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Are You Important Or Valuable?

8 April 2009 No Comment

As strange as it sounds, the more important you are to the daily running of your business the less it‘s worth. When you started your business you had to do everything, that’s the way of a startup. Now that you’ve grown quite a bit your activities may actually be diminishing the potential of your company. As the founder and CEO, the buck stops with you and in some respects you are the keystone of the organimgp0174-c1ization. Remember though, when you remove the keystone from an arch, the whole thing collapses.

If you have the final say on most (all?) decisions, are the ‘go to’ person for problem solving, or hold key customer or vendor relationships then you are the bottleneck. The natural tendency is to add to your load as the company grows. You work harder, faster, and longer and pretty soon you’re like the kid who pushed his bike all the way to school and was late because he didn’t have time to stop and get on. The more you are ‘doing’, the less you are ‘managing’, and the less growth capacity you have.

Even if you don’t have your hands in everything being the only source for some very important items makes you a ‘single point of failure’, an engineering term for one element that will shut down an entire system when it stops working. That is a risk with potentially catastrophic consequences.

In a recent interview, Intel CEO Paul Otellini said ‘a CEO’s main job … is to see the need to change before anyone else does’. If you are enmeshed in the daily operations of your company then your head, inbox, voice mail, schedule, and office are filled with small details and your focus is mostly tactical. You become efficient at the expense of being effective. One of the biggest CEO complaints is ‘not enough time to think strategically’, to see those trends and opportunities that could really impact your company.

The other effect of this situation is that you’re stuck. You can’t take a real vacation without losing business and if something serious happens you’re in big trouble. Spending all day at the beach with your laptop and cellphone may be nicer scenery than the office and you’re not really away from work. Being tied so tightly to the business reduces your options and face it, one of the reasons you have your own company is to be more in control, not less.

Two more strikes when it’s time to sell your company:

Instead of being able to take your pile of cash from the seller and ride off into the sunset you will have to stick around for awhile to transition with the new owners. You’ll have to transfer your knowledge, change the habits of your employees, and hand off those important relationships. At best you will be expensive and hard to replace. If you’re too important the buyer will see you as a risk factor and reduce the price or demand better terms. You may have to resort to an earnout – where now you get to work for someone for a few years and hope to get value from the future performance of this business that you no longer own.

Strike two is the doubt that is planted in the buyer’s mind. If you haven’t built systems to leverage and scale the company and you haven’t sufficiently mitigated risk they are now concerned that there may be things that are not obvious that may also be kind of shaky. Likewise, if your departure would have a significant impact on continuity, culture, and employee productivity there would almost certainly be a dip in productivity and profitability.

So if you’re not as ‘important’, how much more valuable can you be?

In one example, a local software firm was able to quadruple in size in two years. Much of that capability came from the work in integrating the strategy, operations, and growth plans with employees who knew exactly where they were going. When they sold out years later they got a huge premium because the business had been designed to grow even beyond where the founders wanted to take it. They sold their way out of a job and cashed in handsomely.

In another case a professional services firm took three years to build a management team, create the business processes, and run long enough to work the kinks out. Then the CEO/owner left, spending most of every year out of the area. Maintaining ownership and giving up management is something that many CEOs never consider or don’t believe is possible. In a founder’s mind they may be inextricably linked; in reality they’re quite distinct and not mutually inclusive. As an owner you can still collect profits and reap the benefit of future increases in value.

Some business owners have faced the decision squarely and concluded that they would rather moderate their expansion and keep their arms around the company whereas others are always reaching for the next rung. There’s no wrong way to do it, just make sure what you want and what you do are in sync. Your decision will help you focus your long term strategy and make sure you get the most out of your business.

JOHN HRASTAR IS THE FOUNDER AND CEO OF INTERSOURCE, A CEO ADVISORY FIRM IN MCLEAN. E-MAIL: JOHN at INTERSOURCE.NET

Reprinted with permission from the Washington Business Journal copyright 2009

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