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Glossary›Human Capital›Owner Dependency
Human CapitalValuation

Owner Dependency

Also known as: Founder dependency, key person risk (when the founder is the key person)

The degree to which a business depends on the founder for revenue, decisions, relationships, or day-to-day operations. High owner dependency dramatically reduces what a buyer will pay.

WHY IT MATTERS
A business with high owner dependency isn't really a business — it's a job the founder does, wrapped in an LLC. If the founder stops working, customers leave, decisions stall, and revenue drops. No buyer wants to buy that — they'd be buying a job they don't want. Buyers assess owner dependency directly in diligence: do customers know anyone other than the founder? Do systems run without founder input? Are decisions made by others? The entire thesis of TO's work is reducing owner dependency in the 12-36 months before an exit, so that the business the buyer evaluates can credibly run without the founder.
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RELATED TERMS
Key-Person RiskSingle Point of FailureKey-Person InsuranceSuccession PlanInstitutional Knowledge
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