Pitfalls of a Less Engaged Owner
ArticlesJanuary 2025

Pitfalls of a Less Engaged Owner

By Tom Zucker, Founder and President

Business is a highly intellectual sport which requires engaged leadership to succeed.

Leverage of time is an elusive concept for owners. “Delegate and elevate” is a mantra that pervades every business consultant’s messaging. Delegation is essential to scaling your company. Balancing engaged ownership during the scaling and delegation process is an art.

Our decades of serving private business owners’ M&A advisory needs have provided a unique view of engaged ownership. The engaged owner promotes a culture that attracts top talent while driving outcomes that come from accountability. The ability to build a team with shared vision and accountability is not an easy task.

Of course, our journey has produced many stories of disengaged owners and their unfavorable outcomes. Unfortunately, these owners did not understand the distinction between building an effective team with a culture of accountability from simply delegating tasks to the next in line.

The following are a few signs of ineffective delegation and the associated pitfalls.

Rudderless Organization: An owner of a $70 million revenue distribution company decided he wanted to disengage and spend time in warmer climates and travel. He hired a new President who had extensive business management expertise but limited industry experience and no prior connection to the company or its team members. Two years after empowering the new President and adopting a hands-off approach to running the company, he received a call from his long-time banking relationships. His business was being placed in workout. One year later, the business was bankrupt and the overextended line of credit balances we being settled with the owner’s personal guaranty.

Absolute Power Corrupts Absolutely: A successful professional service firm desired to disengage from day-to-day leadership of the company that she founded 15 years ago. Two tenured employees stepped up to effectively lead the business. A clear long-term succession schedule was prepared that enabled the managers to fully acquire the business over time. The successful transition was applauded by their employees and peers.

The disengaged owner was happy with her new endeavors and her ability to direct her efforts away from the business. The managers enjoyed the power of being in control and their ability to scale the business. They became greedy and impatient. They wanted more control and a bigger share of the profits. They approached the owner with an ultimatum. The disengaged owner, shocked by the lack of gratitude and respect, was forced to resume day-to-day leadership and terminate the ungrateful managers. The transition caused significant disruption to the business, resulting in a negative impact on their value.

Unfulfilled Potential: The most common pitfall of a disengaged owner is the unfulfilled potential of a business. Businesses require engaged leadership and deep thinking to navigate the challenging business issues and opportunities. A few notable examples of unfulfilled potential are:

  • The company that fails to take advantage of new technology or capability. A notable example was when Xerox failed to see the potential in digital photography and its impact on the image industry.
  • The company that promotes family to leadership levels beyond their competency while overlooking more talented employees. Waystar Royco is a fictional conglomerate featured in the HBO television series "Succession.” Logan Roy, as the founder and CEO, painfully promotes his less skilled children to levels of leadership who eventually destroy the business.

Engaged leaders can avoid common pitfalls by actively leading and delegating responsibly. These examples illustrate the potential challenges and consequences that can occur when business owners disengage. By balancing delegation with engagement, long-term business success with a culture of accountability is achievable.

 

 

© Copyrighted by Tom Zucker, President of EdgePoint Capital Advisors, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com.