business. Not sure where to start? Engage with a CEPA – A Certified Exit Planning Advisor. They specialize in helping you strategize, plan and guide you through that process. Once you have a plan, communicate that plan to your team.
Your goal here is to become expendable.
I am a hard worker and love to work hard. But I also love my family, and we play hard. I implemented this strategy over 15 years ago. It took a good seven years before I was expendable in my middle market company, which was experiencing massive growth and constantly adding companies to our portfolio. But, by implementing these strategies listed above, I could not only take a three-week vacation to Europe but also thoroughly enjoyed it with my family. I did not have to check in once. Without implementing these strategies, that would not have been possible. And guess what? My business was all the better for it.
And here’s the secret, when my company got to that level, it was so much fun!
I want that for you, for all business owners.
Remember: The value of the business improves dramatically the minute it is no longer dependent on the owner. Besides, if you are tied to the business, that leaves little time for other priorities – family, community, and causes.
Cut the cord. This business is an asset, not your baby.
The more the business owner can become expendable, the more valuable the business.
