Delegation can boost enterprise value

I recently had the chance to listen to a Vistage presentation by a fellow M&A adviser. In addition to nodding my head in agreement at pretty much every word, I was struck by one particular tip he had for a room filled with successful entrepreneurs.

He suggested that, as business owners, we need to assess whether we deserve to be the CEO of our company on an annual basis. I found myself sticking on the word deserve. His point was that just because you own the company doesn’t mean you deserve to be the CEO.

This may seem like a counterintuitive thought, particularly if one of the reasons you started a business was to enjoy the perks of being boss. In the world of publicly-traded companies, CEOs get fired all the time. Is it such a stretch to ask CEOs of privately-held companies to consider whether we’re up to the task, even if it requires firing ourselves?

If you own a business, there are two reasons why you need to take a good, hard look at the role you fill at your company. One revolves around your ability to make difficult business decisions in order to keep the company healthy, viable and positioned to thrive in the future. If you are unable to pull the trigger on tough decisions like hiring and firing, raising new capital, or entering new markets, then it may be time to hire someone who can.

Even if you deserve to be the CEO for the reasons above, there’s a good chance you’re not really acting like the CEO of your business. Most business owners continue on as “chief cook and bottle washer” long after the business demands more. It’s hard to let go of those parts of the business that you either love to do, or love to control. No one can do the job better than you, and the thought of watching an employee botch something you care about is almost unbearable.

Yet a CEO by definition is not involved in daily operations. Investopedia.com defines the CEO role as someone who “typically deals with only the higher-level company strategy and directing its overall growth, as most other tasks are delegated to other managers or various departments.” The CEO sets the tone and the vision for the organization, and makes the ultimate decisions around managing resources.

That’s it. If you’re involved in running daily operations at your company, you’re not acting like a CEO.

The “cost” associated with delegating some of your current responsibilities to an employee or senior manager pales in comparison to how you may be unintentionally eroding the enterprise value of your business. Owners are often shocked to find out that their highly profitable business has no value to an outside buyer. An owner-operator is always viewed as a risk (not an asset) by potential acquirers. This is why M&A advisers constantly urge the business owner to become “operationally irrelevant” in their business.

It can be tough to go from working 60 hours a week at your business to taking six weeks of vacation without the wheels falling off. If hiring a number two seems too daunting (or expensive) start by delegating responsibilities to someone in your company who can relieve you and free up five or six hours in your work week. Then spend those hours like a CEO, working on things that will make your business strategically excellent.

If you learn how to delegate effectively, you’ll be well on your way to building a business that has enterprise value; a business that buyers will pay for when you’re ready to sell.

Nobody owns a business forever. Whether our exit is voluntary or involuntary, we all leave some day. Why not ease into the transition by stepping out of business operations sooner rather than later? Not only will it make your exit easier from a personal standpoint, it will make for a more enjoyable life today and a much more valuable business when you’re finally ready to fire yourself for good.
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Editor’s note: Barbara Taylor is the co-founder of Allan Taylor & Co., a mergers and acquisition firm in Bentonville. You can follow her on Twitter @ballantaylor or visit her company website at www.allantaylor.co. The opinions expressed are those of the author.