Growing a business to sell? How to prevent yourself being tied in for years

11/1/2019

Growing a business to sell - How to prevent yourself being tied in for years

Hello, and welcome to the third article in our series on how to grow a business to sell.

In the last article, we shared some advice on how to prepare a business growth plan.

Now, it’s time to talk about you. As the founder, director, CEO or senior leader you are one of the driving forces behind your company. You are, at least in part, responsible for its successes and failures.

If you are the founder, you probably mucked in with all areas when you first started the business; sales, marketing, service delivery, and dealing with suppliers. But if you ever want to sell your company, that must change!

It’s natural to feel you are indispensable to the business you founded. But, if you are growing a business to sell, it follows that anybody can, and must, be dispensable. An indispensable person to a prospective investor or buyer is a big liability.

Why? Because they need to be able to replace you. Otherwise, if you were to leave and you are nigh impossible to replace, the value of their new investment would take a nosedive.

Why indispensable individuals are a liability

If you read the first article in this series on how to grow a business to sell, you already know that Vistage member Craig sold his company to GAME in 2011.

Before Craig sold the business, he used to handle a lot of customer meetings himself - as many business owners do. After all, customers like to deal with the owner, or whoever they perceive to be the authority. And most business owners like to be in control of customer and supplier relationships as customers are the lifeblood of every business.

But as a business grows, having relationships with customers and suppliers that are tied to any individual is a big problem. The bottom line is that if you become synonymous with your business, investors may question whether it will still be as successful and valuable without you at the helm. Or investors will stipulate that you stay on...

Picture this: for 15 years, you’ve worked 12 hours a day, 6 days a week. You’ve fought tooth and nail to realise your vision and bring in the sales that ensure everybody gets paid at the end of each month… and the day finally comes when it looks like your hard work will pay off. You have a buyer! And it looks like you’re going to make enough money for you to spend your days on the golf course, if that’s your bag. There’s just one problem: the buyer wants you to stay on for three years.

They think it will take at least that long to handle the transition, and since you are so heavily involved in day-to-day activity, you have to be there in person until the handover is complete.

Not the dream ending you were hoping for? Here’s the solution…

Replace yourself now!

Start by putting systems in place that allow others to pick up where you left off and, eventually, take the responsibility off your hands altogether. Document everything you do, step-by-step, so others can replicate your actions. Sound like a lot of work? The truth is, it is. But it is necessary if you want to sell your business and/or enjoy the freedom of not having to work 60 hours a week to keep the ship afloat.

So where should you start? Here’s a simple technique you can use to identify the activities you can (and should) delegate immediately if you are growing a business to sell.

The one-day audit: how to delegate responsibilities 

Starting now, write down everything you do. You could do this electronically or carry a pen and a piece of paper around with you. Make a brief note of your tasks and, ideally, how long each takes you, for the next 24 hours.

This list might include things like:

  • Checking emails
  • Meeting with client
  • Call with supplier
  • Organising travel to a conference

Next, highlight the activities you don’t HAVE to sort out. That’s anything that doesn’t require your specific expertise. For example, holding a call with a client might require your expertise. Organising and scheduling that call does not. These are the activities you can delegate immediately. Of course, if you are going to sell your business, somebody will have to do ALL of the tasks on the list eventually.

So let’s talk about that.

Recommended resource: How to Conduct a Time Audit

A long term plan to make yourself and others replaceable

Most business owners, if they analyse their activities, find that they spend a lot of time on relatively low-value tasks that others could do instead. But there are activities that only you can do.

The problem is, if you want to sell the business, somebody else will have to do them at some point. But clearly, solving this problem is a little more complex than simply asking somebody to replace you. Instead, we recommend zooming out and taking a whole-business approach to this.

Have you ever read the bestselling book, The E-Myth Revisited?

The author tells the story of McDonald’s, “the most successful small business in the world”, and how they used “turnkey” systems so that franchisees had step-by-step systems for every aspect of the business.

When somebody invested in a McDonald’s franchise, all they had to do was get training in the McDonald’s systems, “turn the key”, and make money. This is how McDonald’s was able to roll out so many profitable franchises. There are aspects of the model that can be applied to any business, especially one being grown to sell. A key component of the model is that each of the different roles in the business can be fulfilled by inexperienced people—so long as they are willing to learn and follow the system.

Each of the different roles in the business can be fulfilled by inexperienced people—so long as they are willing to learn and follow the system

There are two rules which are particularly pertinent to removing yourself from the business:

  1. The model will be operated by people with the lowest possible level of skill
  2. All work in the model will be documented in operations manuals

This does not mean employing kids fresh from college. Emphasis is on the lowest possible skillset. Obviously, if your business is a legal firm, you must employ lawyers. But you need to create the best system possible through which good attorneys can produce exceptional results for clients.

It is the latter rule—documenting operations in manuals—which allows people with the lowest possible level of skill to run the business. It is the “how-to” guide for the business. Think about how this might apply to customer and supplier relationships. If the person responsible for these relationships were to fall ill tomorrow, would somebody else (regardless of skill and experience level) be able to seamlessly pick up where they left off, without any negative effect on the relationship or your business?

For most businesses, the answer is a resounding no. But what if you were to document, step-by-step, the process for dealing with customers--how to handle objections, how often to contact them, and so on.

This may require some standardisation of relationship management. And then it will probably require that you communicate the new “rules of the road” with your customers and suppliers and get them on board. Neither of these things is easy, but it is certainly one way to make you, and everybody else in the business, not only replaceable but effective.

If a buyer can see how they could replace employees without impacting results—in other words, without them losing money—then your business will be a lot more valuable. And just imagine the satisfaction of sitting down with a prospective buyer, in years to come, and being able to say—for every function of the business—that this is exactly how it works.

 As Vistage member Craig says, “Ideally, you'll be in a negotiation where you leave on day one--if you've built the business appropriately--and you'll have effectively made yourself redundant.”

 

Topics: Exit Planning/Strategies