Create Business Value Now (V): Replace Yourself

In Part V of Creating Business Value Now, I want to talk to the superhero entrepreneur in you and tell you that, while it is impressive and admirable that you do it all, if you want to sell your business for real value, you must be replaced.

  • Replace Yourself. When you offer your business for sale to that future buyer, the idea (generally) is for you to go and do something else – retire, relax, start a new business, etc.  But if you ARE the business, then how much value does the business have without you.  Entrepreneurs are generally highly motivated, strong performers. It is sometimes easier for them to do it all than to train people to do it for them. But if you want to have value for sale, the business needs to be able to operate and sustain with you gone.

Entrepreneurs who fail this test often find their purchase offers conditioned on long-term employment or consulting agreements. This does not often work out well in the small business arena. The Seller continues to think of the company as his, and the new owners have a difficult time making the company theirs while the old owner is hanging around.

Buyers who see too much value in a selling entrepreneur’s personal work in the company, but who aren’t very excited about the seller hanging around, will also make an “earn-out” offer, where the final purchase price is substantially determined by the actual performance of the company after the sale. If the business is going to flounder when you’re gone, you value is in real jeopardy.

I realize that all business, especially small business, is at its core about personal relationships, and the key advantage a small business has over its large competitors is the ability of the entrepreneur to forge relationships with his customers. So, I am not advocating you become an absentee landlord. But you should train employees to perform the work of the business, while you focus on relationship building and strategy. When the buying entrepreneur steps in, the core business can continue to function, and the new entrepreneur will take over the relationship building.

 Next: Recruit, Train and Keep Key Employees.

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