Management Succession: How are You Doing at Replacing Yourself?
Things are looking grim. You’re in the middle of selling your company and just got off the phone with your investment bankers. After generating serious interest and receiving 20+ Indications of Interest (IoI) from potential buyers, it looks like you’re only going to get two, possibly three Letters of Intent (LoI). To make matters worse, the LoI offer prices are going to be considerably lower than the initial IoI’s. What in the world happened?
You’ve got a growing, profitable business and your investment bankers built a great pitch deck. They followed their process and generated substantial interest. After receiving IoI’s, you brought several parties in for management presentations. As each successive party marched through the conference room to talk about the business, it seemed they all came prepared with the same line of questioning: they wanted to know about your team.
Unfortunately for you, your answers conveyed that the team is you. Sure, you have employees, but every decision of consequence gets your input and approval. This has scared your would-be buyers.
Excessive owner dependence plagues many companies and buyers are on the lookout for it. If you’re looking to sell and retire, and you’re still sitting at the intersection of everything, you’ll likely be unable to fool savvy buyers.
While resolving your owner dependence issue can be a challenging problem to solve, it may be the largest key to unlocking meaningful value in the sale of your business.
Being in the Flow
As an owner who has lived and breathed your business for years, or perhaps decades, it's unlikely that you consciously planned to put yourself at the center of everything. It’s just the way things unfolded organically from the beginning when it was just you. With meager resources, you found success only through scrutinizing every decision in the early years.
But when it comes to exit planning, this mindset that served you so well in the early years becomes a hindrance. Being in the flow of every major and minor aspect of your business creates a bottleneck that impedes the transferability of your company to new owners. In a way, you are the company.
The Art of Replacing Yourself
Realizing the importance of reducing the company’s dependence on you, let’s discuss some ways to master the art of replacing yourself.
Let’s review one workweek by laying out all of the distinct different tasks you completed. For illustrative purposes, let’s say that you gave input or approval to 100 different decisions. Consider each decision and ask the following: “In how many cases did my involvement result in a different decision than the team would have made without me?”
If your involvement changed the result only a few times, this is a good sign. In this case, your involvement is by choice rather than necessity. While it might be hard to remove yourself from these situations for psychological reasons, the business will not be negatively impacted if you were to be absent.
On the other hand, if your involvement changes the result most of the time, this is not a good sign. In this case, your team does not know “how to fish” for themselves. They rely on you to think for them. More work is necessary to prepare your team before you can step away without the potential for real issues in your business.
In either case, it is well worth putting in the effort to extract yourself from the daily flow of your business. This will greatly enhance the readiness of your business for exit.
While reducing owner dependence is more easily said than done, the payoff can be significant. At Doescher Group, we help business owners exit on their terms. Part of this means assisting our clients with strategies to reduce owner dependence. A good starting point for a lot of business owners is to have an Exit Audit to get a baseline assessment of their preparedness for exit. Reach out today to learn more.
