A business, or a job?

Most people who tell me they own a business own a job. That is not an insult. A good job is a fine thing to own. It is only a problem when you pay for a business and receive a job, or when you think you are building one and you are building the other.

Revenue does not settle the question. Neither do customers, a logo, an LLC or a lease. Plenty of companies with all of those are one person with a payroll. The question is where the revenue lives.

How can you tell a business from a job?

Ask one question of any company you run or want to buy. If the person at the center stopped showing up for ninety days, would the revenue keep coming? If the answer is no, the revenue belongs to that person, and the price should say so.

Ninety days is long enough that nobody can cover it with a heroic week before and a heroic week after. It is short enough that nothing structural has to change for the answer to be yes. Either the company already works without them, or it does not.

Answer it honestly and specifically. Which customers would call their cell phone in the first week? Which quote would not go out? Which supplier would not extend the same terms to someone else? Which decision would sit on a desk until they came back? Every one of those is a piece of the revenue that is still attached to a person.

Why does it matter before you buy?

A buyer who pays a business multiple for a job is paying for the seller's relationships, habits and memory. Those do not transfer at closing. What transfers is what is written down, trained into other people, and owned by the company.

The SBA describes the advantage of buying an existing business as an existing blueprint: an established customer base, defined operating expenses and trained employees. That is exactly right, and it is exactly what a job does not have. The customer base is loyal to a person. The expenses look low because the owner does three jobs without a salary for two of them. The employees are trained to ask the owner.

None of that means you should not buy it. It means you should know what you are buying. A job can be a good purchase at a job's price, with a transition long enough to move the revenue off the seller and onto you or the team. It is a bad purchase at a business's price, with a handshake and a two week handover.

Why does it matter if you already own it?

An owner who is the business cannot step back, cannot sell for what it is worth, and cannot be sick. That last one is the one people feel first. Every vacation is a negotiation with your own company, and you usually lose.

It also caps the thing. A company that runs through one person grows at the speed of that person's calendar. Hiring does not fix it on its own, because the new people still route every decision back to the center.

How does a job become a business?

The work is to move the revenue off yourself one piece at a time, in an order that does not break anything.

First the process. Write down how the work gets done, well enough that someone else can do it at the standard you would accept. Then train someone to do it, and let them do it while you watch and say nothing for longer than is comfortable.

Then the relationship. Introduce the people who will own your customers, suppliers and partners, and step back from the thread. The first time a major customer calls someone else instead of you, something real has happened.

Then the decision. Say out loud who decides what, with what limits, and stop overriding them when you would have chosen differently. This is the hardest of the three, and it is the one that makes the company yours to own rather than yours to run.

None of this is fast. It is also not optional if you ever want to sell, step back or take a real week off.

The honest version

Most small companies start as a job, and that is fine. The problem is not being a job. The problem is not knowing which one you have, and paying for, pricing or planning around the other.

We talk this through on the first episode of Seeing the Gap.