The Indispensable Owner

Small Business Owners – Are You Indispensable? 

I recently had lunch with a friend who shared an experience he had with one of his clients.  His firm did business with a small manufacturing company whose owner wanted to retire soon and was seeking options to exit.  

The owner ultimately chose an option presented by a private equity firm specializing in acquiring businesses like his to add to their portfolio of comparable firms. Although selling to private equity represents a viable path for only a limited fraction of businesses, it highlights the critical necessity of preparing a company for sale well ahead of time - even if the actual sale might be years away. 

Private equity firms consistently look for specific traits in companies to maximize the likelihood of success. Key indicators of a strong candidate include a robust and stable cash flow, growth potential and scalability, an established market position, and a seasoned, capable management team. In this case, the private equity buyer recognized the company as well-run and essentially turnkey. 

Without a well-thought-out plan, business owners risk receiving far less than expected for their life's work - or worse, no offers at all. 

A winning exit plan begins with ensuring that value is created and sustained independently of the business owner(s). In other words, for a business to be perceived as having intrinsic value that appeals to potential buyers, this value must remain intact even after the owner has left. This creates an odd paradox where the business owner must work themselves out of the job of running the company while simultaneously ensuring the company continues to run smoothly.  

As we’ve pointed out in previous blogs, the centerpiece of any company’s intrinsic value is a sound business strategy that drives the company toward a defined vision. We keep coming back to this reality as it is so important for the success of companies big and small.  The lack of a cogent strategy results in uncertainty and a lack of stability.  This insidious combination challenges a business owner's ability to forecast outcomes, plan effectively, and allocate resources with confidence. It can also strain trust and confidence, both within the organization and externally with customers and suppliers. 

The first step in developing a business strategy is for the business owner to understand how their business stacks up against other high-performing companies. Only then can the company begin to truly measure itself with any objectivity and clarity. To do so, owners might consider using the following methods to assess where they stand: 

• Benchmarking: Analyze industry benchmarks—these include metrics like profit margins, customer acquisition costs, average revenue per user, or inventory turnover rates. Resources like IBIS World Reports, trade associations, or government databases can help. 

• Competitive Analysis: Identify direct competitors and evaluate their strengths, weaknesses, pricing, customer service, branding, and overall market position. Tools like SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) can help break this down. 

• Customer Feedback: Compare your customer satisfaction rates to industry leaders. Online reviews, customer surveys, and feedback on competitors can give valuable insights. 

• Brand Presence: Evaluate your marketing, social media activity, and brand image against high performers. Digital tools like Google Trends or social media analytics can help quantify your online presence. 

Conducting and analyzing this research requires a significant amount of time and effort. For a busy owner who is deeply involved in the day-to-day operations, this task can be extremely challenging, if not nearly impossible.   

An objective third party like Endurium can break through this impasse.   

Through its Enterprise Value Solutions (EVS) team, Endurium will assess and evaluate the company’s current state to deliver an accurate valuation of the company and how they compare to high performing companies.  Endurium then uses that baseline valuation to create a roadmap showing the owner how they can increase intrinsic value to new levels.   

The strength of the EVS practice lies in its seamless integration with the company’s management team to execute the roadmap. This collaboration allows business owners and key managers to remain focused on daily operations while simultaneously partnering with Endurium to improve intrinsic value over a one to three-year period.  

Benchmarked against top-performing companies, this improvement in intrinsic value is reflected in the following key areas: 

1. A focus on building quality operations, not just revenue growth. 
2. Embracing a culture of continuous improvement and strategic planning. 
3. Aligning annual objectives with long term vision, tracking progress, and holding their team accountable.  
4. Forecasting yearly finances to set revenue expectations, create budgets, and manage cash flow effectively. 
5. Delegating responsibilities to key managers or hiring specialized expertise to address capacity or skill gaps.   

Notably, none of these five areas involve making the owner indispensable to the business.  

While an owner’s hands-on involvement may be crucial in the early stages of a company’s development, it becomes equally important to transition from an active participant to a strategic leader. This transformation, which allows the owner to step back from daily operations, is an ongoing and iterative process. Endurium supports this evolution by helping build a business with intrinsic value that is not only sustainable but also attractive to potential buyers when the time is right.