Key Person Risk
The risk that a company's success is overly dependent on specific individuals whose departure could harm the business.
Definition
Key person risk occurs when a startup or company relies heavily on one or a few individuals for critical knowledge, relationships, or decision-making. This concentration of risk can threaten business continuity if key people leave.
Common Sources of Key Person Risk
Technical Expertise
Critical technical knowledge held by one person
Customer Relationships
Personal connections with major clients
Industry Networks
Unique access to partners or suppliers
Institutional Knowledge
Deep understanding of business processes
Risk Mitigation Strategies
- Knowledge Documentation: Create systems and process documentation
- Cross-Training: Develop multiple people with similar skills
- Succession Planning: Identify and develop potential replacements
- Retention Programs: Incentivize key people to stay
- Relationship Distribution: Spread customer relationships across team
- Key Person Insurance: Financial protection against departure
Real-World Example
Steve Jobs & Apple: Managing founder dependency
Apple faced key person risk with Steve Jobs' health issues, leading to succession planning and development of strong leadership team to reduce dependency.