Why Wait for Private Equity to Fix Your Business?

A business can be doing well while its owner is struggling.

The company grows. There are more employees, more customers and more money moving through the accounts. But somehow the owner keeps working harder. Important decisions still land on the same desk. Problems still require the same person to intervene.

The next hire or revenue milestone is supposed to change that. It rarely does by itself.

I’ve spent roughly fifteen years coaching business owners, and 20 founding and running several companies myself. I think one of the most consequential mistakes owners make is confusing a business that produces a good income with a business that can produce that income without them.

Some uncomfortable research illustrates the difference.

In Capitalists in the Twenty-First Century, Matthew Smith, Danny Yagan, Owen Zidar and Eric Zwick examined what happened after high-earning business owners died or retired.

The charts show estimated profit changes relative to comparable firms. Year zero marks the departure. The losses persist four years later.

Source: Smith, Yagan, Zidar and Zwick, “Capitalists in the Twenty-First Century,” Quarterly Journal of Economics, 2019, Figure V, panels A–B. Vertical axes show thousands of dollars per pre-departure worker; bars show 95% confidence intervals. Original paper.

The authors’ ownership-adjusted estimates imply profit reductions of approximately 82% after death and 83% after retirement in their million-dollar-earner samples.

The paper also reports that most top owners owned just one firm. They aren’t diversifying their sources of income at least with other private companies.

To me, the question is straightforward: how much of what you own is a business, and how much is an income that requires your continued participation?

When a company is small, the owner fills the gaps.

You sell, recruit, manage the finances and fix the customer problem. You bring expertise the business cannot yet afford to hire. You may pay yourself less than it would cost to replace everything you do, accepting that trade because you’re building equity.

There is nothing wrong with that. It is often how a business gets started.

But eventually your job needs to change.

If you’re still covering for an inadequate manager, personally maintaining every important customer relationship and making every difficult decision, the business hasn’t fully developed those capabilities. It has you.

Your effort can hide that weakness for years. It can also make your life miserable.

The owner is struggling even if the business isn’t.

Steven Wilkinson recently described German research in his Pitchfork Papers newsletter that compared financial performance across small and midsized businesses.

The top 10% achieved average EBIT margins of 17.1%, compared with 2.7% overall. In one industry group, the difference was 34.3% versus 2.3%, nearly fifteen times the margin.

The explanation for the gap was a reveal.

Lower-performing owners said comparisons with the leaders were unfair because those businesses were more specialized. The successful owners described specialization as a deliberate choice: focus on a particular customer group and become very good at solving its problems.

They also emphasized intentional financial management and continuous improvement throughout the company.

None of that sounds particularly exotic.

Choose customers you can serve profitably. Know your numbers. Fix what isn’t working. Invest in the people and capabilities the business needs.

But there is a crucial additional step: these cannot remain things that happen only because the owner personally makes them happen.

Hiring a good CEO or general manager is not the whole answer. You can simply transfer your dependency to somebody else.

Building a well functioning leadership team is a key part of sustainable growth no matter what but if you want more independence from the business there is no other way to go.

That is different from a charismatic owner surrounded by people whose shortcomings the owner quietly compensates for.

Take my example, I stepped down from running Corner Alliance, a federal government contracting business, two years ago.

About six months after I left, DOGE began cutting contracts. I had to ask myself whether I should return. Would my coming back actually make a difference? Was I seeing the typical profit loss from an owner-dependent business?

I didn’t think so.

The CEO and her team responded well. We had a team in place but cracks soon showed so the CEO used the disruption as an opportunity to remake the team. That was exactly the kind of leadership the situation required. Now they are thriving.

The test wasn’t whether I could leave when everything was going well. It was whether the organization could respond when things went wrong.

One of the reasons PE has made large returns is that they are doing all the things we listed above. Ask yourself: what would a professional buyer change after acquiring your company?

Would they improve financial reporting? Get more disciplined about customers and pricing? Replace weak managers? Give capable people clear responsibilities and hold them accountable?

Then why are those changes waiting for a sale?

I’m not arguing that owners can reproduce every source of a private equity fund’s returns. I’m arguing that you shouldn’t automatically leave the opportunity to improve your own business to its next owner.

You already own the equity. You can benefit from making the company stronger before deciding whether to sell it.

That may require accepting lower profits for a while. A capable leadership team costs money. Better systems take time. Giving people real authority means tolerating decisions you wouldn’t make exactly the same way.

Those are investments in a business that can produce results without consuming your life.

The work isn’t mysterious. It can be uncomfortable. Especially when it means addressing a problem you’ve avoided for years.

The goal isn’t simply to grow.

It is to grow a capable, profitable business that becomes less dependent on you.

You might eventually sell it. You might keep it and enjoy the income. You might use your time to start something else, help other people, spend more time with your family or finally learn to play golf.

The point isn’t which life you choose. It’s having a meaningful choice.

Before you spend another year making yourself more indispensable, ask:

What would someone buying this business need to change so it could succeed without me?

Then ask why you aren’t building that company now.

I’ve put together a prompt you can use with Claude or Codex to work through this. It interviews you about your business, identifies where it depends on you, and helps you choose the first changes to make over the next 90 days.

Get the prompt: Build a Business That Doesn’t Depend on You

Start with a description of the business, your role and whatever financial, sales or team information you can safely share. You do not need perfect records. You do need to be willing to question your own answers.

Alan