September 30, 2024
Imagine this: You’ve built your business from scratch. Long days, sleepless nights, and years of dedication have brought your company to a place where it's thriving. The team is growing, revenue is up, and now, a life-changing offer is on the table. Someone is interested in buying your business for a stunning $33 million.
But just as you start to picture the new opportunities and the legacy you’ll leave behind, something unexpected happens. The buyer pulls out. The reason? Your business is too reliant on you. The very thing you’ve worked so hard to build turns out to be your biggest liability. This scenario, while devastating, is more common than you might think.
Let's take a closer look at this fictional example. In 2015, Matt Johnson founded a high-tech machining company called MJ Manufacturing. Matt was the heart of the company—meeting clients, designing products, and mentoring his team. By 2021, MJM had eleven employees and consistent revenue growth. One day, an industry giant approached Matt with an offer: $33 million to acquire his company.
Matt was thrilled. He had always dreamed of reaching this kind of success. But just as he was about to sign the deal, the buyer’s due diligence revealed something alarming: without Matt, MJ Machining didn’t really have a foundation. The buyer pulled the plug on the offer, unwilling to gamble on a business that depended so heavily on one person.
Crushed but not defeated, Matt learned from the experience. He spent the next two years transforming MJM into a business that could operate independently of him. When another buyer came knocking, he accepted a more realistic $18 million deal—not as high as the first offer, but still an incredible achievement.
Why did he lose $15 million in value? Because in the world of business, YOU can be both the greatest asset and the greatest liability.
The Hidden Danger of Founder Dependence
If your business is overly dependent on you, the founder, you could be unknowingly jeopardizing its value and future. This isn’t just about a lower sale price—your ability to scale, attract talent, and expand might be stifled. Many founders, especially in small to mid-sized businesses, find themselves wearing too many hats. But in doing so, they may inadvertently create a business model that is fragile and difficult to grow.
Here’s why it happens: as entrepreneurs, we start with nothing but a vision. We handle sales, marketing, product development, client relationships, and HR. Over time, as the business grows, these responsibilities accumulate, and we become the central figure in every aspect of the company. Without realizing it, we create a business where nothing happens without our input.
When it comes time to step back—whether for a sale, expansion or simply to reduce personal burnout—it becomes painfully clear that the business doesn’t know how to function without us.
The Importance of Documenting Your Business Operations
This is where business documentation becomes vital. Without detailed, written processes, you’re leaving your company at risk. Imagine your top employees leaving, or worse, you needing to step away unexpectedly. Would your business be able to continue functioning seamlessly?
Documentation isn’t just about creating an instruction manual. It’s about future-proofing your company and empowering your team to take ownership of their roles. By creating a clear roadmap for how tasks are completed, decisions are made, and problems are solved, you ensure that the business can survive and thrive without your constant oversight.
Here’s why documenting your business operations is critical:
- Sustained Growth: Clear documentation allows your team to understand every process, empowering them to make decisions and drive growth without depending on you.
- Smooth Transitions: When you’re ready to hire new leadership or sell the business, detailed documentation shows that operations won’t fall apart in your absence.
- Increased Efficiency: Well-documented processes lead to consistent outcomes and fewer mistakes. Your team will spend less time figuring out how to do something and more time delivering results.
- Attracting Top Talent: Talented employees want to work in organizations with a clear structure and defined roles. Documentation helps to create a professional environment that attracts and retains the best talent.
Breaking the Cycle: How to Reduce Founder Dependence
Now that you understand the importance of documentation, the next step is to start reducing the company’s reliance on you. This process requires a strategic shift in mindset and operations. The goal is to create a self-sustaining business—one that can operate, innovate, and grow even when you’re not involved in every decision.
Here’s how to make that happen:
1. Delegate Wisely—And Document Everything
It starts with delegation. You knew I would say that! As a founder, you need to start handing off tasks to others, but it doesn’t end there. Each time you delegate, ensure that the process is documented. Create step-by-step guides for everything, from client onboarding to financial reporting. These documents will serve as the backbone of your business and ensure consistency as more people take on leadership roles.
2. Identify the Right Talent
Replacing yourself in a business isn’t as simple as finding a manager with a flashy résumé. Many founders fall into the trap of hiring someone from a big-name company, thinking that the prestige will translate into success. But working at a large corporation is a different beast compared to running a smaller, more nimble business.
What you really need is someone adaptable, creative, and comfortable with ambiguity. Small businesses often require leaders who can think on their feet, solve problems independently, and thrive in a less structured environment.
3. Look for Problem Solvers
When hiring, focus on candidates who have a proven track record of solving problems in creative and innovative ways. Ask potential hires about challenges they’ve faced in previous roles and how they addressed them. Look for someone who isn’t afraid of uncertainty and can navigate uncharted waters with confidence.
4. Create a Culture of Innovation
Encourage your team to take ownership and come up with new ideas. The more empowered they feel to contribute, the less they’ll rely on you for direction. Define very clear Values and a company Vision that can be understood instantly by every person in your influence. Foster a culture where innovation is rewarded, and the whole team feels responsible for the company’s success.
5. Build a Leadership Team, Not Just a Successor
Instead of focusing on finding one individual to take over your role, consider building a leadership team that can share responsibilities. This reduces the risk of over-reliance on any one person and ensures that different aspects of the business are managed by experts in those areas. Learn from your example and share the knowledge. Share the responsibility. It makes it easier for everyone.
Conclusion: Securing Your Legacy
As a founder, you’ve poured your heart and soul into your business. But if you want it to survive—and thrive—beyond your direct involvement, you need to start preparing now. Documenting every process, empowering your team, and reducing founder dependency is crucial to ensuring the longevity and scalability of your company.
Your ultimate goal should be to create a business that’s not just valuable, but sustainable. By taking the steps to remove yourself from the center of the operation, you’re not just increasing the value of your company—you’re ensuring its future.
Are you ready to learn how I can develop your process playbook WITH you and free up your life for your next big adventure? Learn more at www.henderberg.com
And when the next acquisition offer comes, you’ll be armed to sell at full value!
