The Five Risk Axes is the operational frame Cordis applies inside MRI and Group engagements. It is also the structural backbone of much of Foundry’s editorial coverage. The five axes are the inputs to the buyer’s model that are most reliably movable inside a 24-to-36-month preparation window.
The five
Customer concentration. The percentage of revenue, gross margin, and EBITDA contribution attributable to the top one, top three, and top ten customers. The discount applied by buyers is a step function: below 15%, minimal; between 15% and 30%, widening; above 30%, severe. Pratt’s Stats documents this pattern across hundreds of transactions.
Key-person dependency. The degree to which the business depends on the founder personally (or on any other single individual). Measured by the vacation test (what stops working if the founder is out for two weeks), the decision test (what decisions cannot be made without the founder), and the relationship test (which customer relationships are held by the founder rather than by the business). Empirical discount range: 20% to 35% against an otherwise comparable business.
Documentation quality. The completeness, organization, and accuracy of the documentation a QofE team will request in the first three weeks of diligence. Financial reconciliation, customer contracts, vendor agreements, employee documentation, insurance certificates, regulatory compliance records. Treated by buyers as approximately binary; either the business reads as documented or it does not.
Recurring revenue mix. The percentage of revenue that is contractually recurring, with documented renewal patterns. Pratt’s Stats data shows businesses with 70%+ recurring trade at multiples one to three turns higher than otherwise comparable businesses with 30% or less recurring. Damodaran’s work explains why: recurring revenue is closer to an annuity than to a service business.
Decision-rights legibility. Whether a buyer can read, with the org chart and a 90-minute tour, who decides what. Authority matrices, standard operating procedures, escalation paths. The least-written-about of the five and the most predictive of where the deal closes.
Why these five
The five axes are not the only inputs to the buyer’s model. They are the inputs most reliably movable in a defined preparation window. Multiple compression and premium drivers exist on a longer list (sector cyclicality, regulatory exposure, geography, capital intensity, gross margin trajectory), most of which are difficult or impossible for the founder to move on a 24-month timeline. The five are the ones where founder action produces predictable buyer-side response.
The preparation sequence
The five do not move on the same timeline.
Documentation quality moves fastest, 90 to 120 days with the right help.
Decision-rights legibility moves on an 18-month timeline, mostly because the underlying delegation is slow.
Key-person dependency moves on the second-in-command hire’s onboarding curve, 18 to 24 months.
Recurring revenue mix moves on customer contract renewal cycles, 24 to 36 months.
Customer concentration moves slowest, 24 to 36 months for meaningful improvement.
The aggregate window is three years. Most founders begin the work two years before they need it. The Misalignment Tax, Foundry’s term for the headline dollar consequence of skipping the preparation, exists almost entirely because of the time-shape of this sequence.
How to apply the framework
Score yourself, honestly, on each axis. The Exit Readiness Scorecard does this in 12 minutes. The MRI does it in four weeks with documented evidence.
Then sequence the work in the order above. Do not skip ahead. Documentation in year one. Decision-rights legibility and key-person dependency in years one and two in parallel. Customer concentration and recurring revenue mix in years two and three.
The work compounds. Documentation makes the second-in-command hire faster (the new hire has documents to learn from). Decision-rights legibility makes the operator coverage real (the new hire knows what they can decide). Operator coverage frees the founder’s time for the customer-concentration and recurring-mix work. Each step makes the next one possible.
This is the framework. The work is the work.
The Cordis MRI applies this framework to your specific business. Five risk axes scored by the people who score them for buyers, returned with a written read of your gaps and your seams.
Begin the intake →