Manage the 4 Predicaments Rick Katz Director, Business Markets Development AIG Advanced Markets AIG In the last module, we discussed documenting the data using a personal, business and values based questionnaire. Now that you have collected data from the business owner, we have to continue the planning ahead process. Sometimes, what a business owner doesn’t know he or she doesn’t know can be more critical than the issues they are aware of. When a business loses its owner, it is faced with 4 predicaments.  Depending upon the business’ response and plan of action to these predicaments, they either become a crisis or opportunity.  We will explore these predicaments and how a business can avoid the crises and seize an opportunities. As we said often, business owners who plan ahead typically have better results and live more enjoyable lives than those who wing it. Don’t you agree? Great! Let’s get started. Module 2.3 FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

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Opening Don’t wait until you are in a crisis to come up with a crisis plan. Phil McGraw The financial crisis is a stark reminder that transparency and disclosure are essential in today’s marketplace. Senator Jack Reed People ask the difference between a leader and a boss. The leader leads, and the boss drives. Theodore Roosevelt As someone who flew two space capsules and twice landed in the ocean, I can attest how much logistics work is needed to get you home. Buzz Aldrin When a business owner does not return to work, due to death or other reasons, the business is faced with 4 predicaments. More on that in a minute. First, here are a few words of wisdom. Phil McGraw, better known as Doctor Phil, said, “Don’t wait until you are in crisis to come up with a plan.” He is reminding us of the importance of planning ahead. Senator Jack Reed said, “The financial crisis is a stark reminder that transparency and disclosure are essential in today’s marketplace.” This is also true for small businesses. President Theodore Roosevelt aptly said, “ People ask the difference between a leader and a boss. The leader leads, and the boss drives. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Creating a Buying Atmosphere – The M-O-D 3-Step Process Manage Buyer Expectations Overcome Client Reluctance Demonstrate Agent’s Competence In a previous module, we discussed creating a buying atmosphere using a 3 step process called the M-O-D process. M is for Manage the buyer’s expectations. O is for Overcoming the reasons for the client’s reluctance to even go through the process. And, D is to Demonstrate the agent’s suitability, competency and credibility in being the right person to help the client to plan ahead. In this module, we will share a meaningful discussion with a business owner which will not only engage the business owner, but will demonstrate your competence as well. Let’s get started. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Demonstrate Agent’s Competence – 3 Credibility Principles for the adviser Create a new client experience Like you, Trust you, Show Competence – prior to choices The process is all about them and their goals Not about products and solutions They are in control of the process Priorities and Timing of action Managing expectations, overcoming the client’s reluctance and finally demonstrating your fitness or competence to be the one to help them plan ahead or solve their problem. I would like to remind you of one of the opening quotes by Business Management expert, Patrick Lencioni, “What clients are really interested in is honesty, plus a baseline of competence.” Often in our business, we have to confirm the suitability of a product being proposed to a client based on their circumstances, to confirm it is a good fit. The same may be true about you and the client. Are you a good fit? There are 3 credibility principles for the adviser. First, create a new client experience. The client typically must like you, trust you and believe you are competent before they are ready to do business with you. Number 2 is the notion that the process is all about THEM and their goals. Not what you think should be their priority. The process is not all about the products and solutions. Finally, number 3 is that they realize they are in control of the process. They must decide the priorities and timing of actions, choices and purchases. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

The 4 Predicaments – Summary of Experience Following the departure of the owner, a company will face 4 turning points. Advanced planning can turn potential crises into opportunities. Emotional Financial Logistical Leadership Following the departure of the owner, a company will face 4 turning points. Advanced planning can turn potential crises into opportunities. We will discuss the 4 potential crises and why a business owner may want to address these issues before they become critical. In fact, advanced planning can turn each one into an opportunity rather than a crisis. The first predicament is Emotional. We sure miss Bill. The second is Financial. We sure miss all of the business he brought in. The third is Logistical. I wonder what Bill would want to happen. The fourth is Leadership. Bill Junior is really bright, but, he’s not his dad! FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Emotional Crisis In the absence of the prior owner, the culture can change. The mood at work is not the same. Sadness does not improve productivity. Survivors may be uneasy. Let’s take a look at the potential Emotional crisis first. When the business owner departs the culture of the company and workplace can change. The mood at work is not the same. Just like individuals and families, businesses and co- workers go through a grief process as well. It may be over quickly and it may linger for quite some time. I’m pretty sure sadness does not improve productivity. The Survivors may be uneasy and may consider alternatives – somewhere else. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Financial Crisis The company may have lost their biggest contributor They may have to pay the survivors too The bank is not very happy Customers may reconsider The second potential crisis is a financial crisis. This can be widespread and extreme or it can be an inconvenience. Since often the business is responsible for buying out the survivor over a period of time, the financial crisis could affect the owner’s survivors and their ability to receive the value of his or her business. After all, when the owner dies, the company may have lost their biggest contributor. He may have been the top sales person, the lead engineer or the “brains behind the outfit.” Don’t forget about the survivors and the bank may have concerns. Will they call the loan, reduce the credit line or nix the expansion? Customers may reconsider their choices too, in the absence of their long term relationship. Which brings us to predicament number 3. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Logistical Crisis Nobody knows the business like the prior owner How did the deals get done? Who is in charge? What is the new path supposed to be? What is the combination to the safe? The business doesn’t operate the same without that guy. They may suffer a logistical crisis. It can be grand and pivotal as well as small and inconvenient. Nobody knows the business like the prior owner. After all, how did the deals get done? What were the tricks of the trade that only he understood? Who did he want to be in charge? Which son or daughter? Or, was his long time partner supposed to get it all? What is the new path of the company supposed to be? Expansion, continue down the same path or something totally different? Not only that, what is the combination to the safe and where did she put the keys for the filing cabinet? FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Leadership Crisis The new owner is not the same as the prior owner This new guy is all business This new leader is a manager Uncertainty can lead to brain drain Finally, the business may suffer a Leadership Crisis. Small businesses are often started or continued based on the leadership of one or just a few great minds, mechanics or mentors. The new owner may know a lot about the industry and maybe the business, but she is not the same as the prior owner. The new owner is all business and has a very different style. The new leader is really a manager and doesn’t seem to be able to bring out the best in others. I’m not sure if this will be as fun or profitable and my opportunity to climb the ladder may no longer exist. I think I’m going to put my resume together. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

The 4 Predicaments – Summary of Experience Emotional - In the absence of the prior owner, the culture can change. Survivors may be uneasy. Financial - The company may have lost their biggest contributor. They may have to pay the survivors too. Logistical - Nobody knows the business like the prior owner. The intention of the owner may not be carried out as desired. Leadership - The new owner is not the same as the prior owner. Uncertainty can lead to brain drain. So, there they are. Four predicaments that can commonly degrade into crises for the company. Or, with advanced planning, they may be able to turn into opportunities. Instead of creating uneasiness at the owner’s departure, you could use some of the key person proceeds to incent the team to be excited about what’s to come. In lieu of suffering a financial crisis and potentially jeopardize relationships with vendors or customers, you can proactively announce your plans to stay on your path with a healthy balance sheet and bank account. While nobody understood the business quite as much as the departing owner, your “Successor Readiness” program trained the new leaders and created a bench of quality people to be the next generation of leaders. The owner met with advisers and shared critical information so nobody would miss a beat. This all leads to a smoother transition of leadership. Of course, every leader is different. If the present owner has the opportunity to plan ahead, his results will typically be better, don’t you agree? FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Next Steps Identify 3 business owners you already know and with whom you have already gained their trust and confidence Ask to meet with them to share a conversation about avoiding 4 potential crises and turning them into opportunities instead. Provide feedback of your experience with our Advanced Sales team so we can benefit other agents as well AdvancedMarkets@aig.com In order for this concept to become a productive part of your practice, you have to do just that. Practice. Here is your call to action. Identify 3 business owners you already know and with whom you have already gained their trust and confidence. They may be a client, friend or colleague. Ask to meet with them to share a conversation about avoiding 4 potential crises and turning them into opportunities instead. Then provide feedback of your experience with our Advanced Sales team so we can benefit other agents as well. You can write us at AdvancedMarkets@aig.com. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.

Questions or Comments? AIG Advanced Sales BDI@aig.com 855-323-6923 If you have any comments, questions or feedback about this module or anything else regarding the AIG Business Development Institute, please contact us by email at BDI@aig.com. Or, you can call our AIG Advanced Sales team at 855-323-6923. This is Rick Katz for AIG’s Business Development Institute. Remember, the more small business owners you help, the more successful you will be. FOR FINANCIAL PROFESSIONAL USE ONLY. NOT FOR PUBLIC DISTRIBUTION.