Make your firm more valuable by making yourself irrelevant and surrounding yourself with leaders.
Firms that command high market premiums are ones in which the owners are, in many ways, always seeking to become less and less relevant. If you’re the owner of a firm and you’re reading this, you’ve got to be wondering what I mean. What I mean is that valuable firms are those with a wide base of individuals who can step up and lead.
Ask yourself if you could leave your business for 30 or 60 days and have it run the same way that it would if you were there. The less valuable firms are the ones in which the owner is, or a small group of owners are, “the business” – meaning that if you aren’t there, you know that clients won’t receive the same attention, invoices will be paid late, receivables will trickle in, and employees won’t put forth the same effort.
If you have to be there to make sure that the business runs properly, you’ve reduced your market value. If your second in command is paralyzed at the thought of making any decision without scheduling a meeting and obtaining your advance approval, you’ve reduced your market value. If the owner is the business, the next question is what, exactly, does the owner think he or she can offer to a prospective buyer? What do you have to sell?
This is not a theoretical discourse on organizational management. There are multiples and dollar signs attached to the answers to this question. Every buyer that we work with is more interested in the folks behind the top leadership than they are in the guy who wants to cash out and retire.
The firms in which owners delegate operational tasks and client relationships to a motivated next generation of leadership always will be more valuable. When buyers know that your business is able to run without you managing every detail of the company, you’ve just made yourself a much more attractive prospect.
Granted, this is much easier said than done. Entrepreneurs who start their own businesses especially have a hard time delegating. Plus, it’s counterintuitive. How could anyone be as invested in the business as the person who founded the business, devoted decades of time and resources to its development, and whose name is synonymous with the firm’s reputation?
Creating a highly valuable firm requires a great deal of balance. An entrepreneurial leader will foster an entrepreneurial culture. The leader’s passion and drive can become tangible assets if these characteristics are cultivated in leaders across the company. Finding the individuals within the firm who embrace constant evolution and innovative thinking is the first step. The next step is to develop these highly desirable traits within employees and provide opportunities for them to step up and make decisions. Every leader of every firm – from CEOs down to junior managers – should identify their successor and should nurture that individual’s development while at the same time finding ways to hand off more and more responsibilities to their successor. The return on the investment in your own irrelevance will be realized in a more valuable enterprise that is readily marketable.
Jamie Claire Kiser is Zweig Group’s director of M&A. Contact her at jkiser@zweiggroup.com.
This article is from issue 1137 of The Zweig Letter. Interested in more management advice every week from Mark Zweig, the Zweig Group team, and a talented list of other guest writers? Click here for to get a free trial of The Zweig Letter.