Entrepreneurs, successors in family businesses and the vast majority of private company owners share one common trait.
They are extremely independent, driven by their vision of the business they’ve developed or the business they are charged with sustaining by those who blazed the business trail before them.
This independence and drive is both a blessing and a curse. These attributes are often solely responsible for the success and the growth of the business.
But, when it’s time to sell the company or transition the business to another family member, those autocratic traits most often drive business value down. And sometimes, make the business completely unsellable.
The single most critical management trait that a private company owner can develop is the ability to delegate.
So many company owners, through no deliberate intention, become the only knowledge keeper in the company. And worse, they become the sole owner of key customer relationships.
They are so head-down and hands-on in their business, they give no thought or credence to dispersing authority, developing bench talent or allow others on the management team to assume responsibility through deliberate and effective delegation.
Owners simply don’t understand how this lack of delegation and management depth damages their business’ value. They don’t see their own company through the eyes of a buyer. A buyer quickly identifies the risks involved with buying the company. They see that owner ready to walk away with the vast majority of critical business knowledge and even worse, the core customer relationships.
At Capitus Group, we see and hear about this scenario on a regular basis. We quite often assess talent, recommend proactive management delegation and regularly promote the concept of bringing in a successor well in advance—at least 2 to 3 years– of the owners’ exit.
Many owners readily balk at this idea. They only see the cost of hiring that critical number 2 manager. They don’t understand that investing say $100,000 in a new manager today can result in value creation many times that. There are many cases where the return on that investment is 5 or even 10 times the cost of the investment.
Or, in the worst cases, the investment in a successor can make the company sellable when it otherwise would have languished with no buyer and no exit or value creation event for the owner. Ever! It happens all the time. In fact, recent statistics from the SBA show that over 300 businesses shut their doors for good every day because they have no buyer.
Effective delegation coupled with a sustained succession plan is a critical skill for every company owner to develop and perfect.
Note: If you have an interesting and/or educational CEO story of Head Noise caliber, write to me at firstname.lastname@example.org. I’d love to speak with you and share your story in my Head Noise blog. You can tell your story either on the record or, without attribution.
Cameron Bishop is a partner with The Capitus Group. The firm provides comprehensive business value enhancement and transition strategy solutions. Partners and Advisory Directors comprise an experienced team of business professionals who have successfully owned, run, grown and sold companies. Capitus utilizes proven value enhancement and risk reduction techniques to enable superior transition options.