“My husband and I have a terrific business relationship. I make the business run well, and he’s the rainmaker who brings in the business.”
I met Doris (not her real name) during a meeting at the church we attend. We had never met, but we have a mutual friend who introduced us. During a break in the meeting, she told me she and her husband were ready to sell the business they had owned for 25 years. “We wholesale lighting products used in commercial construction. Our customers are general contractors that build hotels and office buildings. Business has been very good,” she added with a smile. “But it’s time we sell it, can you help us?”
Though we had talked for less than a minute, I knew that selling her company was going to be an uphill climb. Their business was completely dependent on the health of the commercial construction business. While construction has been off-the-charts great in recent years, it would be a stretch to assume the success of the past four or five years represented a sustainable future for the company.
I was also concerned with Doris’ comment about her husband being the rainmaker. I asked, “How large is your sales team?” and her reply surprised me. “My husband is so good, we don’t need a sales team. He’s on a first name basis with every big-name contractor in the city. Nobody can do what he can do.”
Those last words were the kiss of death, “nobody can do what he can do.” I mean, think about it, if that is really true, no one will want to buy the business because “nobody can do what he can do.” She went on to tell me the business has fifteen full-time employees and in recent years they’ve brought in part-timers to help through particularly busy projects. But at the end of the day, the business is really just two people, Doris and her husband. The way she described it, it’s hard to see how the business can sustain itself once they are gone.
Having met with scores, maybe hundreds, of business owners who want to sell their business, I’d say the revenue stream being overly dependent on the owner is the biggest impediment to realizing full value. A buyer will not pay market value for a business if they are concerned the business’ revenue will decline after the owner is gone. Therefore, if the owner of the business is the primary driver of revenue (a.k.a., the rainmaker), expect a drought when trying to sell it.
JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. https://www.amazon.com/Home-Pros-Guide-Selling-Business/dp/1599329239 . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The principles above are true, but the story, names and fact patterns are changed to preserve the parties’ identities.
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