When an asset has a grossly inflated price, it is by definition an asset bubble. Does this apply to many small businesses in the US? Probably yes, in my opinion. Most small businesses have a balance sheet listing some assets; therefore they are subject to being part of a bubble. There is an estimated $10 Trillion in private business equity in the US, largely in the hands of the Baby Boomer generation, according to research by the Exit Planning Institute. If there is a large market of assets, but not enough buyers, that is what creates the potential for a bubble. What I am not sure of is whether this situation will burst like a bubble and cause the next financial crisis, or if this is more like a balloon with a slow leak, thereby creating a drag on the US economy for many years.
Where’s the Crisis?
I have been reading for some time about a looming “crisis” of Baby Boomer business owners needing to sell their businesses to retire, seemingly en masse. One book written by Wayne Vanwyck, an entrepreneur who has built and sold a few businesses, is titled “The Business Transition Crisis”. There have been articles about a “Baby Boomer Tsunami” of businesses for sale. For business owners to counter this, many books and articles recommend common themes of “building value” and “thinking like a shareholder”. All valid points, but I have yet to see evidence of anything “moving the needle” for such owners to take much action. So what’s missing?
“Beat the Exit Bubble”
This recent book by Tensie Homan and Dan Meyer offers a slightly different take. Homan and Meyer had long careers in corporate development, i.e., they helped their company buy other companies. Their business exit strategy approach is to ask owners to think and act as BUYERS, not SELLERS, of their businesses.
Shifting your Context
I believe it was Albert Einstein who said that, to solve a problem, you can’t use the same thinking you used to create it. If a business owner thinks like a buyer, he or she will have shifted their context, or way of thinking. As former buyers of businesses, Homan and Meyer bring context to the conversation. I am thinking it’s what business owners (potential sellers) need to hear. Stop thinking like sellers, and start thinking like buyers. But what if you don’t want to sell? Or what if you think your kids (or employees) will take it over? Guess what, they are buyers too, so the advice is still relevant, even if they don’t pay you for it. Think about that for a moment, if your kids (or employees) are unwilling to use their capital, or borrow capital to pay you for it, then that means your business may be not worth much. As buyers, they just said the value of your business to them is ZERO. Ouch, that’s got to hurt.
How many will go dark?
I recently listened to a webinar that quoted a survey of business owners by PricewaterhouseCoopers, reporting that 40% of business owners EXPECTED to CLOSE their business when they retired. If so, that means millions of mom and pop businesses will go dark. I have also read that 80%of businesses that get listed for sale end up never selling. That means millions more businesses going dark.
Why I am optimistic
After reading this, I am sure a lot of M&A Advisors and business owners may be heading to a bar, or a bridge. Don’t do it. Here’s why. Many businesses were started by Baby Boomers who were simply good at “something”, and then struck out on their own. They were also very optimistic. I think that the Millennial generation will come to the rescue. Many are struggling to find jobs today, especially in corporate America, so they are turning to entrepreneurship. Millennials number 80 million in the US. They are all under age 34. That is a potentially rich source of buyers. It is true that many are handicapped with student debt (and some still live at home), but they are also extremely optimistic about themselves. Optimism is a requirement for all successful entrepreneurs. (I am a parent of two Millennials – so I know where of I speak).
What can an owner do?
I suggest taking a different tack on the “think like a buyer” mindset – instead, think like a Millennial buyer. Find out what they eat, where they shop, what they read, what makes their heart soar, what makes them passionate about something. Ask yourself how your business could appeal to them. If you do, you may not only grow your business in the short term, but one of your new customers may well become your new buyer. That would be a very happy ending to this story indeed.