Key-Person Risk

Key-person risk is the exposure when one employee’s departure would break a function: the estimator who wins the bids, the only certified technician, the office manager who holds the operation together. In a $3M to $30M business, two or three people usually carry this weight.

Family: Risk
Position: H3
Scored: Control: higher is safer

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Table 1. Entry 22 in the Exit Elements^™ specification, version 1.4.
Symbol	Kp	Number	22	Family	Kp Risk	Position	H3
Scored as	Control: higher is safer	Compounds	FG	Worked in	Build	Pillar	Operational independence

§1 Definition

What is key-person risk?

Key-Person Risk is the exposure created when one employee’s departure would break a function: the estimator who wins the bids, the technician who is the only one certified, the office manager who holds the operation together. It is Owner Dependence applied to everyone else. Scored as control, so a high score means the risk is covered.

Employees whose departure would break a function. Scored as control: higher is safer.

In a $3M to $30M business, two or three people usually carry this weight, and the owner often knows exactly who they are.

Use cases

Cross-training a second person on every critical function, documenting each key role, putting retention agreements in place ahead of a sale, and making sure the relationships and knowledge live in company systems rather than personal notebooks.

The risk family

Exposures that cause a buyer to discount the multiple or walk away. Risk elements are scored as control: a higher score means the risk is contained.

The discount. Buyers subtract for owner dependence, documentation, concentration, key people, compliance, and tech debt, each scored as control, so a higher score is safer.

Meet the family

§2 Measurement

How is key-person risk measured?

Roles where a single departure would halt a function, and the depth of cross-training or succession behind each.

Critical gapLeaking valueDevelopingStrong31Today100Target

Critical gap: 0 to 24
Leaking value: 25 to 49
Developing: 50 to 74
Strong: 75 to 100

Figure 1. Sample assay for Acme Industrial: key-person risk scores 52 today (developing) against a target of 74 (developing). Sample scores, not a client. Your own assay comes from the exit score and the valuation.

How the scale reads

Every element is scored from 0 to 100 against what a sophisticated buyer expects at close.
Risk elements are scored as control: higher is safer.Applies here
Inputs are recorded, not targeted.
Outcomes are derived from their feeding families.

Figure 2. Founder Gravity (FG) is the overlap of Key-Person Risk and Owner Dependence: each set is one element, drawn in its family color; the compound is what a buyer finds where they meet.

§3 Venn

How key-person risk bonds into founder gravity

A compound is two elements a buyer reads as one property. A risk compound. Everything pulls toward one or two people; buyers discount the multiple until it dissolves. Each circle is one element, scored on its own; the overlap is founder gravity, read from the parts together rather than from any one of them.

Key-Person Risk is one of the circles. Its own score comes from the assay; the compound's comes from all 2.
Where one circle is weak the overlap shrinks, and with it the price a buyer puts on the whole. With owner dependence strong and key-person risk weak, the overlap is still not founder gravity.
Hover a circle to read what that element measures, or the centre for the compound itself.

Tm Tl Cp Dm Pr Gm Rv Oe Rr Rt Cf Pd Md Se Ip Br Ta Sy Od Dd Cc Kp Lc Td Sp Ac Dr Sc Tx Es In Ap Ev Op Fr Lg

Figure 3. Key-Person Risk at H3 in the standard table: column H, row 3. Columns group the families; the wealth series runs beneath.

§4 Position

The risk series

6 elements share the family. Read them together: a buyer prices them as a group.

§5 Compounds

What key-person risk forms

Compounds are the properties buyers actually price: several elements bonded into one. Each is scored from its parts.

Od+Kp→FG

Founder Gravity

A risk compound. Everything pulls toward one or two people; buyers discount the multiple until it dissolves.

Owner Dependence · Key-Person Risk

Bonds withOd Owner Dependence

§6 In the FNDRS journey

Where key-person risk gets worked

The assay scores it. The process, the pillars, and the platform move it. Table 2 lists every place this element is on the agenda.

Table 2. Where element 22 appears in the FNDRS journey.
Where	What happens	Alongside	Go
StageBuild	Build the right foundation. Establish a company capable of becoming valuable rather than merely producing founder income. Baseline valuation, health check, constraint inventory, and the first roadmap.	Tm Tl Cp Dm Cf Pd Od Dd Lc Td Ac	The process
Pillar of valueOperational independence	One of the biggest levers on the multiple, and one that takes time to move, so the work starts now. A buyer is paying for a company, not for you, and the price reflects how true that is.	Od Md Sp Ac Dd	The pillar
trackOperations audit	How the business runs without the owner	Od Sp Ac

Figure 4. Key-Person Risk against the neutral pivot (Acme Industrial sample): above 50 adds premium to the market base multiple, below 50 subtracts. The hollow mark is the target.

§7 In the valuation

How does key-person risk move the FNDRS valuation?

Measured Low leverage

The FNDRS valuation reads key-person risk directly: a score above 50 adds premium to the market base multiple, and a score below 50 subtracts from it. Its assay score derives from the same answers the engine scores, so the assay and the valuation can never disagree.

What FNDRS reads

Staff dependence and managerial coverage, shared with Management Depth.

How the table meets the number

Find out how key-person risk scores in your business

The exit score is the first assay: fifteen minutes, six pillars, and a first read on the elements that matter most.

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