Buyers Underwrite Your Team. Have You?
Eighteen months before an owner I worked with went to market, the warning was already sitting in his Monday meetings.
The company did $27 million. Five people around the table, all credible. Two had run bigger businesses than his.
I asked him one question.
"Walk me through the last significant decision the leadership team made. Who actually made it?"
He paused.
He had built every one of those seats himself. He had never asked whether the people sitting in them could decide anything without him.
A buyer underwrites more than your numbers. He underwrites whether the company keeps producing them after you walk out.
Filled and configured are two different conditions
Then I asked how long their last big decision had taken, from the first conversation to a committed answer.
Six weeks.
He said it without flinching. Six weeks sounded thorough to him.
The decision was whether to move their largest account onto a new service model. The guy running delivery wanted the systems in place first. The one who owned the customer wanted to say yes and build it behind them.
Both were right about their own side of the house. Neither one could overrule the other.
So it went around. Delivery built a case. The customer side built a counter-case. Two meetings became five. He heard both versions four times and kept sending it back for more work.
It felt like rigor.
A team of strong people can still be a weak configuration.
The instinct is to hire, and the hire makes it slower
When decisions slow down, the easy answer is capacity. Too much work sitting on too few people. That answer is comfortable because it costs money instead of authority.
He hired an operator out of a bigger company. Real experience. Good references. Ninety days of goodwill from a team that wanted the help.
Nobody told the new operator which decisions he was allowed to make on his own.
So he did what any careful new hire does when nobody has told him what he owns. He asked around. He got everybody to agree before he moved. He brought things back to the owner to be sure.
The company added a sixth voice to a decision that already had five. Six weeks became eight.
Three quarters later he started wondering whether he had hired the wrong person. He had not. He had hired a good person into the same unclear authority everybody else was already working inside.
Unclear authority is contagious. Everyone you add catches it.
Why the pause shows up in the deal
Eighteen months later he ran a process. Financial diligence went the way he expected. He had spent most of a year on it.
Then an operating partner asked the group a plain question.
"Walk me through the last significant decision this team made, and tell me who made it."
Five people looked at one another.
The buyer noticed. He did not raise it, and he did not need to.
A buyer who cannot see how your company decides has two ways to handle it.
He can take the risk out of the price. That is the discount, and every owner expects it.
Or he can leave the headline price where it is and make part of the consideration contingent on what happens after closing.
That might show up as an earnout. It might be a longer transition period, or another structure that keeps you attached until the risk clears.
An earnout tied to revenue or EBITDA is a bet on future performance. A deal that also requires you to stay for 24 months is saying something else. The buyer is not convinced the team can deliver that performance without you.
His was the second kind.
Run the configuration review before a buyer does
Start with the last five decisions that took longer than they should have. Write down the one person who owned each. If two names come up, or none, that is your finding.
Pull the agendas from your last four team meetings. Count the ones that came to you that two of your people should have settled between them.
Naming an owner is not enough. For the decision that has been open the longest, write five lines.
The exact decision.
The one person who makes it.
Who has to be asked, and who cannot stall it.
The date it gets decided.
The one thing that brings it to you.
If your team cannot fill in those five lines without arguing about who decides, you have an authority problem.
This week
Take the decision that has been open the longest and put one name on it, in writing.
Find the two jobs that overlap most and decide which one owns the call.
Then ask yourself one uncomfortable question.
When I tell my team they are empowered, have I actually handed over authority, or have I only handed over the work?
He had 18 months of warning. The six weeks, then the eight. The hire who got quieter every quarter. The meetings that kept reconvening on the same agenda.
Before you prepare the financial package, run the same diligence on your team. Whatever the company still needs you to settle is the risk the buyer may attach your money to.
An earnout is not always evidence that the buyer doubts the company. Sometimes it is evidence that the buyer doubts the company without you.
This is one of the structural constraints at the center of my new book, Win or Win, coming September 8. Follow me here for more on what to prepare beyond the financial package.
SCALE helps companies and investors remove the structural constraints that limit execution and enterprise value.