“When buying a business, beware the Key Man”
Does the company have a team in place to maintain operations if the owner were to go missing today?
This is a check we do on all companies we look at. We generally find one of 3 scenarios:
1. There is no team to take over. Classic owner-operator model. This is a quick no for us.
2. A team exists to maintain the business, but not grow it. This is the most typical response and for us the trickiest. We need a CEO, and this answer usually implies there is more of a GM or Operations person. We think about it and usually say no.
3. There is a true CEO willing to stay on and run the business. This is our ideal scenario and will lead to a much deeper dive into the opportunity.
This is our checklist. My partner and I do not actively operate any of our companies, so we need the CEO figure. If you are looking to take over day-to-day operations yourself, your checklist may look different. It may revolve around middle management. The people who will be reporting to you directly post-transaction.
There is no one way to play this game. But it is important to be clear on which game you are playing.