The Business Without You There

Oct 23

5 min read

Would you buy your company if you weren’t allowed to employ yourself?

The £1.5M Pub

Imagine you've found a pub you'd like to buy. A successful gastropub turning over £1.5 million a year. Good location, loyal customers, a decent reputation and healthy profits. The food is excellent, the staff seem happy and the accounts suggest a business worth owning.

You discover something rather interesting, and significant.

The owner negotiates with every supplier, knows the regulars by name, settles disputes, decides the menu, handles recruitment and personally oversees the finances. When the chef leaves, the owner finds another chef. When the boiler breaks, he knows who to call. And whenever a customer complains, he's the one who sorts it out.

Clearly very good at running his pub, he is the star of the show. And you're not buying him. You're buying the business. So would you still buy it?

If someone was bidding for your business, with or without you, how much would they pay?

Now, imagine someone asking those questions about your company.

The Business and the Business Owner

Most founders measure success through fairly familiar indicators. Revenue, profit, customer numbers, employee headcount and perhaps the size of the premises. All reasonable measures but they don't necessarily tell us whether we've built a valuable business, or simply created a rather sophisticated way of employing ourselves. A distinction that is easy to overlook because, in the early years, founder involvement is often the company's greatest competitive advantage.

We know the customers, understand the product, make decisions quickly and solve problems before anyone else has even noticed them. Our judgement, relationships and willingness to get stuck in are precisely what make the business successful.

But that’s precisely where and why the problem arises because success encourages repetition. The more indispensable we become, the more people depend on us. The more they depend on us, the more indispensable we become. It's a rather effective system for creating a demanding job.

And of course a business can generate excellent profits for its founder without being particularly valuable to anyone else. An owner sees years of effort, relationships and accumulated knowledge. But a prospective buyer sees future earnings, opportunities and risks.

Both may be looking at the same company, but they're often valuing very different things.

What Are You Actually Selling?

There are three things worth distinguishing when considering the value of a business.

Activity.

People turn up, perform work, serve customers and generate revenue. This is what most businesses spend their days doing.

Capability.

The organisation can reliably deliver those outcomes because it possesses the necessary knowledge, processes, people and authority.

The Asset.

A business capable of maintaining its performance, adapting to change and generating future earnings regardless of who owns it.

Activity doesn't automatically create capability. And capability doesn't necessarily create a transferable asset. Let’s consider two companies, each generating £300,000 in annual operating profit.

In the first, the founder manages key customer relationships, approves expenditure, resolves operational problems and makes most significant decisions.

In the second, those responsibilities are distributed across a capable management team, supported by effective systems and clear accountability.

Which would you buy?

Both companies might be equally profitable today. But the second is likely to command a higher valuation because its future earnings are less dependent on one individual. And that's what a buyer is purchasing. Not yesterday's profits. A reasonable expectation of tomorrow's.

No one expects a company to function without leadership. Even the finest orchestra needs a conductor, albeit, a sufficiently talented ensemble might manage without one for a while.

The question is whether the business can function without its current conductor.

Imagine you sell your business tomorrow, but the purchase agreement prohibits you from offering any assistance for twelve months. This is unlikely of course as the opposite is more likely to be the tie in. But suppose…

Would customers remain? Could your team make difficult decisions? Would sales continue? Could the company personnel manage its finances and respond to unexpected problems? What would happen when something went wrong that nobody had encountered before? Do you make it hard to see beneath the rubble?

The answers reveal something that financial statements alone cannot.

The answers to these questions reveal how much of your company's value belongs to the organisation and how much resides in you.

If a buyer must employ you for three years to preserve the company's performance, they may still acquire the business. But part of what they're purchasing is you. That's rather different from selling an asset.

The Best Time to Become Replaceable

As we approach the end of October, some founders are beginning to consider next year - budgets, recruitment plans, investments, growth targets.

It's a natural moment to ask what the business should achieve in 2027.

Usually, the conversation revolves around doing more. More revenue, more customers, more profit.

But perhaps there's another useful measure of progress.

What could your business do next year that currently only you can do?

Perhaps someone else could manage your largest customer.

Perhaps your management team could make investment decisions without permission? Shock horror I know.

Perhaps the knowledge accumulated over twenty years could finally become part of the organisation rather than remaining inside your head.

None of this requires you to retire, disappear or surrender the parts of the business you enjoy. It simply means building an organisation whose success doesn't depend upon your constant presence. And the best time to do that is long before you're considering an exit, because a company that can operate successfully without its founder is generally a better company for that founder to own. It offers freedom, resilience and choice.

When I lived in Mexico an American friend in the same city was a little perplexed. He’d decided to give his children an experience, similar to ourselves, and the family had moved to Oaxaca for the year.

He’d been completely expecting to be on the phone 24/7, to have to fly back to the States every month minimum, and he said he was slightly offended that they didn’t seem to need him! Frankly, ‘good business’ was my own conclusion. If every time a problem arises someone else has the answer, it makes for a relaxing time away.

The Buyer in the Mirror

Return to our £1.5 million pub - You might still buy it. The customers are loyal, the food is excellent and the profits are attractive.

But you'd want to know how much of that success would walk out of the door with the previous owner. And you'd reflect that risk in the price, or buy them along with the business.

You don't have to want to sell your business. But here's a question worth asking yourself:

Isn’t it worth owning one that somebody else would buy?