I’m So Busy, I Don’t Have Time To Think About How Much My Company Is Worth

In our work with middle market CEO’s, we often hear some variation of the above from them or people on their management team. Not surprising in this economic environment. Competition is tough and getting tougher. Companies in the industry are getting squeezed. The customer is demanding more for less.  And everyone internally and externally is trying to sell them something they need but don’t have time to evaluate.

The paradox, in our experience, is that the most successful CEO’s are those who, while carrying a very full calendar, do not have organizations that are dependent on their daily presence and performance. In fact, the organization may not even be aware of instances of their absence.

Our assertion is that the companies who are best at growing shareholder wealth and stakeholder value are those with the most dispensable CEO’s.  Seriously?

But examined from the investor or buyer’s standpoint, it becomes more obvious. Companies that have CEO’s or owners who are critical to the success of the company are worth less, and unbelievably, we have seen more than a few cases, worthless (except assets), to potential buyers and investors. And size of the company is not indicative of independence from this phenomena. We have seen this from $4mil dollar revenue companies to some with sales in excess of $100 mil.

A key part of improving the “Invest-Ability Index™” of any organization is focusing on the role and function of the management team. (It is a significant part of our algorithm and the strategy planning for that reason.) Buyers, investors and lenders are concerned about the risk factors associated with an investment or loan. The role and function of the CEO and the senior management team are a critical part of that risk assessment.

An ‘indispensable’ person on the senior management team is the proverbial ‘kiss of death’ in terms of market value. It can substantially reduce what the company is worth on paper come due diligence time.

It is the CEO’s fiduciary responsibility to the shareholders, stakeholders, employees and their families to take the necessary steps to optimize the “Invest-Ability” of the firm. Their own long term financial well-being is most likely at stake as well.

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