00:00
Hey everybody, Dan Holstein here, helping your business take flight. This week, I'm sharing an audio recording of a talk I gave to a group of Mergers and Acquisitions professionals around the topic of Key Person Reliance.
How a business owner becomes too important to the business, gets spread too thin, and what to do about it and how it impacts the valuation of the business at time for sale, as well.
So if you're a founder or owner that finds themselves stretched a little bit thin, I think this will be a great video for you. Check it out!
00:21
What we see is that some business owners stick in and keep really busy in the business because they've developed an identity of being a really busy business owner.
And so they have almost a little, like an addiction to being busy. Like an urgency addiction:
"What's the next challenge I can solve?"
"What's the next problem?"
"Who's the next client?"
"What do I need to do now?"
And they just run through their whole day being super busy.
When the business is starting, it's "All hands on deck!"
"Go-go-go-go-go"
And as they're growing and they have a leadership team they don't have
to be like that. But they've acclimatized themselves to be like that.
00:52
This is a completely simplistic strategy which is why it's so effective. Get them to just to napkin math kind of thing write out a little org chart of their business.
It doesn't even have to get into tons of detail but just a couple layers and get them to put in the names of the people that fill in each role.
Now, they're going to put their name next to the CEO role. And you're going to say:
"Ok, does this look correct?"
And one of two things will happen: They'll say "yes" and they're wrong or they'll start saying
"well actually, I do put some of my time into marketing."
Ok, put your name on that block.
"And I am involved in ops a little bit."
Ok, let's do that.
"And...sometimes I have to do a little HR."
Ok, let's put your name on that.
And what we see is that the business owner's got their name plastered across the whole organizational chart. Usually at the higher level and they haven't really thought about it.
They've grown the business, especially if they're a Founder, they've grown it doing almost everything and they're still hanging on to bits and pieces. And they don't realize how much of their time is really going towards these things. Them being plastered across their org chart is actually costing them one or two multiples
of their EBITDA.
01:53
So now that we can see everywhere that the business owner is spending their time, across their organizational chart, we need to determine what's the next thing to do to get them out. Which roles to get them out of. And generally, I would advise look at the ones that are taking up the most of their time and keeping them from the truly strategic things in the business.
And while we're backing them out, we have to recognize that they're going to have a bit of resistance to letting go. They're doing those roles for a reason.
It might be that they think they're the best at it, or that they can't find a good person to do it.
02:18
So, it's important that, when we identify the resource that's going to take that role over, they have good documentation and processes, and training, and coaching so they can do that role successfully.
So the business owner feels confident in, over time, backing out of that role, knowing it's going to be looked after well, no one's going to be let down.
02:35
Especially when it comes to sales and key client relationships. That they're going to be preserved, nurtured, and grown, so that the business can continue to grow and the business owner can focus on the strategic things that they really need to be focussing on to grow their business and increase the valuation.
02:49
So when it comes time for exit or sale that the business doesn't have this Key Person Reliance
challenge and the people buying the business realize "Hey, the business can run on it's own." It's not dependent on any one person. It's a collection of excellent systems being run by excellent people. Hey, there's a lot of value to this and we're going to pay a good multiple."
03:10
If you're a business owner that's finding yourself stretched a little bit thin in too many different places on the organizational chart, and you'd like to be able to focus on market-facing strategic things and not everything else, I'd love to have a chat with you.
We can strategize a few ways to get you out of some of those boxes on the org chart.
Be able to stay focussed and grow your business while working a little bit less.
Just send me a direct message or email me and I'm happy to connect. Have an awesome week.