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Decentralizing the Business Owner

Decentralizing the Business Owner

November 16, 2022
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Business is Dependent on the Owner vs. Business is Independent of the Owner

Business Owner Characteristics

Dependent:

  • The owner works more than 55 hours per week in their business and their business likely defines who the business owner is
  • Unbalanced personal and professional life, lacking purpose and vision


Independent:

  • The owner has a balanced life, feels fulfilled in their work, and likely operates at their highest and best use doing what they are passionate about daily
  • The owner has a defined personal purpose and vision for the future inside and outside of their company


Structural Capital

Dependent:

  • Intellectual Property, SOPs, and training programs are not documented, copyrighted, trademarked, or patented because the owner either fills the role or knows the role


Independent:

  • Clear vision, mission, core values, and 3-year strategy documented and presented companywide
  • All processes are documented and standard operating procedures can be followed by the leadership team


Customer Capital

Dependent:

  • The strength of the customer relationship is tied to the owner and not entangled with the brand
  • Customers are highly concentrated and have a high likelihood of terminating their relationship without the owner involved


Independent:

  • Customers are diverse, engaged, and entangled with the company. In other words, they could not possibly think of operating without the company involved
  • Customers are attracted to the brand the company has created and the belief in people, process, cause, and the solution (service or product) the company provides them


Social Capital

Dependent:

  • Company Culture is intrinsically tied to the owner. The owner is synonymous with “the brand”
  • If the owner exits, the culture disappears as well


Independent:

  • The culture, brand, and the way the employees work with each other do not depend on the owner at all. The business is the brand, not the owner
  • Company culture is driven by core values, internal communication plans, the employees, and customers


Human Capital

Dependent:

  • Owner must be involved with and approve company decisions, major or minor
  • The Executive Leadership Team struggles to manage daily operations without the owner around


Independent:

  • Well-formed executive leadership team with a documented succession plan
  • Executive Leadership Team is empowered with the accountability and authority to make key decisions without the owner


Business Value

Dependent:

  • Most of the perceived value is tied to the owner, not in the business
  • Lack of clear financial reporting historic and projected


Independent:

  • The company has a manageable level of risk and is predictable and scalable
  • Higher valuation, driving towards best-in-class multiples


Ultimate Sale Price

Dependent:

  • Since the owner is the most valuable asset in the business, potential buyers are less likely to make an offer
  • In the event that the business does sell, it will be for a lower multiple


Independent:

  • Due to strong tangible and intangible capital, the business likely sells for higher multiples


Securities and investment advisory services offered through qualified registered representatives of MML Investors Services, LLC. Member SIPC. Integrity Benefit Partners is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 200 Clarendon Street, 19th & 25th Floors. Boston, MA 02116. 617-585-4500. CRN202507-2694019.