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Value Creation Blog

How do you become operationally irrelevant?

Posted by Josh Patrick

Operationally Irrelevant
One of my favorite blogs is John Warrillow’s called built to sell.  I always find his questions and ideas interesting.

In his most recent entry he is asking the question about whether having a number two is a good thing or should you build a strong senior management team.  My answer is you should do both.

Most companies as they move from a “lifestyle” business to one that has enterprise value can’t afford to have a complete management team.  The owner probably has been working sixty hours a week for five to ten years and he or she often feels like they are stuck in the weeds. 

I often talk with them about making themselves operationally irrelevant and they can’t even figure out how to work 55 hours a week, much less getting all of the way out of operations.  The dilemma that this business owner has is one that is not unusual at all.

To move a company to one that has enterprise value requires the owner spend a significant amount of time thinking and more importantly acting strategically.  The only way this can happen is if the owner starts to move themselves out of day-to-day operations.  And, in many cases the business is profitable enough to afford a senior person who can take over business operations.

What this owner needs to do is not to hire a number two, but hire a chief operating officer.  The COO would be responsible for the day-to-day operation of the business.  When this happens the owner would still be responsible for finance, marketing, sales and strategic initiatives.   They might even still be working sixty hours a week, but the sixty hours would be very different before bringing the COO on.

As time goes on and the business becomes larger and more profitable, the owner can think about building a full management team.  This owner needs to be mindful about which of the areas they want to transfer to someone else.  As the owner transfers more responsibility to others they can concentrate on being more strategic.

In my experience the more strategic an owner is, the move value the company has.  What are your thoughts on this topic?

Josh Patrick

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Topics: operationally irrelevant, enterprise value, business exit planning, passive ownership, succession planning

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