On our mind: Get out of the way!
In the past few weeks I have had several conversations with a fellow business owner about his success in negotiating a sales agreement with an acquirer. He is part of the small minority of business owners who have succeeded in exiting their business by selling it for fair value.
To set up his business for sale, he had to make it very clear how the business would continue to grow and prosper without his involvement.
In the middle of these conversations, a strategic planning client who is aiming to grow his business by multiples brought up the need for reducing “owner dependence" as a key step in freeing his company for growth.
My client was smart to identify owner dependence as a barrier to growth. Owner dependence is a limiting factor for small and middle-market companies. According to research by Class VI Securities, LLC, “The number one company risk (reflected in over 95% of CoPilot assessments) is that the business is too dependent on the owner."
If you are an owner, according to the literature, among the steps you can take to reduce owner dependence are:
Finding ways to delegate to existing staff what you have been doing.
Reevaluating all the chains of command that lead straight to your desk so you are not a business bottleneck and can give employees the space and means to perform their duties unhindered to optimize processes.
Hiring management team members who can take on more of what you have been doing.
Building a leadership/management team that can run the business for up to several months without your involvement.
Over time, increasing the leadership/management team's decision-making authority to make important decisions and empowering others to sign off on spending (up to reasonable limits) and make other approvals.
Talking up how good the team is and reducing the focus on you in firm communications and marketing.
Reducing your own direct labor to reduce company dependency on you.
Strengthening the brand and marketing so new sales are less reliant on your personality and individual contacts.
Transferring the management of clients and customers to other reliable staff.
Institutionalizing your knowledge into the business, via both employees and documentation.
Developing a set of written policies and procedures that document your role and address the ways that you impact the operations of the company.
Further allowing employees autonomy within a set of standards and the company's goals.
Documenting how the business works, specifically addressing how sales are obtained, how work is outlined and conducted, how billing is handled, how employees are hired, reviewed, and fired, and more.
Taking a more elevated view of the business by developing a succession plan.
So what's the connection to selling the business for fair value? To me, the ability to eventually exit the business for great value or to otherwise disengage with the business and have it be an asset that delivers you great value demands owner disengagement. And the first step in owner disengagement is what Michael Gerber in The E-Myth Revisited describes as "working on the business rather than in the business."
Get out of the way so your business can grow and prosper!
