It happened again. It shouldn’t surprise me, but it always does. Maybe I’m too optimistic about successful people knowing what they’re doing.
A burned-out business owner hired a general manager so he could step back and clip coupons. Of course, the manager didn’t have a “feel” for the business, made changes, and proved it’s rare when a non-owner manager can do as well as someone with a vested interest, i.e. the owner’s money (at risk). Now the owner is back in the company, more burned-out than ever. This is why I did a video podcast on this subject, which I titled, “Small businesses need the adult supervision only and owner can provide.”
When does it work? To me, it seems when it’s not the founder stepping back there’s a much greater chance of success with a manager/COO. The founder has (typically) done things “their way,” knows the little intricacies of the business they often don’t’ share with others, and hasn’t built a solid management team (and if they have, they often don’t delegate as they should).
A buyer/investor who is used to a board of directors, delegating, not knowing the nuts-and-bolts of the business does better when not in the business day-to-day. They’re used to a chain of command and holding people accountable.
Back to the story at the beginning. The value of the business is much lower than it was two years ago (lower based on the above, nothing to do with Covid). This foray into a manager with an inactive owner cost him millions. And, it proves that the salary to an owner is not discretionary. The owner earns their keep and it’s a legitimate business expense.
On September 9 I’m on a panel at the (online) meeting of the Northwest Family Business Advisors (www.nwfba.org)on the topic of “Selling a Family Business.” I may use the above story and definitely plan to emphasize how owner salary is not profit, it’s an expense for valuable work.
“The greatest enemy of knowledge is not ignorance. It is the illusion of knowledge.” (Historian) Daneil J. Boorstin