There is an important lesson for business owners and CEOs to learn from the exit of LeBron James from the Cleveland Cavaliers to the Los Angeles Lakers. That lesson is about value and the risk of allowing the value of your company to be tied to one or two “key individuals”.
The reasons a key person may exit from your organization vary; they may move on to another opportunity as James did, they may get sick, fatigued, be disgraced in the media, or be hit by the proverbial bus. Regardless of the reason, the risks of having the value of your company tied to the performance of that individual remain the same.
For discussion purposes, let’s continue to use the example of Lebron James and the Cleveland Cavaliers. The first time LeBron James left Cleveland for Miami attendance at Cavs games dropped 37% in the first two years according to ESPN’s Attendance Report. When James returned to Cleveland for his second stint, average ticket prices increased 80% from $60.03 to $107.90.
The resulting increase in franchise value to owner Dan Gilbert was from an estimated value prior to James’ return of $515 million to an estimated value of $1.3 billion by the end of 2017 (prior to LeBron’s exit to Los Angeles). The difference of $785 million in value can be argued as attributable to James.
So, what is the value of the Cleveland Cavaliers today, after their most valuable employee exited for Los Angeles? Has the value returned to 2004 levels? Did the value of the company just decrease by 60% overnight? It’s difficult to say with limited data. But, almost no one will argue that, the Cavaliers are worth significantly less today than they were just 6 months ago.
So, how can a business owner as savvy as Dan Gilbert allow his to happen? Why would his organization be so reliant on one key individual that its value could potentially decrease by 60% overnight? Did James create enough cash flow for the company while in Cleveland to offset the value lost in the overall investment upon his exit? Was it better to have loved and have lost than to never have loved at all?
Or, are other old adages more applicable, “first time shame on you, second time shame on me,” or “those that don’t learn from history are destined to repeat it.”
I challenge you to learn from the lesson of LeBron James and the value lost by Dan Gilbert and take an objective look at your business. Figure out who your key employees are. Understand how much value they create. Reward them. Incentivize them. Do everything in your power to keep them. But, make sure to hedge your bets. If you don’t hedge, the value of your company may also walk out the door one day. Or, even better, should you exit while value is at its peak? “Buy low, sell high?”
