Owner Centricity: Why and How to Reduce It

Does your entire business depend on you? In this post, we explain owner centricity and how it becomes a hurdle when you want to sell your business.

First of all, owner centricity is the measurement of how critical the owner of the business is to the operations of the business. If you, as the business owner, have all the specialized knowledge, training and experience that make your business successful, it will be extremely difficult to sell your business when the time comes to do so.

There’s a great book called The E Myth by Michael Gerber. In it, he talks about the difference between working in your business and working on your business. Now, it is quite the process to take everything you know and transfer it into the business. You do that through systems, training and mentoring, and it takes a lot of time to do it well. But that transfer of knowledge is the real value of what most entrepreneurs have built as a business. The trick is to make your business a transferable unit so that anyone can buy it and pick up where you left off because you’ve turned your knowledge and experience into systems that are repeatable and scalable.

One of the things we do at Leading Edge Growth is help with succession and exit planning. I have a quiz that I’m happy to share with you called The Owner Centricity Quiz, which will lead you through diagnostic questions that help you understand how much you are currently the center of your business. You can take it on your own, and then we can meet to debrief the quiz and determine the action items you can take to reduce your level of owner centricity. That way, when you’re ready, you’ll be able to sell your business more successfully.

It can be hard to look objectively at your business when you’re the owner, and that’s why we’re here to help you truly understand where you sit, what your opportunities are, and how to move your business forward. If you’re ready to set your business up for success, let’s meet to discuss your level of owner centricity and how we can reduce it together.

Company Exit Plan Strategies

The best time to figure out your exit plan is when you start your business. The next best time to figure out your exit plan is today.

At Leading Edge Growth, we use the ExitMap planning process. We have access to a whole program of checklists and assessments that help the business owners we’re working with put together a plan of transitioning their business, whether or not they need to transition right away—which hopefully isn’t the case—or 5 to 20 years in the future.

In terms of having a transition plan, Your Exit Map: Navigating the Boomer Bust is a really good book. It discusses how selling a business in the next 5 to 10 years will be an uphill battle because of the amount of businesses owned by Boomers coming up for sale. Many business owners who started a business in the rough job market post-graduation are also reaching the stage of life where it’s time to pass the torch by selling the business, transitioning to the next generation, and grooming new leaders within the business. 

However that transition is going to happen for you, it takes preparation. One of the best things about this program with the ExitMap that we utilize is that I’m happy to extend this to you for free. Just take the assessment below, and then we can set up a time to go through it together. This will give you a view of how realistic your intentions of selling are or how prepared your business is for selling or transitioning. 

The worst time to do a valuation is when you’re actually in the process of selling your business, because there are a lot of things that come up that you might not expect. These can totally kill the deal upfront, and that’s why a little bit of preparation goes a long way in transitioning your business.

What Is Company Specific Risk?

As a business owner, it is key to understand how valuations work. One of the biggest concepts that you can get a hold of is company-specific risk.

If we’re talking about a huge publicly traded company, like Textron Aviation, in Wichita, we would expect that company to grow 10% per year. But much smaller and closely-held businesses who don’t have departments upon departments that could manage the risk of the company and run the company well would need an expected growth rate of 20, 25, or even 40 percent per year to maintain a high value. 60% of a company’s value is directly attributed to how risky it is, meaning that riskier companies need high growth and cash flow to balance out their high risk.

The valuation of a company matters to the business owner, such as yourself, when you want to sell it, exit out, create a succession plan, create a buy/sell agreement, or even start an employee stock ownership plan. Your valuation hinges very, very heavily not just on your cash flow, but on your level of risk. 

The relationship to keep in mind is risk and reward. If your company is really high on the risk scale, your value is gonna be lower. If your company is really low on the risk scale, your value will be significantly higher. Risk is what we have to assess to come up with an appropriate discount rate of your future cash flows. Ultimately, that’s the number of what your company is worth. Very fundamentally, whatever your company can produce in future cash flows given its level of risk is what your company is worth. This is huge. 

A second valuation process we do is the Value Opportunity Profile, which we put together after assessing the departmental risk of your company. We look at the financials of your company and put together this profile that shows your company’s worth as it is today. The goal is to bring the different departmental risks, or core business competencies, into alignment with one another so that you don’t have a sales force that sells more than what you can produce or an HR department that can’t keep up with people and procedures. There are so many different ways that a company can go under when it’s not growing in a balanced way, and that’s what makes this valuation tool useful. Once your company is balanced and operating better, it's going to naturally produce more. Your areas of competence are now matched by the areas that you weren’t so good at, and things tend to work better.

Still, company specific risk is the single most key factor in growing the value of your company. We can help identify your growth areas and help you overcome them, so schedule a call today to get started.

How Value Growth Advising Can Help Your Business

Is your business plateauing or stagnating with growth? Maybe your profitability isn't where you want it to be? Or maybe you feel like your business is growing so fast that you can’t keep up with running it. In this post, I’ll share about value growth advising and how it helps companies find their balance.

I’m Mike Proctor, and I am a Certified Value Growth Adviser. I branched off into these services because I realized, while I was doing financial planning with entrepreneurs, that getting into business isn’t the same as knowing how to run a business. And it can take a while to learn how to run a business that’s balanced. Many times, entrepreneurs know their craft or they know certain areas, but they also know that they can do better. 

As an entrepreneur, you know your niche. However, you might not appreciate all the facets that go into business. There are eight core business functions, which are leadership, strategy, marketing, sales, the people aspect of it, operations, accounting, and finance, and all of these functions are critical to business. Usually, if someone is really good in one area, they’ll have blind spots in others—especially when the ownership is concentrated into just one person or just a few decision makers. 

If the decision makers are very like-minded, they may not see all functions as being as important or understand how to grow in those areas. This is what holds businesses back from growing into what they could be or what they should be. These under-developed areas might not just hold the business back, but could actually lead the business to failure. In fact, any one of those key competencies can put the company out of business if it is so disproportionately developed compared to the others.

Through value growth advising, the process for evaluating a company is based on scoring each of the eight core competencies. From those scores, we can understand the overall risk profile of your business and use scenario-planning to see what growth you could achieve by increasing proficiency in certain areas. If you develop your financial side or your legal department, for example, it will make your company more reliable, decrease risk, and allow for more natural growth of the business. 

Once we have a really clear understanding of your business and your objectives, the second part of our value growth advising process is to take all this learning and information and put it to use. Often, this is as simple as getting departments to talk to one another in a way they haven’t before. Then, we move on to building your company’s vision through a strategic planning process. As a result, employees will better understand what their role is within the context of growth, and you’ll have a better overall path forward.

Since my passion is helping local businesses grow and developing the quality of our community, this is an area I would love to chat with you about. This is a very basic idea of what we do and how we do it, but let’s meet to go more in depth and talk about how value growth advising could help your unique business.