Gary’s Exit Plan – Up In Smoke With His Perishable Business Model


by Nick Niemann

Niemann, Nicholas
nniemann@mcgrathnorth.com
(402) 341-3070

I had just returned from presenting my “Break It And Make It” business model workshop to three CEO groups in Winnipeg when Gary came to visit with me. Fifteen years earlier he had gone “all in” by converting his commercial real estate business and becoming one of Blockbuster Video’s landlords. He had established a very efficient operation building and leasing Blockbuster Video stores to Blockbuster, Inc. throughout the Midwest.

Gary thought he had the ideal Exit Plan. He viewed his big bet as a certain long-term annuity. After all, the public demand for movies was not expected to subside.

Unfortunately, Gary’s risky “Flea Flicker” Exit Plan promised he would either make a big gain or get sacked.

On September 23, 2010, Blockbuster filed for Chapter 11 bankruptcy protection. Dish Network eventually won the auction to buy Blockbuster for a fraction of its previous value.
In April 2011, Blockbuster’s landlords objected to Dish’s assumption of leases, claiming they did not have adequate assurance the new owner would honor the leases. In the end, Dish announced it would only keep 500 Blockbuster stores open. At its peak, Blockbuster had more than 4,000 stores nationwide.

Gary had been sacked for a major loss.*

Just like Carl Icahn, who called Blockbuster “the worst investment I ever made” (Harvard Business Review, April 2011), Gary had also failed to understand why Blockbuster’s business model, like the business models of all companies, had a limited life. All business models are perishable. Gary failed to understand that his own business model suffered from the same fate.

Research shows there are 12 principal reasons business owner transitions, successions and exits fail. Each of these reasons impacts the company’s longevity and ongoing annual profitability as well as an owner’s transition and future exit results. This article addresses the seventh of these 12 reasons:

Reason #7.  Business Model Burnout.  Your business fails or stagnates because you have not implemented a continuous Business Model Innovation Program.

One of the most fundamental, yet often overlooked, blind spots which CEOs can miss is the essential focus needed on their company’s business model. Some intuitively address this. Most don’t.

As companies come and go on the business landscape, the failure to understand, adapt and innovate their business models is commonly the real cause for their failure to survive or grow – often, like the frog in the kettle, realized too late.

This message is key to business owner transition, succession and exit planning. If you don’t understand, adapt and innovate your business model, your business and therefore your transition will fail, just as your time in command will fail.

As recently pointed out by a leading business journal, “For companies to endure, they must get the forces of preservation, destruction and creation in the right balance.” (“The CEO’s Role In Business Model Reinvention”, Harvard Business Review, Jan. 2011).

CEOs around the world have gotten the message. As pointed out in IBM’s recent Global CEO Study (of over 1,000 CEOs), “Nearly all CEOs are adapting their business models” and “two-thirds are implementing extensive innovations”. One of the driving forces of this has been the expanding global economy, which “is seeing new business models and accelerating the pace of innovation.” (McKinsey Quarterly, “Report on Global Forces”, June 2010).

Just like Krogers and A&P in 1930 were married to their corner grocery store real estate, Gary was likewise married to his Blockbuster retail stores. When Michael Cullen invented the supermarket business model in 1930, it took Kroger and A&P the better part of a decade to realize the change was real and to start converting their 5,000 and 15,000 corner grocery stores into supermarkets, while most competitors simply failed.

Blockbuster’s CEO, John Antioco, admitted, too late, that “Blockbuster’s biggest problems stemmed from its business model”, while Carl Icahn admitted that “Netflix created a better business model.”

As Bloomberg has pointed out, “CEOs are breaking with traditional strategy planning cycles in favor of continuous, rapid–fire shifts and adjustments to their business models.” (Bloomberg Businessweek, May 18, 2010).

In the past 18 months, I have had the opportunity to see this first hand in presenting my “Break It And Make It” business model workshop to CEOs in over two dozen cities around the Country. www.OwnersNextMove.com/Business_Model.html. This workshop has been designed to address the key components missing in most business owner Succession and Exit Plans.

For Gary, his loss was substantial and his exit outlook considerably bleaker than what he had foreseen 15 years earlier. When asked “What is the one thing that can most improve a company’s growth and profitability?”, Donald Mitchell and Carol Coles, the authors of the book “The Ultimate Competitive Advantage” concluded:  “Our investigations and experience show that the answer is having the best process in your industry for continuing business model innovation.”

The tools exist to avoid Gary’s fate. It’s heartbreaking to see this situation occurring time and again. This is why I’ve been traveling to so many cities to address this with business owners and CEOs.

This is a “Next Move” which Gary failed to understand, and he paid the price. Interestingly, had Gary, a Baby Boomer, understood the impact that Generations X and Y are having on business models throughout the world, perhaps he wouldn’t have missed the move. In Gary’s case, however, it was almost too late for a successful intervention.

*This Newsletter contains no information that can be used to identify a specific client. This illustration was not the business in which our specific client was engaged.

Next Newsletter – How Harry’s “Junk Drawer” Exit Plan left him with no capable successor.

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