Key-person risk

Key-person risk — the concentration of a business’s value in one person, usually the selling owner: the recruiting teardown’s listing had the owner personally generating ~60% of client engagements; agencies hear “I’m a client of the founder, not the firm.” It is why the entry multiple is low, and the first diligence question of every deal: what walks out the door with the seller? Mitigations are contractual (non-compete, non-solicit, retention bonuses for key staff, transition periods) and structural (systems that institutionalize the relationships) — but if diligence shows customers buy the person, the fix was pricing or passing.

First used in: 4.2 · Buying cash flow: acquisition I