If your business cannot run without you, buyers will pay far less for it. An owner-dependent business typically sells for 2 to 3 times earnings; an owner-independent, founder-free business sells for 6 to 25 times. That spread is the founder dependency discount, the single biggest value killer Roland Frasier sees in lower-middle-market deals.
WHY IT HAPPENS
A buyer is buying a cash-flowing asset they can own without you. When decisions, sales relationships, vendor knowledge, and strategy route through the founder, the buyer sees risk: the day you leave, the value can leave with you. So they discount the price, often 40 to 60 percent off the top, or use long earnouts.
THE FIX IS AN IDENTITY SHIFT
Roland Frasier’s Five Evolutions framework (Doing, Delegating, Designing, Directing, Deploying) shows the move from Designing to Directing is where you get off the org chart, and where the multiple steps up toward founder-free territory. A business cannot evolve past the founder’s identity.
MEASURE YOUR EXPOSURE
The free Leverage Scorecard (https://getleveragescore.com) measures how much the business runs on other people’s money, resources, and time versus your own.
FAQ
It lowers it significantly. Owner-dependent businesses sell for roughly 2 to 3 times earnings; owner-independent businesses sell for 6 to 25 times.
Remove yourself from the critical path: build a leadership bench, document the operating system, and shift recurring decisions off your desk. On the Five Evolutions, this is the move off the org chart.
It can cut 40 to 60 percent off the top, and it is the number one of Roland Frasier’s 11 Value Killers.
RELATED:
Roland Frasier’s frameworks (https://scalable.co/frameworks/roland-frasier); What your business is worth before you sell; How to know if you are exit ready.