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The Fourth Quarter Game Plan™ – A Better Way To Address Business Owner Succession And Pre-Exit Planning

Larry could not figure out what had just hit him.

After more than 30 years in the retail toy business, he had for years thought he had earned the type of retirement that years of hard work normally brought.

However, he had just finished closing down the eighth of his retail outlets in the past twelve months and was now seriously concerned about the viability of the other fifteen.*

Lucy had presented a different concern.

Three of her top executives had departed in the past two months resulting in a talent bench shortfall which she now realized would soon jeopardize her succession plans. After 36 years in the temporary employment services business, she just couldn’t figure out what had gone wrong with her team.*

The Fourth Quarter

Both Larry and Lucy presented classic cases of failing to identify or understand the changing internal and external dynamics which occur during the “Fourth Quarter” of a business owner’s tenure.
Closely held companies and their owners face significantly different internal and external family, business and financial dynamics during the Fourth Quarter of the business owner’s tenure. Most owners do not fully appreciate, recognize or address this reality or get in front of it in time. Some do and some will.  Others wait and try to catch up during the “Two Minute Warning.” Some don’t get it until they are into “Overtime.”

The difference often depends on how well their trusted advisors have broached and approached this topic. However, some advisors might not point out the prevalence of these changing dynamics either.

These changing dynamics may show up or become evident in the behavior of the business owner, as well as the business owner’s spouse, children, customers, suppliers, key employees, bankers, competitors and other stakeholders.

For example, the business owner’s goals may start to face significant change.  Rather than an objective to “Be successful – make a profit,” the business owner might shift to “Just stay successful – perhaps make a difference.” The business owner’s mindset may change dramatically from “Bring it on!” to “Well…let’s think about that.”

The mindset of key employees may change. During the first half of the business owner’s tenure, key employees may be content with “Let’s get on this ride!,” but now start asking “When do I get to drive?”

Company’s Success or Decline in the Fourth Quarter 

Those owners who recognize and accept the changing dynamics during their Fourth Quarter have the opportunity to take their company to a new level as well as to prime the company for a future sale to an outside buyer or a transfer to their key people or family. Those who don’t recognize these dynamics risk facing a stall and ultimately a steep decline from the business success that they had grown accustomed to.

This explains why so many companies simply fade away rather than make the jump from one business owner to the next or from one generation to the next.

The Fourth Quarter Reality

Unlike a football game, the Fourth Quarter is not marked simply by the period of time remaining in the business owner’s tenure, although this often does bear a close relationship. For example, if a business owner’s tenure is expected to be 40 years, then it is fair to estimate that the owner’s Fourth Quarter is roughly 10 years.
Many business owners refuse or hesitate to take the types of business continuity, succession and pre-exit planning steps that are needed to help ensure a successful Fourth Quarter and a successful transition and future exit. Often, they wait until the last minute, what I’ve dubbed here as the “Two Minute Warning,” to address the types of actions that should rightfully be taken prior to and at the front end of the Fourth Quarter.

Understanding the Fourth Quarter dynamics has tremendous potential to improve the ultimate outcome for the business owner once this is recognized and acted upon.

The Fourth Quarter Symptoms

So, how exactly does a business owner recognize whether he or she is in – or about to move into – the Fourth Quarter? Some of the symptoms, from the business owner’s perspective, include the following:

  • Age.  You are simply in the later years of your expected tenure.
  • Successor.  You are spending more time thinking about who your successor will be.
  • Retirement.  You are spending more time thinking about your retirement.
  • Satisfied.  You are willing to start resting on what you have achieved.
  • Change.  You are hesitant to change your business model despite market, channel and customer indications that you need to.
  • Legacy.  You are spending more time thinking about your legacy.
  • Expansion.  You are spending more time thinking about maintaining rather than expanding your business.
  • Health.  You may be facing specific health concerns.
  • Time Off.  Your family is urging you to slow down and travel more.
  • Children.  You are fairly certain now whether one or more of your children can or will or won’t be your successor.
  • Energy.  Your energy level for work is on the decline.
  • Profit.  You are more concerned about what your company is actually worth rather than maximizing profit.
  • Sale.  You are thinking more about who would/could buy your company.
  • Planning.  Your strategic planning function’s budget and staff are in a multiyear decline.
  • Customers.  You test only infrequently for shifts in key customer segments’ evaluation of your product or service attributes.
  • R&D.  You have been cutting your R&D budget well below its historical range and below that of competitors.
  • Family.  You are spending more thought about whether you have enough wealth to retire on.
  • Dependence.  Your business clearly should be (or is) less dependent on you.
  • Exit.  You are thinking more about whether your company is actually ready to be sold or transferred.

Winning the Fourth Quarter

You’ve been successful during your first three quarters. Now, how do you win the Fourth Quarter? To do so, you must overcome the 12 principal mistakes that often damage or destroy business owners and/or their businesses during the business owner’s Fourth Quarter, which wipes out the success achieved during the first three quarters. These 12 frequent mistakes are:

  1. Conflicting personal, financial, business and exit objectives
  2. Misjudging the company’s true, transferrable value
  3. Not having a “Business Owner” Estate Plan
  4. Vulnerability to unnecessary intellectual property and lawsuit losses
  5. Partner/ownership disputes
  6. Personal wealth mismanagement by the owner and/or family members
  7. Business model burnout
  8. No capable successor
  9. Company simply isn’t ready to be transferred
  10. Unnecessary tax costs
  11. Pursuing the wrong inside route exit
  12. Pursuing the wrong outside route exit

The Fourth Quarter Game Plan™

Some may call this a Succession Plan, an Exit Plan, a Business Continuity Plan or a Transition Plan. However, the Fourth Quarter Game Plan™ is actually more than these. The best Succession Plan or Exit Plan, for example, is inadequate if the underlying foundation of the business, as reflected in that company’s Business Model, is cracked, flawed or outdated. Think Blockbuster Video vs. Netflix, a classic example of a business failure due to business model burnout. Based on my work as one of the co-contributors to the international bestselling Business Model Generation Handbook, we have identified the nine key building blocks of every Business Model as well as a process for business model re-design and innovation.

Unless a company (and its leadership) recognizes, continually assesses, and continually innovates these nine fundamental building blocks to its Business Model, the company itself will fail (as will any Succession Plan, Exit Plan, etc. which is built around it). These two concepts need to fit hand in glove. The Fourth Quarter Game Plan™ does exactly this.

The Fourth Quarter Fitness Test

Both Larry and Lucy failed to realize the Fourth Quarter impact. The dynamics of their Fourth Quarter had affected how they were managing their companies and how the stakeholders in their companies were reacting. A better understanding of these dynamics in advance produces a much better personal, financial, business and legacy outcome.

So, how ready are you (or your business owner client) to take on your Fourth Quarter? Below is a quick assessment, in the form of a simple True/False Fitness Test.

This is the Test which we are using with business owner clients in order to help us, business owners and their other trusted advisors to focus quickly and efficiently on those areas which are most vulnerable, and to prioritize the actions which are needed to help achieve the best chances for success by a business owner and all of his or her stakeholders.

*No actual client names or identifiable facts are used in this article. These examples are illustrative only.