Eliminating Key Person Risk in Your Small Business

How will the business bounce back from losing a key team member?

If you run a business I’m sure this thought has crossed your mind and at some point: what happens to the business if these one or two team members leave the organization? How will the business bounce back from losing a person or two who seem crucial to its operation?

This question has been front and center for multiple reasons over the last months. I’ve personally been unable to give work the full 100% in Q4 of last year. Simultaneously we’ve also been discussing growing the business to alleviate those wearing multiple hats—a good indicator for a key person. This amounted to adding “No key person risk” in our EOS “3-Year Picture”, making it a priority in how we will be developing our company over the next few years. The real question is: how do we get there?

Whether and to what degree a business is susceptible to key person risk is dependent on a wide range of factors, but the mitigations to reduce this risk can be neatly grouped into two buckets:

  • Simplify the business model. Reducing the number of distinct tasks that are performed to sell and deliver a product or service will reduce the total amount of expertise required. This makes it easier to both train talent as well as attracting talent that already has the necessary skills to be productive. Depending on the type of business and the current services offered this might require a total overhaul of how the business operates.

  • Achieve redundancy through scale. The ability to have multiple team members perform the same tasks removes both a bottleneck and the reliance on a single person. Typically smaller businesses are unable to hire an additional team member as either their revenue level does not support the additional costs (which is–more often than not–overhead). Pursuing this path thus requires your growing the business as a whole.

The gravity of the negative impact when a key person leaves is also highly dependent on various aspects of how the business currently operates. Things to consider:

  • What is the required investment (in terms of time and money) to regain a lost capability? Losing highly specialized knowledge or deep personal relationships are hard to recoup. Small businesses often have the latter, but very few have the former, as original research is mostly conducted in larger organizations. How long does it take to hire for such a position?

  • How deep is your bench? While a current team member might not be able to immediately fill the void, they do have the additional benefit of having institutional knowledge (“this is how we do  things”). If leadership still has the ability to “do the work”, this can be a short term solution, but has the potential to exacerbate the problem. Do you currently have team members in your business that could grow into key person roles?

So what are the actual things you can do to reduce the reliance on a key person and potentially get rid of this label within your organization?

  • Standardize input and output. The lack of standardization and process documentation is often the first thing to go after (plug: John Seiffer recently wrote a great book on this exact subject). Enacting a process will make the task transferable. Before you do this, first consider how you can reduce the complexity of your business by reducing variations. The holy grail in service-based business is often “productization”; while this might not (yet) be achievable in your business, but further standardization can greatly reduce the stress on your key team members.

  • Find a repeatable marketing and sales process that relies less on personal relationships. Understanding how you can reliably find new clients without overly relying on a personal relationship is the only way for most small businesses to disentangle themselves from their leadership. This is especially true for high-ticket services. While the sales process will always rely on personal relationships to some extent, the marketing process does not.

  • Get rid of less profitable service lines. If you offer services or products that are less profitable than other service lines, while requiring a distinct team to deliver this service, you need to rethink whether you should offer this service in the first place. This typically means you have yet another key person within your organization, while contributing less to the bottom line. Unless there are other reasons for keeping these services (they might serve as a feeder for other services, or as a training ground for new team members), reducing complexity is what we’re shooting for.

  • Increase the division of labor. Instead of having multiple team members do a lot of different tasks, have a few team members perform a logically subset of tasks. This will reduce the amount of training, making it easier to hire and will aid in standardization because it is simply easier to reason about succinct, smaller tasks.

  • Niche down on your market. Picking a niche is not only helpful in the sales process, but will also simplify delivery. Similar customers often have similar needs, expectations and concerns. You will also find that certain types of people will gravitate towards similar industries and sectors, which makes communication much easier. This will (again) reduce the number of exceptions you will have to field while executing your processes, making it easier for team members to deliver a great product or service–they’ve probably done this before!

This list is not exhaustive––I’d love to hear how you’ve adapted your business to rely less on key team members.

Have a great Sunday,