Across the OECD and in Denmark too, SMEs account for 99% of all businesses and between 50% and 60% of value added. A critical share of these will have to change ownership over the next decade (primarily due to the age of the founder). But the buyers don’t flock around the owner. As a matter of fact, many never get sold forcing the owner to continue business himself or liquidate the company.
The reason why? Risk of losing business when the founder leaves
The value of the SME is bound to the owner / founder.
Once the owner leaves, the risk of losing the principles, the network, experience increases.
But why is it that they demonstrate superior and more lasting performance? Why are they able to increase value at a higher rate, willing to make bolder investments, and able to maintain more loyal employees?
Bain & Company found three sets of hard-edged practices and underlying attitudes that underpin the higher performance1:
3 sets of hard-edged practices
- Purpose
Founders are better at maintaining the sense of purpose among the employees as the company grows. Only 13% of employees worldwide feel any personal engagement with their work at all. This is critical as engaged employees are 3.5 times as likely to solve problems themselves and invest personal time in innovation as unengaged workers. - Customer obsession
Founders show more love for the details and a culture that makes heroes of those at the front line of the business and gives them power. Without this deep curiosity for what the customer worries about the company loses its sense of direction and deteriorates its value proposition. - Willingness to change
Founders show higher readiness to act quickly, to adapt to change, and to innovate — and not fight the future. Lose that mindset and the company may prove slow to act and decide, and risk averse. At the extreme, the company becomes an out-of-touch bureaucracy where power shifts to administrators / staff that never served a customer or made a product. Bureaucracy prevents innovation (by definition).
The good news
These company practices are generally observable, learnable, and useable by all leaders.
A successful transition from founder to buyer means the company will be much more likely to be top quartile performers. Let’s talk about how we can do that, please! Contact me at contact@nblund.com.
1 These findings should not be compared to other sources (cf. McKinsey and others) targeting larger SMEs and thus stating the lack of performance smong SMEs.