More than 60 percent of U.S. business owners are over 50
years old, and many of them are looking toward retirement and the process of
attracting and vetting potential buyers to take the reins. The differences in
yesterday’s and today’s business landscapes are stark: As baby boomers were
raised in a highly competitive environment, many face the problem of having
built companies that won’t attract a new generation of buyers.
Three major trends impact the
salability of a business. Understanding these trends can help owners transition
successfully in a challenging market and ultimately identify the buyer who will
carry their company’s torch going forward.
Why Do Boomers
Work So Hard?
Baby boomers are two and a half times more likely to
own a business than the generations preceding or following. Between 1975 (when
the first boomers turned 30) and 1986 the formation of new businesses in America
jumped from 300,000 to 700,000 annually. Faced with fierce competition on the
pathway to success, many boomers chose to chase the brass ring by going into
business for themselves. New business startups have never since reached that
level. The result is that nearly two-thirds of all businesses with fewer than
500 employees are in the hands of people who are preparing to retire.
The impact of the baby boomers at
each stage of life created a one-time surge in many statistics. They tripled
the number of college graduates and brought more than 50 million women into the
workforce. Between 1970 and 1980 the population of the United States increased by 11
percent, but the employment base grew by an astonishing 29 percent. Replacing
such a massive portion of the population in the business sector is no easy
The Perfect Storm
There are three major trends that challenge a small
business owner preparing to exit. Like the movie “The Perfect Storm,” these
three trends — demographic, psychographic, and sociographic — are combining to
create a tsunami that will change the entire landscape of independent business
- Demographically, the
generation following the boomers (Generation X) is much smaller.
From a supply-and-demand perspective, there simply aren’t as many available people
buying companies as the number of potential retirees seeking buyers.
- The psychographic profile
of the buyer generation is unfavorable. What
business owner hasn’t complained about the work ethic of the younger
generation? Raised in a 40-year period of economic growth (the longest
sustained period of expansion in our history) Generation X and their successors
(The Millennials) are more likely to choose family first and perceive jobs and
employers as merely the means to a personal end.
aren’t wrong. The parents of the boomers understood the difference between work
and personal life. One started when the other ended. In their drive for
success, the baby boomers mixed the two and created the term “work/life balance.”
Younger generations are actually returning to an older set of values.
- Sociographic trends favor
alternative careers over business ownership. Corporate
is well aware of the issues and attitudes of the younger generations. They have
already made many adjustments. Telecommuting, sabbaticals, family leave, and
flex time are benefits designed to attract younger workers who have a different
set of priorities. Few small businesses have the depth or breadth to allow
skilled employees to come and go according to their individual priorities.
entrepreneurs have little interest in the service-oriented brick-and-mortar
companies that dominate small businesses. They seek a level of freedom that
doesn’t require being on call, schedules driven by customer convenience, or a
55-hour work week. Combined with the sheer lack of prospective buyers, a
reduction in the number of small businesses becomes more than likely — it is
Despite the tsunami of challenges,
many small business owners are depending on their company to fund a comfortable
retirement. Their plan goes something like this: “I will work really hard until
I am tired, and then I will find some energetic younger person just like me who is willing to commit
everything for this great opportunity.” So how do you make that happen?
Beating the Odds
Fortunately, if you are a successful business owner,
you’ve already proven your competitive instincts and abilities. With some
planning and foresight, you can still beat the boomer bust and achieve your
retirement objectives. There are two pathways to succeeding in a crowded sales
first option is to build a business that is attractive to your younger buyers.
It allows for personal flexibility. It can’t require a huge down payment, since
these generations were raised in a “buy-now-pay-later” world where they are
carrying substantial debt from the day they graduate college and have little
opportunity to amass liquidity.
technology doesn’t have to be cutting edge, but it needs to be current. Nothing
turns off the tech-savvy young buyer faster than a company that is limping
along on outdated software or (heaven forbid) paper. Of course, the other
attributes of an attractive acquisition are a given: growing margins, a
distributed customer base, and predictable revenues.
- Hire Your Buyer
second option is to hire your buyer. The stereotypes of different generations
aren’t universal. Certainly we all know boomer slackers, as well as young
people who are ambitious and hard working. Lacking capital, many of those
younger go-getters would like to own a business but have difficulty seeing how
they can make it possible. Identifying such a buyer in your own organization,
or even reaching outside and recruiting one, is a viable option if your target
date for exiting is a few years away.
your own successor requires a commitment to planning and development, but the
financial aspects are fairly simple. A few years of selling equity in small
amounts can let your successor build a minority stake. Then he or she can
obtain third-party financing for the balance of the purchase so you can
maintain control through the process and take the proceeds with you when you
Remember: “The more you work in your business, the less it is worth.” Everything you do to reduce your business’s dependence on your personal talents, to reduce the time commitment of running it, and to make it easier for any successor (whether internal or external) to take over the reins also increases its value to any buyer.
You can’t change the factors that create the most competitive selling environment in history. Understanding what the future looks like and realizing that your buyer is unlikely to be someone “just like me” is a critical first step in the process.
ABOUT THE AUTHOR:
John F. Dini is a coach, consultant, and author of the award-winning book Hunting in a Farmer’s World, Celebrating the Mind of an Entrepreneur, as well as the book Beating the Boomer Bust. Widely recognized as one of the nation’s leading experts on business ownership, Dini has delivered over 10,000 hours of face-to-face, personal advice to entrepreneurs. For more information, contact: John F. Dini, www.johnfdini.com