The Scenario

You created a business and made it succeed against all odds (both usual and unusual). You poured your time, effort, money and emotion into getting it to where it is now. Most people will never understand, or even be able to guess what it took to do this. Your title of Owner or CEO is more than just meaningful to you: it is a medal of honor. Only other business owners who have taken a business from where you started to where you are now really know what it represents.

It is hardly surprising that your business, and your leadership/ownership role in it, is intricately entwined in your own personal identity. It might be difficult for you to define who you are, without referencing your business and your title or position in it. You might not know what you would do with yourself if you didn’t have to go into work at the business.

Likewise, the identity of the business is also likely to be wrapped up in your public persona, beyond you merely being the public face of the business. When many of your customers think of the business, they think of you specifically.

This seems like a beneficial symbiosis, especially if you are a charismatic and likeable person, and in a business growth phase to reach a sustainable size and create reputational momentum in the marketplace.

“This isn’t co-dependency,” you say to yourself. “This is just the normal signs of a business owner with a healthy work ethic. It is natural for the business to need you. And for you to need it.”

Yet, it will also become a liability and a hindrance in the big picture of your company. This is especially true when it comes to your business being a valuable and independent asset. For your business to qualify as this, it needs to be able to function without you just as effectively as it does with you.

If your business relies highly on you being there and personally working within a specific role inside the business, then it is not particularly valuable or useful to any other potential owner or investor. Generally, the actual, real world valuation, ends up being between 0-15% of the normal range of multiples of pre-tax income (adjusted EBITDA) in which that businesses within your industry tends to transact.

What? The annual pre-tax profit that is the benefit of success and effective business ownership, and the status/prestige that you accrue in the community as the owner, might not seem quite so valuable if this is truly the final consequence.

One of the points of building a business is to create a retirement nest egg, at the very least. It should be a valuable asset – one you can one day cash in. Yet, that is not possible if no one wants to buy your business as it stands. What will you do if you cannot sell the business? Just shut it down and walk away? On what would you retire? What would happen to your employees? What would happen to your customers? Could you leave anything to your descendants?

Do you believe this cannot happen to you? Just take a look at the first half of the Baby Boomers who tried to sell their businesses and retire. Too many found they could not sell them. Some shut them down. Others just kept running them and did not retire after all.

Escape Route

Unfortunately, this scenario is not just applicable to candy store franchisees and coffee shop owners. I have all too frequently seen it happen with owners of much more substantial businesses – even a $22M+ revenue manufacturer and wholesale distributor company.

The reliable way to avoid this outcome is to develop a true leadership team. Build one that actually runs the business on a daily, weekly and monthly basis without any interference by you. Have one that reports to and is accountable to the ownership on a quarterly and annual basis.

This takes time and some trial and error. You absolutely have to get the right people in the right seats on the bus. You need to dial in a culture that solves problems and hits milestones as well as generates true teamwork by living the company values.

Doing all of this also requires that you unentangle your personal identity from the identity of your business. It requires trust accompanied by the appropriate checks and balances. It means you have to take your hands off of the operating controls of the business, bit by bit.

Strangely enough, the business owners who actually see this process through find out that their business grows substantially by the end of the process. They then have a reliable market valuation and the wish they had early on comes true.

Our experienced team of Consulting COOs help business owners and CEOs to monetize their dreams and help their businesses to realize their full market potential. We deliver real options and true value. To strategize together and get the expert support necessary to reach your future liquidity event goals, count on us. Let’s Zoom or even meet.