Shocking Profit – Hire and Fire by Your Core Values, or Your Culture Won’t Survive a Sale

TL;DR: Core values only become real when you hire, promote and fire by them, including when a top performer breaks them. Enforced values let people make the calls the owner would make, without the owner. That’s what makes a company transferable to a successor or a buyer, and what buyers pay a premium for.

This piece shows how to tell whether your core values are real or decorative, why a tolerated exception quietly becomes key-person risk, and how to build a culture that holds when you’re not in the room. It’s written for owners preparing for succession or sale, and for the PE partners who’ll diligence them.

He was hitting his numbers. He was productive. And he could stop our team’s momentum at the drop of a hat.

A few years into ProAction, my partners and I defined ProAction’s core values using EOS (the Entrepreneurial Operating System, a framework many owner-led companies use to run the business). We tried them on, tested them and ended up loving them. Then we had to live them.

One of our teammates was a good man whose values simply didn’t match ours. Some of what he said and did pulled the team off track. Keeping him would have been easy to justify. His numbers were fine.

We made the call. He moved on to a situation that suited him better, and the energy at ProAction shifted almost overnight.

I see the same lesson in company after company. Your core values are only as real as the last time you acted on them. And whether they’re real decides whether your company can run, and sell, without you.

A Value You Won’t Act On Is Only a Suggestion

Most companies I walk into have values on the wall. Integrity. Teamwork. Customer first. The words are rarely the problem.

John A. Lanier, who has spent 25 years helping lower-middle-market owners and PE sponsors create value, offered a litmus test on the podcast that I haven’t been able to shake. You only know your values are real if you hire and fire by them, and the firing piece matters most. Then he said this:

        “The moment you make an exception and allow it to become the rule, you don’t have a culture.”

        ~ John A. Lanier, Middle Market Methods and Author of Profit Rainmaking, on the Shocking Profit Podcast

Notice what John doesn’t say. One violation doesn’t kill a culture, and he’s clear that a person deserves a real chance to fix it. What kills it is the exception that becomes permanent: the top producer who gets a pass, the family member nobody corrects, the supervisor whose shift “just runs differently.”

Nobody keeps that secret, either. As John put it, people always know who the teacher’s pet is.

Leaving someone in place who doesn’t fit is like dropping a banjo player into a classic ensemble. Everyone else is still playing well. The band just stops sounding like a band.

A value you won’t act on is a suggestion, and everyone in the building knows the difference.

Core Values Are How a Company Decides Without the Owner

This is where values stop at being an HR topic and become a valuation topic as well.

Every day, people in your company make judgment calls. Take back the angry customer’s return or hold the line. Ship on time with a borderline part or hold the order. Speak up about a safety shortcut or let it slide.

In an owner-dependent company, those calls get made one of two ways. People guess what the owner would want, or they wait and ask. Either way, the real operating system lives in the owner’s head. John’s warning on the podcast was blunt: when the know-how isn’t documented, the value proposition sits between the owner’s ears, and an owner planning to sell next week and retire to Florida is fooling themselves.

Core values, enforced consistently, are the documentation for judgment. When people have watched leadership hire, promote and fire by the same few principles for years, they don’t need to call the owner. They already know the answer.

That’s what transferability means. Processes, metrics and systems can be written down. Judgment transfers through values, and only through values that have been tested under pressure.

A culture that runs on the owner’s mood can’t be sold. A culture that runs on values can.

Buyers Price the Exceptions You Tolerate

Investors understand this even when it never shows up as a line item. As John pointed out, the bigger a company gets, the more diligence focuses on who’s leading it rather than what it does. Buyers pay more for depth because the business keeps growing without the owner at the wheel, and nobody has to gamble on replacing the CEO after close.

Blind Eye Fabrication is a $40 million metal fabricator we’ll imagine for a moment. The founder had three values painted on the breakroom wall: safety, respect and ownership. His second-shift superintendent, Duke, ran the most productive shift in the plant. Duke also skipped steps on lockout (shutting off a machine’s power before anyone works on it) and chewed people out in front of their crews. The founder knew. He’d decided years ago that the output was worth it.

Then the founder decided to sell. The buyer’s team walked both shifts and pulled the turnover data. Second-shift turnover ran three times higher than first shift. The best operators kept asking to transfer to days. Two quality escapes traced back to rushed second-shift setups.

That wasn’t Duke’s failure alone. For years, the system had told him results excused behavior. The buyer saw a plant running two cultures, held together by the founder’s tolerance, and the founder was the one leaving. The buyer moved a meaningful slice of the price into an earnout (payment contingent on future results) that effectively tied the founder to staying two more years. He had planned to be out in six months.

The exception you tolerate becomes the risk the buyer prices.

Compare that to a CEO John told me about, running a PE-backed, blue-collar business where hiring was brutal. He handed his card to anyone he met who looked like they cared, at restaurants, at Home Depot, at the convenience store. He hired for fit first, then used a project to find where each person belonged. His deal team questioned the headcount until he showed them quality, on-time delivery and productivity, plus turnover at half his peer group’s rate.

A culture like that is Black Gold, the hidden value I write about in Shocking Profit. It’s already in your building or it isn’t, and a buyer can tell which within a few days on site.

Buyers don’t pay for the values on your wall. They pay for the consistency, retention and leadership depth those values produce.

How to Make Your Core Values Transferable

• Translate each value into behavior. “Respect” means nothing until it describes what people do and don’t do on the floor, in meetings and with customers. Use those behaviors as interview questions and review criteria.
• Hire, promote and fire by them. That’s Leadership Secret #3 in Shocking Profit. As John put it, the boss is always the chief culture officer. HR can help, but the boss sets the bar every time he or she decides who stays.
• Handle the exception early. Name the violation, give the person a real chance to fix it, then act. The longer an exception lasts, the more it looks like the rule.
• Test it without you. Pick a recent judgment call and ask three managers, separately, how they’d have handled it. Matching answers that match your values show a solid foundation. Answers that start with “I’d check with the boss” show you where the work is.

Values that transfer don’t make the owner irrelevant. They make the owner optional, which is exactly what a successor, a family member or a buyer needs to see.

The real test of your core values is whether they hold when you’re not in the room.

FAQ’s

How do you hire and fire based on core values?

Start by defining each value as observable behavior, so it can be tested in an interview and measured in a review. Hire people who can do the job, want the job and live those behaviors. Promote people who model them, not just people who hit their numbers. When someone consistently violates a value, name it, give them a genuine chance to change, and then act if nothing changes. The key is consistency: the same standard applies to the top producer, the family member and the new hire. This is general guidance; work with employment counsel on any termination.

Why do core values matter when selling a business?

Buyers pay for earnings they believe will continue after the owner leaves. Enforced core values are how a company makes good decisions without the owner in the room, which lowers key-person risk and supports retention, consistency and leadership depth. In diligence, buyers often walk the floor, interview managers and review turnover by team. If they find a culture held together by the owner’s personal tolerance, they may protect themselves through price, an earnout or a longer transition requirement. A tested, transferable culture is one of the clearest signals that a business is ready for new ownership.

What is key-person risk, and how does culture affect it?

Key-person risk is the chance that a business loses significant value when one individual leaves, retires or can’t work. It usually focuses on an owner’s relationships or technical knowledge, but culture is part of it too. If employees rely on the owner to make every judgment call, or if the owner personally excuses behavior that conflicts with the company’s values, the culture leaves when the owner does. Building a leadership team that makes values-based decisions independently, and enforcing values consistently, reduces that risk and makes the company more attractive to successors and buyers.

How should you handle a high performer who doesn’t fit your core values?

Treat it as a leadership issue, not a numbers issue. Describe the specific behavior, explain which value it conflicts with and what needs to change, and give the person a fair, defined chance to adjust. Many people do. If the behavior continues, keeping them sends a message to everyone else that results excuse conduct, which costs you morale, retention and credibility over time. Often the right outcome is a better fit elsewhere, for the company and the individual. Moving on from a productive person is hard, but the team’s response usually confirms it was right.

How long does it take to build a culture that transfers for succession or sale?

Longer than most owners expect. Defining values can take weeks, but proving them takes a track record: hiring decisions, promotions and at least a few tough exits that show the values are enforced. Buyers and successors look for that history, along with managers who make consistent decisions without the owner. For owners considering a sale or succession, starting two to three years ahead gives enough time to build and demonstrate that consistency. Starting earlier is better, because a transferable culture also makes the business easier to run in the meantime.

Now Go Get Curious!

Pick the one exception you’ve been tolerating longest. Then ask three of your managers, separately, what they think it’s costing you. Their answers will tell you how transferable your culture really is.

If you’re an owner preparing for succession or sale, or a PE operating partner sizing a deal, this is the work my team does every day at The ProAction Group. Call (312) 726-6111, or grab 20 minutes directly on my calendar at calendly.com/tvm.

For the longer playbook, including all seven Leadership Secrets, the book is Shocking Profit, available at shockingprofit.com.