By Ryan Binkley
Does anyone know your company as well as you do?
If you answered no, you’re in the same boat as many entrepreneurs I’ve interacted with over the years – and are potentially discounting the value of your company to buyers.
It is commendable to be passionate about your business, and forthright in how you want it to function and develop. Yet, if your business becomes overly dependent on you as the owner, it often becomes a detriment to both long-term growth and the offers you receive when the time comes to exit.
Below, I break down why clasping the reins too tightly can be problematic for a company’s present and future, and how valuable it is to have a strong, dependable executive team by your side.
There are many reasons why a business owner may neglect building a capable executive team. For some, they consider it an assault on their ego: if my team becomes more valuable than me, then what is my purpose? We see too many websites where nearly the entire company description is focused on the owner!
Others are complete perfectionists. They like things done in a certain way, at a certain time, and nobody knows how to do that better than them. This makes it hard to allow someone to approach the same task in a different way, leading to excessive micromanagement. Owners stay exhausted, team members are demoralized, company growth stagnates.
Some would like to have a team in place, but feel they are simply too busy to dedicate the time to recruit, train and mentor it.
Whatever the reason for this lack of a supporting cast, there are three critical reasons why this is particularly problematic:
Although you know the ins and outs of your business, that doesn’t mean every process or procedure you introduce is optimal as it could be.
Other senior team members, with different experiences, backgrounds and skillsets, may shed light on new approaches that you couldn’t arrive at on your own. These fresh perspectives might uncover more efficient ways to perform tasks, ideas to engage a wider audience, or ways to minimize expenses.
By occasionally giving way to the experts around you, it can inspire greater growth in your business, and unlock opportunities that you would never have considered.
In Vistage’s great article Why many leaders feel “lonely at the top”, it highlights that many CEOs experience feelings of loneliness across their careers, and that for 61% of those affected this way, it has a negative impact on their performance.
Among all of the positives and fulfillment of entrepreneurship, it can often go overlooked how lonely and stressful it can be to be a CEO without a support team. At times like this, having a capable executive team alongside you not only takes the weight off of your shoulders, but can also provide a crucial support network during challenging periods for your company.
Enabling an executive team to make decisions, present ideas, and provide honest feedback, work becomes more engaging and motivating for all involved.
The role that owner dependence plays in the value of your company is easily underestimated. Many business owners share the misconception that managing all aspects of their operations will be a positive for potential buyers – because they know how to make it perform.
But think about it: When the time comes to exit your business, where will you be? You’ll no longer be at the helm steering the company forward – someone else will need to do it. And if there is no one else in your business capable of doing this, that’s a big issue.
So, professional buyers often see owner dependence as a risk, not a benefit. Simply put, if your organization’s success is entirely due to your efforts, a potential buyer will likely demand a “discount” valuation during due diligence or insist that as part of the deal you stay on during an earn-out to ensure that the company continues moving forward.
Therefore, to avoid leaving cash on the table when you depart or find yourself involved in a deal you aren’t comfortable with, it is crucial to have a team around you that can competently manage the company if you were unavailable.
This reassures a prospective buyer that the investment they made in your business will be realized even without you directly involved, and they will be more willing to pay a premium to acquire it from you.
For more on what makes executive teams a powerful driver of business value, I’d recommend reading this excellent piece by Axial.
Hopefully this has given you a greater appreciation of the value of an executive team. Not only does it make life as a business owner less stressful and boost your chances of continuous growth, but it is a critical component of maximizing the value of your company in the eyes of buyers.
I cannot stress how important building a team is for the future growth of a company. Whether as a sounding board for new approaches and processes, or as a signal to buyers that there is a foundation in place going forward, it holds incredible value.
So, what can you do to build this crucial layer to your organization? Here are a few helpful tips from both a fellow business owner and M&A associate:
While it is vital that those you select for your executive team have the requisite skills and experience, it is just as necessary that they share your company values. If they resonate with your values, they will be more passionate about what your brand stands for and will be more likely to grow it in a direction aligned with your own objectives.
Plus, as the senior layer of your team, your executive team must embody and illustrate these values, as what they say and do will naturally trickle down to the rest of your workforce. By reinforcing these values as part of the recruitment process, you can ensure that your team is pulling in the same direction – a necessity for constant growth.
For more on the significance of shared purpose and values across your executive layer, this review from Bryan Horn of Over Under Clothing, one of our clients at Generational Consulting Group, gives you a strong sense of its worth.
If you are concerned that you are overly controlling in your company, or that micromanagement underpins your approach, ask yourself the following questions:
If these answers reinforce the fear that your business is too dependent on you, start delegating more work to the members of your executive team. They may not do it exactly the same way you do it. They may get it wrong the first few times. But over time mistakes will be erased, and you’ll have a stronger, more capable team around you.
This means there’s less pressure on you to be present at all times because others can steer the company in your absence, and potential buyers will be more enthusiastic about the opportunity presented by your business.
As renowned leader General George S. Patton once said:
“Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.”
Although there is no one-size-fits-all approach to this, it is important to establish a working rhythm that is effective for you and your executive team:
It will take time for your executive team to get up to speed with your understanding of the business, but with the right structure in place, that is time well spent. This will ensure they are consistently nurtured, involved and engaged with the development of the business, and that their skills and confidence remain on an upward trend.
If you are interested in some advice on effective leadership, I explored that topic in-depth in a previous article – you can check it out here.
Finally, it can sometimes be difficult to look beyond the day-to-day minutiae of running a business to reflect on whether your executive team is as strong as it should be, or if your company’s growth or value has stalled as a result of this.
An impartial perspective from professional consultants, such as our team at Generational Consulting Group, can help you identify any issues that could be impeding your company’s growth potential. This could include advice on establishing a true executive layer in your workforce, or team-building exercises that get everyone on the same page.
With this external insight, you can be guided down the right path towards establishing a dependable, solid executive team. Plus, by establishing a distinct, documented growth strategy – contributed to by all senior management – everyone is clear on what the future of your business looks like. It won’t all be your responsibility anymore…
Establishing an executive team and dedicating the time and effort to nurture it pays off in more ways than you might have imagined before reading this article.
Not only will it offer fresh ideas and approaches to how you can grow and operate your business now and in the future. Just as importantly, it will help create a viable, buyer ready business that gives buyers confidence in the long-term viability of your organization when you depart.
At Generational Group, our primary motivation is to give entrepreneurs across North America the ideal platform to secure the financial reward they deserve for the time and money invested into building their business over the years. Identifying possible red flags to buyers, like the lack of a dependable executive team, is just one way we help clients achieve this.
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