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The No. 1 Reason Why Business Owners Sell

Author John Warrillow warns that illness is the reason cited most often for why a business owner is forced to sell their company. Here's what you should do to prepare for the unthinkable.

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Big Goals: After selling her company, Erica Douglass decided to start her blog erica.biz where she writes about success.

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Erica Douglass was too young to feel so old. Tired and sick every time she ate, her doctors told her to slow down and spend less time at her six-year-old Silicon Valley-based web hosting company. She was told to take a vacation and began to think her illness was all in her head.

Struggling with what would later be diagnosed as Celiac disease, a condition that damages the lining of the small intestine, Douglass didn't understand why her body was failing her. Running her company was becoming harder and harder. Finally, unable to get an accurate diagnosis for her condition, and seeing the first signs of the recession and some major industry shifts on the horizon, she sold her business to a competitor in a hastily arranged agreement that paid her $1.1 million over a three-year period. She was 26.

Luckily for Douglass, who writes about her diagnosis and building a sellable company on her blog erica.biz, her business was sellable when she fell ill. A lot of companies today would not be able to claim the same—they can't function without their owners.

We wear seatbelts not because we expect to have an accident but because if we do, we want to live through it.

We buy life insurance not because we expect to die tomorrow but because if we do, we want our kids to be taken care of.

Why then are many businesses so highly reliant on their founder that if the owner were to fall ill, the business wouldn't survive?

Warren Buffett is so focused on ensuring his businesses can operate without their leader that last year he sent a memo to each of the 76 business leaders at Berkshire Hathaway asking for their recommendation for a replacement should they become incapacitated. 

Nobody plans to get sick, but the No. 1 reason businesses get put up for sale is a health scare suffered by the owner.

Building your business so that it can run without you not only makes your company more valuable; it is also the best insurance you can have for the things you hope will never happen.

John Warrillow is the author of Built To Sell: Creating a Business That Can Thrive Without You, which will be released by Portfolio/Penguin on April 28, 2011.

 

Last updated: Mar 15, 2011

JOHN WARRILLOW | Columnist | Sellability

John Warrillow is the author of Built to Sell: Creating a Business That Can Thrive Without You and the founder of The Sellability Score, a cloud-based software company that helps business owners improve the value of their company.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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