As a business owner, do you find yourself licking stamps, taking out the trash, and answering phones? When the business started, you probably had to wear 50 hats. Over time, the business grew, so more tasks were delegated to others, but maybe you are still clinging on to a variety of responsibilities.
It is good for owners/CEOs to step back a few times a year and think about what they do well, what they like to do, and what others can do better. Delegating simple tasks, like sweeping floors, is easy, but delegating sales management or quality control might be tougher. Although delegating is difficult, almost no business can grow solely on the efforts of the owner.
From the standpoint of selling a business, any buyer will be nervous about the effects of losing the owner. Unless the owner continues to have a large ownership percentage or a large earnout, the owner will most likely not be involved as much after the deal closes. Sometimes, this is good for the business, as the buyer may have deeper pockets, a larger network, or more energy. In most cases, the business will suffer if a strong owner is no longer there.
If the owner has not delegated a wide range of responsibilities, any buyer will be very concerned about key-person risk. If there is a lot of key-person risk, the value of the business will be lower, the amount of cash at closing will be smaller, and more of the deal will be in deferred compensation, such as an earnout. Worse, many buyers may walk away if there is too much value placed on the owner. If the business value is mostly you, then there is little value to a buyer. The vast majority of businesses suffer from this issue, and not coincidentally, the vast majority of businesses are unsalable.
Delegating is very hard, and many owners find it difficult to give up the very tasks that they should give up. An owner’s ego and pride may be an issue, plus training and supervising staff is harder in the beginning than just doing the tasks themselves. For example, many owners like doing sales, working with customers, and solving customer’s problems. Indeed, it is often the owner’s main job to work with customers, no matter how large the company becomes. However, small businesses tend to be more of a hobby for the owner while larger businesses have developed a sales and marketing organization. The owner can certainly be the chief salesperson, but only if other tasks are delegated to people in the company.
Many owners have hired a salesperson in the past, but it did not pay off. I cannot tell an owner how to hire, train, and manage salespeople, but I know that small companies rely on word of mouth, and larger companies have a sales and marketing organization. Buyers pay more for larger companies that have an active and efficient sales staff. If the first salesperson or some other attempt at delegating does not work out, the business owner must examine the causes for the failure, and not just throw the idea out the window.
It is rare that an entrepreneur/business owner is a natural delegator. If you are having trouble delegating responsibilities, try to obtain some training or help. Business coaches can be a great help not only with delegation but also with other aspects of the business. Good delegating requires planning, patience, communication, setting goals, compensating for performance, and a lot of follow-up. If done well, delegating can set the owner free as well as increase the value of the company, improve the terms of the deal, and make it easier for a buyer to take over.
Tom Kastner is the president of GP Ventures, an M&A advisory services firm focused on the tech and electronics industries. He is a registered representative of StillPoint Capital, LLC—a Tampa, Florida member of FINRA and SIPC—and securities transactions are conducted through it. StillPoint Capital is not affiliated with GP Ventures.