Founders who want to sell their business at a premium face the challenge of founder dependence. The potential buyer worries, “What happens to the business when the founder leaves?” Sellers that demonstrate a good answer to this question set themselves up for an exit at a premium multiple. Companies that don’t demonstrate a good answer settle for a discounted valuation or fail to close the transaction.

Traditional solutions to the founder-dependence problem include implementing a business operating system and ensuring processes are documented with SOPs. While these are certainly important, many companies fail to address the two areas where founders have the most impact: revenue growth and strategic innovation.

Founder Dependent for Strategic Innovation

Over the years I have heard many business owners express frustration that their employees were not more entrepreneurial. Most founders have thought to themselves: “I wish my people had more of an ownership mindset.” In this type of company, the founder is the primary person bringing new ideas to the table. This frustration is symptomatic of a company that is dependent on the founder for business strategy and innovation.

FounderDependent for Revenue Growth

Even if they have a sales team, founders are typically involved in revenue growth through relationships with key accounts. Some of them wear the sales management hat or they have a revolving door of sales leaders. Many founders ultimately own the marketing strategy, meaning that marketing people on staff spend more time responding to the founder’s vision than creating a marketing strategy. This company depends on the founder to sustain growth.

How To Overcome Founder Dependence

Knowing that buyers are concerned about continued revenue growth and ongoing innovation, smart businesses create engines that can move the business forward without the founder. Merriam-Webster defines an engine as, “A machine for converting any of various forms of energy into mechanical force and motion.” In the context of business, an engine is a set of people and processes that grow valuation.

Two key engines need to operate at peak performance to alleviate the fear of founder-dependence: Revenue Growth Engine® and a Strategic Innovation EngineTM.

1. A Strategic Innovation Engine™️

Every company begins because an entrepreneur has a vision. In the early days of the company, the founder's entrepreneurial spirit drove them to persist until they figured out what worked. At some point, this DNA of strategy and innovation needs to go beyond the founder. In Beyond Entrepreneurship 2.0, Jim Collins observes:

“Most companies have a creative founder. The challenge, however, is to become an innovative company, rather than a company dependent on an innovative founder.”

This quote captures the essence of how to escape founder dependence. You see this in areas such as:

• The founder is responsible for creating the company strategy (or there is no strategy)

• The founder is responsible for coming up with new ideas

Telltale symptoms of founder-dependence in the area of strategic innovation include:

• Innovation happens randomly

• Over 50% of new ideas implemented in the last 3 years came from the founder

• There is no scorecard for innovation

Companies that want to exit at a premium need to create a culture of strategic innovation. A Strategic Innovation Engine™️ addresses this challenge by identifying current employees with gifts of innovation. These employees are put on a Strategic Innovation Council. This team meets regularly to create a pipeline of practical innovations. These ideas are piloted and optimized. The good ones get handed off to the integration team for implementation.

2. A Revenue Growth Engine®

Revenue is the lifeblood of a business. If the company depends on the founder for revenue growth, the buyer should get nervous. This happens in several areas including:

• Founder drives sales in key account relationships

• Founder ultimately leads the creative part of marketing

• Founder manages the sales team

Symptoms of high founder-dependence on revenue include:

• Over 30% of sales revenue comes through founder relationships

• No mature marketing function

• High sales turnover

A Revenue Growth Engine® answers this challenge by creating a system to drive net-new and cross-sell revenue growth. The engine needs to align marketing and sales to attract ideal clients and grow revenue in these accounts. A Revenue Growth Council gathers key marketing, sales, and operations employees to build the engine. They work together to identify ideal clients and prospects. They create a consistent client experience through net-new and cross-sell processes. They document the processes and develop tools to support the process.

Proactive Exit Planning To Address Founder Dependence

Smart companies proactively address founder dependence in advance of an exit. Christopher Snider says it well in Walking to Destiny: “Exit strategy is business strategy.” Working now to overcome the two sides of the founder-dependence coin will benefit the business immediately.

As a side benefit, these engines work together to accelerate revenue and profit growth, increasing the value of the business. Additionally, creating engines for revenue and innovation develops a stable of future leaders who can step into key roles when the founder leaves.

To discover how a Revenue Growth Engine® and a Strategic Innovation Engine™️ could work together to accelerate your company past founder dependence reach out for a confidential Executive Briefing.