If every client wants you, your business may be worth less

Few business owners are unhappy to be in demand. The phone rings for them. Clients wait for a space in their diary. Colleagues bring them into difficult meetings because their presence usually settles matters.

It feels like evidence of a valuable business. Sometimes it is evidence that the business has failed to acquire much value of its own.

This is the uncomfortable problem facing founder-led financial advisers, accountants, law firms and consultancies. Their reputation may have built the firm, but it can also prevent the firm growing beyond them. If every important client still wants the founder after ten or 20 years, the founder has remained successful while the organisation around them has not developed properly.

A buyer will notice.

The buyer is unlikely to be persuaded by the number of employees, the office lease or the carefully redesigned website. They will want to know who actually holds the client relationships. That means examining meeting records, correspondence, revenue concentration and the involvement of senior staff.

Suppose the founder attended 18 of the last 20 meetings with the firm’s ten largest clients. Suppose those clients routinely copy the founder into emails even when another adviser is responsible. Perhaps fee reductions and awkward complaints still find their way to the same desk.

That tells a buyer rather more than the organisation chart does.

The question in due diligence is not whether the founder has strong relationships. Everyone expects that. It is whether revenue will remain once the founder stops maintaining those relationships personally.

Where the answer is unclear, the risk finds its way into the deal. A generous headline price becomes three years of deferred consideration. Part of the payment depends on client retention. The seller discovers that “£10mn valuation” and “£10mn paid” are quite different propositions.

In effect, the buyer asks the founder to prove that the business can survive without them while requiring them to remain heavily involved. This is an odd version of retirement.

The problem exists well before a sale. Founders get ill, take holidays and occasionally want an afternoon without checking their phone. Star advisers leave. A firm that becomes anxious whenever one person is unavailable has mistaken responsiveness for resilience.

Owners generally know this. Yet many postpone dealing with it because the current arrangement works. Clients are happy. Revenue is coming in. Moving a relationship to another adviser creates a small immediate risk in exchange for a distant and uncertain benefit.

There is also ego involved. Advice businesses are built on judgement, and it is reassuring to be treated as the person with the best judgement in the room. Founders can spend years telling their colleagues to take responsibility while continuing to intervene whenever the issue becomes important.

The result is a second tier that looks more convincing on a website than it does in practice.

Transferring trust requires more than inviting a younger colleague to sit silently in a meeting. Clients understand the distinction between an adviser and an understudy. Nor will a round of hurried introductions shortly before a sale transfer relationships that have been built over decades.

The process works through repeated exposure. Another senior person contributes to meetings, handles difficult questions and becomes responsible for following through. The founder is still present initially, but stops answering every question first. Over time, the client learns that good judgement exists elsewhere in the firm.

That change needs to be visible internally as well. Senior managers cannot develop commercial authority if every pricing decision, complaint and important appointment returns to the founder. They need responsibility for matters where there is some genuine consequence if they get it wrong.

Occasionally, they will make a different decision from the one the founder would have made. Unless it is plainly damaging, that difference should be tolerated. A business cannot create independent leaders while insisting that leadership means copying its founder.

Records matter too. Much of the knowledge in an advice business is never written down because the principal remembers it. They know why the client dislikes a particular investment, which family member has influence and what happened during a difficult conversation eight years ago.

That knowledge may be commercially important, but it has little transferable value while it remains in one person’s head. A client should not have to retell the history of the relationship simply because their usual adviser is away.

None of this calls for clients to be passed around for administrative convenience. People are entitled to prefer particular advisers, and some always will. The aim is to give them credible alternatives before those alternatives become necessary.

Owners should explain the change honestly. A broader team provides continuity and access to different expertise. It also means the service does not depend on a single diary. Most sensible clients will understand that. Indeed, some may wonder why the firm took so long.

Founders sometimes fear that this will make them less central to the business. It should.

A firm becomes more valuable when its founder can miss a meeting without causing concern, take a month away without decisions accumulating and eventually leave without revenue following them out of the door.

Being indispensable can build an impressive career. It is a poor design for a business.