Lead The Transitions:
All’s Well That Ends Well
by John A. Warden III and Leland A. Russell

All earthly things have a beginning and an end. Yet very few leaders spend serious effort planning the end game—despite ample evidence that it is critically important.

Perhaps it is human nature to avoid end game planning. There is far more fulfillment in launching a company, project or product than there is in ending one. Moreover, nobody likes to think about ending something that has been successful—especially when they feel a sense of ownership. So the natural tendency is to prolong it as long is possible. Have you ever noticed that, even when a project or product is obviously doomed, people will go to extraordinary lengths to continue it because of the uncertainty (and fear) about what comes next?

Perhaps there's also an even deeper issue: planning the end game reminds us of our own mortality, which we spend most of our lifetime rejecting.

The result of not facing the reality of inevitable endings is often painful. We've seen it many times with beloved sports figures. You may recall the poignant story of the legendary slugger Babe Ruth. Instead of bowing out in glory at the top of his career, he hung in far beyond his prime until the New York Yankees finally traded him to play out his last forlorn season with the lowly Boston Braves.

Finish With Finesse

Jerry Seinfield, after a monumentally successful nine-season run, announced that his Emmy-winning show wouldn’t be returning. At that time the Seinfield show had been described as "the most profitable single piece of entertainment in history” and the termination announcement sparked months of virtual mourning by fans, and widespread media accolades for the ensemble.

The cast members agreed wholeheartedly with the decision because they agreed with Seinfeld's rationale:

Look at Dan Marino, one of the greatest passing quarterbacks in pro football history. He had an extraordinary career with the Miami Dolphins until, because of bad knees and age, he had a mediocre season in 1999. Would it have made sense to stay and hope things got better, or move on to other opportunities and leave his superb record untarnished? He faced the fact that his success cycle had peaked and left the game in style.

Good investment fund managers also know how to finish with finesse. Before a stock is purchased they have a plan to sell it and move on to the next deal when certain criteria have been met. Not surprisingly, the fund managers with the best-defined exit strategies are often the most successful.

But these are the exceptions. In our work with many different kinds of organizations, we've found that most people abhor the idea of abandoning a familiar product or service or, most emphatically, an organization, even when it is not successful. The termination process then becomes one of "finish with duress"—people hang on and on, until the handwriting is not only on the wall, but on the floor and ceiling as well.

Think about the case of the Ford Model T. Ford was wildly successful with a very reliable, inexpensive car that met basic needs of a country entering the automobile age. There were no frills and choices—as was said at the time, you could choose any color as long as it was black. Ford had a great car and a great business model.

But World War I changed it all. After the war, the creation of wealth exploded; everyone was making more money than ever. Suddenly there were extra funds for amenities and those extra funds began to flow rapidly to General Motors, which under its CEO, Alfred Sloan, was providing multiple car models, options, and colors. In less than a decade, Ford’s share of the market fell from over 50% to less than 30% and the company was on the verge of disaster. The problem: Ford had planned no Exit Point for the Model T.

Defining Exit Points

Without pre-considered Exit Points, we inevitably find ourselves fighting desperate battles to save something that is no longer relevant. Because we hate to give up anything, we'll go to extraordinary lengths to continue on a course that was fine yesterday but is no longer germane.

On the other hand, if we define Exit Points in advance, everyone is much more comfortable with the exit process, because they know it will be done with style, and because they know it will free up energy to do something more profitable and exciting.

So, plan early. At the beginning of your campaign, define the criteria for the Exit Point—that moment in time beyond which you will experience diminishing returns. 

Well-defined criteria for an Exit Point will help you:

• Maximize (and retain) your financial gains by ensuring that you exit at the right time. It is possible, for example, to squander all of your gains from a once-profitable product or service in a fruitless attempt to revive something that's in terminal collapse. This is the phenomenon known as "snatching defeat out of the jaws of victory."

• Minimize your losses by "failing fast." The Exit Point criteria will help you recognize when something isn't working. It provides a rational way to terminate failures quickly and decisively while the cost of failure is still relatively low. Without such Exit Point criteria, you could be seduced by the "sunk-cost trap" that allows failures to drag on and on because you don't want to lose what has been invested.

• End the game while you are strong. The right Exit Point will leave you in the strongest possible position—not only financially, but psychologically— to launch your next effort.

If you don't define the Exit Point criteria early on, you have no formal way of evaluating when the end is near. Even if you do recognize it, the natural human tendency to “give it just one more chance” will take over.

In the business world, winners tend to get out while the "getting is good." How do they know when that moment arrives? 

There are several signals of the Exit Point for a product, service or organization:

• Valuation Zenith

• Declining Returns

• Strategic Shifts

Exit Point Signal: Valuation Zenith

One way to define Exit Points is to find the point of maximum value of a product, process, or organization (which could be an entire company or a division of one). Think in terms of total value—not just the revenue being generated, but what you might realize from selling the product, process, or organization or, as a worst-case measure, simply abandoning it.

Successful products and services tend to follow a fairly predictable curve:  growing acceptance and sales following the birth of the product, the center part its biggest volume (and sometimes biggest profit), and then decline in interest and sales.

When a product or service has reached the late stage of its success cycle—no longer "mature," but beginning to decline—it may be time to activate your exit plan. Failure to do so may easily mean that you will end up losing as much money on the product in its terminal stage as you made in its growth phase. Not only will you lose money, but you'll also waste management's time—an increasingly scarce resource—on something that has simply reached the end of the road. How much better would it be to have expensive talent focusing on the replacement product which may lead to better sales and profits?

continue article