When the Business Has Outgrown the Owner

Sometimes the biggest constraint on a growing business is the person who built it.

And I don't mean that the founder is incompetent.

Usually, it's exactly the opposite.

They know the customers. 

They know the employees. 

They understand the numbers. 

They know which vendors can be pushed and which ones can't. 

They can walk through the business and spot a problem before anyone else realizes there is one.

They've spent years becoming indispensable.

And eventually, that can become a problem.

[INTRO MUSIC]

 Welcome to Things Entrepreneurs Should Know — a podcast about the decisions, tradeoffs, and occasional hard lessons that come with building a business of lasting value. 

I’m Chip Schweiger. And, I’ve spent more than thirty years working with businesses and the people who run them. 

And in that time there’s a pattern I’ve seen in growing businesses over and over again.

A company reaches a certain size, and growth starts getting harder.

Not because there aren't enough customers.

Not because the product isn't good.

And not necessarily because the company needs more capital.

The problem is that too much of the business still runs through the owner.

The owner approves the important purchases.

The owner handles the difficult customers.

The owner knows why a particular employee is paid what they're paid.

The owner has the relationship with the bank.

The owner knows which customer gets special pricing.

And when something unusual happens, everybody knows exactly what to do.

They ask the owner.

Now, in a small business, that's completely normal.

In fact, it's often an advantage. So long as you stay small.

[MUSIC RISES THEN FADES OUT]

Welcome back. 

When you're building a company, speed matters. 

And sometimes the fastest way to make a decision is simply to have the person who knows the most make it.

The problem is that businesses grow faster than management habits change.

So a company that once had eight employees now has thirty.

Revenue that used to be two million dollars is now ten million.

There are more customers. More vendors. More decisions. More exceptions.

But the decision-making structure hasn't really changed.

The owner is still sitting in the middle of it.

And eventually, something interesting happens.

The person who once made the business move faster starts making it move slower.

Not intentionally.

It's simply mathematics.

One person can only make so many decisions.

And when twenty people are waiting for one person to answer questions, approve exceptions, solve problems, and settle disagreements, you've created a bottleneck.

The organization begins moving at the speed of the owner's availability.

I've seen this show up in surprisingly ordinary ways.

An employee waits two days for approval on something that should have taken ten minutes.

A manager won't make a pricing decision because the owner has always made pricing decisions.

A customer issue gets escalated unnecessarily.

A new hire keeps asking how something should be done because the answer has never actually been written down.

None of those things individually looks particularly serious.

But put enough of them together and you've built a company that can't really operate independently.

And this is where owners often reach for the wrong solution.

They hire more people.

Sometimes that's necessary.

But adding people to an organization where decisions still flow through one person can actually make the problem worse.

Now there are simply more people waiting for the owner.

The real issue isn't headcount.

It's decision rights.

Who is allowed to decide what?

What requires the owner's involvement?

What doesn't?

And perhaps most importantly:

What is everyone bringing to the owner simply because that's the way it's always been done?

There's also an uncomfortable psychological piece to this.

Being needed feels good.

If you've spent fifteen or twenty years building a company, being the person who knows how to fix things becomes part of your role.

People come into your office with problems.

You solve them.

And every time you do, you reinforce the idea that the business needs you.

Which is satisfying.

But it may not be particularly healthy for the business.

Because there's an important difference between being valuable to your company and being indispensable to it.

A good owner should be enormously valuable.

But if the business can't function without that owner, you've created risk.

And that risk becomes particularly obvious when you start talking about value.

Imagine you're considering buying two otherwise similar companies.

The first has a capable management team. Customer relationships are spread throughout the organization. Processes are understood. Managers can make decisions. The owner could disappear for a month and the place would keep running.

In the second company, the owner is involved in virtually everything.

Which one would you rather buy?

And which one would you pay more for?

The answer isn't difficult.

Because a buyer isn't just buying earnings.

They're buying the reasonable expectation that those earnings will continue after the current owner leaves.

If the owner walks out the door and half the institutional knowledge goes with them, that's not just an operational problem.

It's a valuation problem.

Now, none of this means the owner should suddenly stop being involved.

That's not delegation.

That's abdication.

The goal isn't to make yourself irrelevant.

It's to make your involvement more valuable.

You want to spend less time approving routine decisions and more time making the handful of decisions that actually deserve your attention.

That requires something many owners find surprisingly difficult.

You have to let other people make decisions differently than you would.

Not badly.

Just, differently.

If you've hired capable people but insist that every decision be made exactly the way you would make it, you haven't really delegated anything.

You've simply added another layer between yourself and the decision.

And yes, occasionally somebody will make the wrong call.

That's part of building management capacity.

The question isn't whether someone else can make every decision as well as you can.

The better question is whether they can make the decision well enough that you no longer need to make it.

Those are very different standards.

So here's one question worth asking this week:

What still comes across your desk today that shouldn't?

Not what you dislike doing.

Not what you're too busy to do.

What decisions, approvals, questions, and problems still come to you simply because they always have?

Pick a few.

Then ask yourself who should actually own them.

Because one of the strange transitions in building a successful company is that eventually your job changes.

Early on, the business needs you to do almost everything.

Later, it needs you to build an organization that doesn't.

And sometimes the hardest part of growing a business isn't getting the owner to do more.

It's getting the business to need the owner less.

And that's something entrepreneurs should know.

[OUTRO MUSIC BEGINS]

Well, that's all for this episode. 

Thanks for spending a few minutes with me.

If this episode made you think about your own business a little differently, send it to another owner or business leader who might appreciate it.

You can also find the show notes and more episodes at TESKPod.com.

This is Chip Schweiger, reminding you that if you always do what you've always done, you'll always get what you've always gotten.

I look forward to seeing ya next time.

[MUSIC OUT]