Larry wasn't paying attention to the value of his most valuable employee - himself.
Larry, the owner of a wholesale food company, had not been feeling well for about a year. He was consistently tired and losing weight.
His wife, Christi urged him to get a check-up. He was diagnosed with pancreatic cancer and given 4 to 6 months to live.
Larry passed away three months after the diagnosis. He was survived by his wife and two sons who all were well established in their own careers.
Christi had not been involved in the business at all and was at a loss about where to begin and what to do next.
Unfortunately, a flood of problems began to emerge.
The Problems?
- After meeting with the senior staff, she realized that no one had a complete handle on how the business operated. Larry had made all the decisions.
- Inventory stocking controls weren’t being properly managed and as a result, vendors were not being responsive. They were also complaining about payments. Without adequate or correct inventory, revenues quickly declined and cash became tight. Upon analysis by their accountants and her attorney, the recommendation was to sell the business
A few months later, a major competitor purchased the business for a fraction of what it was worth
Moral of the Story – Larry didn’t understand the link between value and the intangible assets of his business. While he had installed adequate supply chain systems, he had done little to develop an effective management team to assist in running the operation. There was no delegation of authority, management succession plan or adequate insurance coverage to deal with unanticipated events – such as an insurmountable health issue.
Unfortunately, this flood caused a significant number of casualties. The acquiring company leveraged existing resources and laid off over 50% of the company’s personnel. In addition to affected employees, Larry’s wife Christie and her two sons received sale proceeds which were a small fraction of the company’s real value.