In the OECD as a whole and in Denmark, SMEs account for 99% of all enterprises and between 50 and 60% of value added. A critical share of these will have to change ownership in the next decade (mainly due to the age of the founder). But buyers aren’t flocking to the owner. In fact, many will never be sold, forcing the owner to run the business himself or to liquidate the company.
The reason for this? The risk of losing the business when the founder leaves.
The value of the SME is linked to the owner/founder.
If the owner leaves, the risk of losing the principles, the network, the experience increases.
But why do they perform better and last longer? Why are they able to create value at a higher rate, willing to make bolder investments, and able to retain more loyal employees?
Bain & Company has identified three sets of hard-wired practices and underlying attitudes that underpin higher performance1:
3 sets of hard-edged practices
- Purpose
Founders are better at maintaining employees’ sense of purpose as the company grows. Only 13% of employees worldwide feel personally engaged in their work. This is critical, as engaged employees are 3.5 times more likely to solve problems and invest personal time in innovation than disengaged employees. - Customer obsession
Founders show more attention to detail and a culture that heroes and empowers the people on the front line of the business. Without this deep curiosity about what customers care about, the company loses its sense of direction and its value proposition deteriorates. - Willingness to change
Founders are more likely to move quickly, adapt to change and innovate – not fight the future. Lose this mindset and the company can become slow to act, slow to decide and risk-averse. At the extreme, the company becomes an out-of-touch bureaucracy where power shifts to administrators / staff who have never served a customer or made a product. Bureaucracy (by definition) stifles innovation.
The good news
These business practices are generally observable, learnable and applicable to all leaders.
A successful transition from founder to buyer means the company is much more likely to be a top quartile performer. Let’s talk about how we can make it happen.
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.