Owner dependency
Also called: owner dependence · owner-dependent business · key-person dependency
The degree to which a business only functions because the owner is personally in it — holding the knowledge, the relationships, the decisions, or the work itself.
Owner dependency is measured by absence. The question is not how hard the owner works; it is what stops when they are not there. A business with low dependency slows down when the owner takes three weeks off. A business with high dependency stops — quotes go unanswered, decisions queue up, and clients who only ever deal with one person wait for that person to come back.
It builds up in four places, and most businesses have it in more than one. Knowledge: how things are done lives in someone's head rather than written down. Relationships: clients and suppliers are loyal to the owner personally, not to the business. Decisions: nothing above a certain size is settled without them. Delivery: the owner is still doing the work that earns the money.
It is worth being clear that this is not a character flaw and not a sign of poor management. It is the natural result of building something from nothing, where being the person who does everything was correct for years. It becomes a problem later, when the business is large enough that one person is now the ceiling.
The reason it appears so often in conversations about selling is arithmetic. A buyer is purchasing future earnings. If those earnings depend on a person who is leaving, they are buying a risk rather than a business — and they price it accordingly, or walk. But the cost is not only at sale: a business that cannot run without its owner cannot let its owner be ill, be absent, or be strategic.
What it tells you
Whether you own a business or a job that owns you — and, if you ever intend to sell, how much of what you have built is actually transferable to somebody else.
Read the full piece on owner dependency →See also
SOP (standard operating procedure)
A written record of how a specific task in a business is done, detailed enough that a competent person who has not done it before can do it correctly without asking.
Goodwill
The part of a business's sale price that is not accounted for by its physical and identifiable assets — what a buyer pays for the earnings the business will keep producing after the sale.
Business diagnostic
A structured examination of a business — its foundation, structure, numbers and strategy — carried out before any solution is proposed, in order to find the cause of a problem rather than its symptoms.
A definition tells you what the word means. It can't tell you whether it's your problem — that takes a look at the actual business.
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