Creating a marketable business

It's said that if you put your money into your head - in the form of knowledge and skills - no one can take it from you.

True enough, but if you've built a business around your personal knowledge and skills, you might one day be wishing that someone would come along and take it - by purchasing your business, that is.

Unfortunately, some businesses literally aren't saleable because their value lies solely in the personal knowledge, skills, reputation and contacts of the owner.

In these cases, you can't separate the business from the owner - they are one and the same. While the business may be very successful, it's not worth anything in terms of market value because the knowledge and skills are personal and nearly impossible to transfer without a very long management transition period, e.g. several years.

There are many examples of this and they tend to be businesses providing services rather than products.

For instance, if I have a widget-making factory someone else can come in to manufacture and sell those widgets just as well as I can. But if I am a graphic artist, a specialty photographer, or a consultant, it's another story. My knowledge and skills aren't transferable. This is what's known as proprietary knowledge.

Having said that, let's explore the consultant example a bit further.

Many people who launch consulting practices start alone, often working out of their homes.

Many remain that way by choice - essentially one-man bands. Others expand, bringing in staff and renting or purchasing office space.

At what point does the business have a "life of its own" separate from that of the owner? When is it worth something? The answer lies in both the number of staff members and in the role of the owner.

First, let's look at the obvious - the size of the company. It would be very rare for a business to be worth anything if it has just one or two employees.

It's impossible for a company that small to establish a value for itself separate from the owner. To become a saleable company, a business must grow to a size where work is generated by staff other than the owner/president.

As a general rule, a company would probably need to have at least five to ten staff members for it to be marketable.

Next, let's examine the role of the owner. To take a company from having a single employee - the owner - to a company that's worth something on the market is a significant transition - not only in the dedication it takes to grow the business but in the way the owner must revise his or her role along the way.

The owner who, over time, becomes a facilitator in his or her business rather than a worker is more likely to end up with a saleable enterprise. The business becomes less driven by, and focused on, the skills and abilities of one person and evolves to the point where it could run successfully under another owner.

There are several aspects to the owner-as-facilitator role. First, the owner learns to train, delegate and support employees in taking lead roles on projects and accounts. The owner needs to learn how not to be the front end, lead person on every big account - and this is a gradual external as well as internal process, since long-time customers are often reluctant to deal with anyone but the owner.

I've had my own experience with this transition, since I began Robbinex as its president and sole employee 25 years ago. Over the years I've had to make a conscious effort to develop and evolve not only the company, but my own role within it.

Four years ago I stopped doing the in-depth analysis (due diligence) work that is required for each business sale. I brought in Bruce Johnstone, a former partner with Price-Waterhouse, specifically to do that work and today he heads up a team of five focusing just on due diligence.

Two years ago, I stopped doing all the educational workshops that Robbinex holds for business owners throughout North America.

It was time for me to become less hands-on and I brought in Don Forrest, who now specializes in leading those workshops. Again, I believe that delegating the responsibility has allowed that are of our business to thrive and Don's team is also growing to accommodate the extra activity.

If business owners are wondering whether they have developed their companies to a marketable level, here's an interesting way to find out: disappear for a while.

About two years ago I was stricken with an inner-ear virus that prevented me from working for almost three months. The team in place carried on just fine without me - and that's the way it should be.

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