Hard Landing 1: “I Am the Business!”
The most common consequence of delay I see business owners fall into is making themselves essential to every aspect of the business they have created. They are in charge of sales, strategic direction, purchasing, marketing, human resources—the list goes on and on. Sure, it feels great to be needed. But as both the company and the owner get older, the institutional knowledge necessary to run the business becomes too concentrated in the owner’s brain. Even worse, as the owner’s net worth becomes more closely tied to the business, they tend to trust fewer people. I have seen many 70-year-old owners who feel trapped because they’ve created a business that can’t survive without them.
Over time, this concentration of power and knowledge increases stress on the owner and discourages prospective buyers, who avoid businesses that are run this way. Buyers are typically looking for some combination of two core characteristics: a reliable or growing income stream and a business asset they can’t replicate (such as proprietary business processes). Note that both characteristics depend on the purchaser being able to gain something completely independent of the owner. If these do not carry on with the business without the owner, buyers are not willing to pay nearly as much.
If a business owner never lets go of the reins and delegates knowledge and authority to others, as they get older, they’ll have fewer and fewer options for an exit—and ever-decreasing business valuations. Ironically, the owner takes increasing amounts of control to protect their most valuable asset even as doing so craters its value. Ultimately, the business is sold for a fraction of its earlier value as the owner has limited selling options late past retirement.
Click Follow to receive emails when this author adds content on Bublish
Comment on this Bubble
Your comment and a link to this bubble will also appear in your Facebook feed.