107 - Key Person Risk
Key person risk can quietly destroy your business value and legacy. Learn how to remove dependency on a single founder and create a business that’s sustainable, transferable, and built to last.
Key Person Risk.
When a business depends too heavily on a single individual, such as the founder, the rainmaker, or the decision-maker, it becomes fragile. This episode tells the real story of what happens when that person is suddenly gone.
As a young entrepreneur, I witnessed the collapse of our family business when my father, the commercial lead and strategic heart of the company, passed away unexpectedly. Sales dried up. Clients lost trust. Employees were paralyzed. What followed was an uphill battle to rebuild credibility, reestablish operations, and protect the legacy my father left behind.
Here are the critical lessons from that experience:
1. Key Person Dependency Kills Continuity.
If customers, partners, or staff rely solely on one individual, the business is not scalable and is vulnerable. One absence can sink everything.
2. Trust Must Be Rebuilt Proactively.
When the central figure disappears, the market questions everything. Restoring confidence takes direct communication, visible leadership, and a clear plan.
3. Knowledge Transfer Is Not Optional.
Legacy employees hold operational wisdom. Systematizing that knowledge is essential for succession and continuity across generations.
4. Your Business Must Be Sellable.
Whether for exit, succession, or security, a founder-dependent business is worthless on the open market. You must build a system that runs independently of you.
5. Redundancy = Resilience
Distribute leadership, share ownership, and delegate decision-making. A company must rest on strong shoulders, not just one pair. The real risk isn’t death or departure. It’s not building a company that can outlive you.
Final Insight:
This episode is not just a personal story. It’s a roadmap for every founder who wants their work to endure.
Whether you’re planning to sell, step back, or sleep better at night, removing key person risk is the first step toward true entrepreneurial freedom. Don’t just build for today. Build for when you’re no longer there.
Timecode:
00:00 Growing Up in a Family Business
00:29 The Impact of Losing a Key Person
02:08 Rebuilding Trust and Restructuring
05:00 Lessons Learned and Future Planning
05:55 Ensuring Business Continuity and Sellability
Links:
Website: https://www.marcogrueter.com/
LinkedIn: https://www.linkedin.com/in/marcogrueter/
Transcript:
I grew up in a interior design company, uh, in the first generation. Um, both my parents were running it. My father was more on the commercial side, uh, doing, uh, all the sales, making sure, uh, that he has contracts in place, and then also the planning for all the employees. And my mother was more on the, on the advisory side, helping, uh, clients to figure out what, what would look best in their houses. Um. Unexpectedly. My father died when I was 25 years old. Uh, both my, uh, brothers were, are younger. Uh, so we realized what it means when such a strong person that runs a company and everyone is dependent on him, not just my family and my my mother, but also all the employees. The whole company was just breaking down and, uh, we had almost no sales anymore.
Uh, people were not asking for more service. They didn't visit us anymore. We, we realized how important that core person was, we, which we just didn't know before. So what we then had to do is figure out how do we establish the next generation key people. And making sure the company can continue and actually continue to feed my, my mother, but also my, my, my brothers who decided to jump in and, and help. So this was really an early key lesson in my life on what is this key person risk? What, what does it actually mean? And I just started to realize this. I dunno, 20 years later, working as a, a consultant, having had my own companies and I also helping other entrepreneurs to run their businesses, that the risk is not just that you lose the company, it's actually all the dependent people on your com, on your company.
Mainly the, the employees, but also obviously older people in your family. So what we had to do then is. Reestablish trust. I think this is the, the, the, the first thing that gets lost. Partners and customers are getting unsecure, so to speak. So they, they don't know is this company still delivering the quality? Uh, is this company still functioning? Can I give them money? And they, are they still there six months later, uh, to, to finish the projects? So we had to deliver. A concept on how to establish trust. Again, my mother, my brothers both, uh, went to all the partners to the key, uh, customers, did a road show actually, and just showed the next generation, the, the faces that would come and help, uh, secure this company and secured the brand.
Uh, importantly. So they, they were, um, they had a chance to establish trust again. What we had done for several months. For me, I was already working as a, as a consultant. So for me it was almost like a, a life project. My, my real first reorganization project. So for several months, every evening we set together, decided what should the, the, the new business model look like?
What are good things we can, we can take from the past? What can we learn from, from some of the. Older employees. Some of them were already working for my grandfather and then for my father, and then now for my brother. So they had a lot of knowledge. So we were trying to get that and, and, and creating a system that works for two generations now, my mother and my brothers, and not just for, uh, one generation.
Um, so after several months we figured out the model, how we would like to do this, how we partner differently, how we, how we are selling differently. One brother was taking the technical lead. Planning all the employees, uh, that were installing the things. And the other brother was more the sales, the sales guy, and, and the commercial guy.
Uh, my mother was still doing the, the, the, the advice and, and uh, helping people to choose the right design. Uh, so that seemed to work pretty, pretty well. And after, let's say 12 months, we were able to. Bring that curve back. So we had really 12 months just down, down, down, uh, it was really a lot of money that we had to, uh, to give in.
So my mother was actually paying several times, six figures just to make sure the company couldn't continue because she didn't want to lose it. And after 12 months started to go up again and, uh, showed, uh, showed the fruits of the, of the work we had to do. Just two years later, the company doubled from what it had, uh, the size he had with my father.
And both my brothers were able to, uh, have a future for their families. And my, my mother could stay still stay in the company. So that was a real lesson to see what is a key person risk and. This is really for me, one of the core things that I believe when I work with entrepreneurs to make sure their families survive if they can't work anymore, or also making sure they have kind of something to give to their employees.
This is also very often when they do like a management buyout, so, so you have your, um, your story continue. Also, if you can't work anymore if, because you're sick or if you. Uh, pass away. So that's, that's really in the heart of my, of, of my belief, making sure a company's spill in a, in a way that it survives such a very, uh, strong situations.
Um, yeah, I mean, obviously you don't always want to, um, to just secure it for such a bad moment. Um, you might just want to sell your company and. Because you, you want to retire, uh, because you don't have someone to give it to, or you just want to go into a next venture, next idea. Um, and, and you need to actually to follow the same concept.
If you are the key person in, in a, in a company, no one will buy it because everyone knows if you would go away or decide not to work for that company, it will lose all the value. So someone that. Would give money, has a huge risk and it actually destroys the valuation of your company, right? And normally what I see is if we have a key person risk in place, the valuation drops up to three x.
So if you have, like, would have like a four x, you just have one X right then of your EBTA, which is a very bad, uh, valuation. So it's the same steps, making sure the concept, the business model works without that key person. And it's therefore easier to sell. And, and, and the good thing is you don't need to sell it.
You can actually just keep it in that, in that business model, it's easier for you because you have more people that the business relies on. It's not just on you. And you, but you can also decide anytime to talk to a partner, to bring in, take shares or take your to employees up into the management, do a management buyout.
Um, give them possibility or even just totally fully sell it. And so you have all these options that you just don't have if you are the key person and everyone knows this because then it's just a company around yourself and it's not a. A company that works, uh, independent of, of that person. And it should be a company that runs on the shoulders of several people.
That that's really how, how good a good also small company can work. I mean, ideally, if, if you start it, uh, obviously in the beginning you do all, all, all the things yourself. Um, but ideally you already build it to, to, in order to be, to be sellable. Uh, making sure. You give all the things to another person, to your employee, or to a partner or, or outsource it.
All the things that are not core, your strength or your, your added values. Um, I see this often when older companies, like 10 years, 20 years in, uh, people I work with, they are all over, right? They are, they are doing a lot of things. They're helping everyone because they like to do this. Obviously because that, that's why I have started it for them.
It's hard, it's very hard, um, to move away. I don't see it that hard if you start it. 'cause young, uh, entrepreneurs often just obviously work in the, in the first years, many, uh, many hard hours. But then they realize to, to grow and, and attract maybe other partners that could, um, delegate things much better.
So. I would personally, if I start my business now, I would absolutely build it in order to be sellable. So meaning decide what your core strengths are, do them yourself, and try to delegate all the other things and it, and can be delegating to your employees to a partner or outsource, right? So I think that's, that's core, but. So in short, it's hard for entrepreneurs that are 10, 20 plus years in the business. For them, it's, it's always harder, but I think more important because they have a much bigger legacy to give than a, than a young, younger, uh, startup company.