Exit Planning Tools for Business Owners

Exit Strategies

Outsourcing America

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The Baby Boomers created seismic shifts in American culture and economics throughout their lives. Their mere numbers caused much of the shift, but their competitiveness and commonality enhanced the impact at every stage of their lives.

In the mid 1960’s, as we’ve seen, the Boomers delayed having children. Unlike every previous generation, they chose to work longer and accumulate, or at least spend more, wealth. The “trough” of birthrates was lowest between about 1968 and 1978. By the early 1980’s, the Boomers began their delayed child-bearing in earnest.

As the parents of Generation X, the Boomers didn’t suddenly abandon their defining characteristics. They became competitive parents. Parenting became a performing art. Peer pressure made competitive parenting into a status symbol. They set out on the quest for ultimate child development.

The Boomers had two ways possible to approach perfect parenting. The first way requires a huge commitment of time. Mom stays home, and Dad is home as much as humanly possible. You pour your time into giving attention to your children. You engage them in all household activities, such as gardening and cooking. You do their homework with them, and teach them how to play sports. You practice with them, and dedicate evenings and weekends to their development.

That road to perfect parenting doesn’t leave much space for dual career households seeking the upper reaches of the socio-economic ladder. You can’t work lots of overtime, bring work home, play golf with customers on weekends, or go out for career-enhancing social events if you are spending every spare minute delivering instruction and experience to your children.

As a smart, educated, and efficient parent the solution is obvious. You outsource all that stuff. Outsourcing traditional parenting chores served a dual purpose. It saved time for Boomer parents who were focused on career-building, and it created business opportunities for those who couldn’t, or wouldn’t, compete in  climbing the traditional career ladder of corporate America.

Business model franchising was first established in the 1940’s, beginning with businesses that offered prepared food to replace home-made meals. From 1975 (when the first Boomers turned 30) through 1986 the number of franchises sold in the US skyrocketed from about 2,000 to 22,000 annually. That number leveled off in 1986, and remains roughly constant through today.

Competitive Boomer parents had an answer to their time constraints; one that still suited the drive to give their children the best of everything. Little League became merely the first step in sports development. If you were serious about supporting your child’s sporting prowess, you paid for year-round leagues, traveling teams and private coaches. The same logic justified martial arts classes, music teachers and tutors for school subjects.

At home, busy parent could “buy” time by outsourcing not only cooking, but house cleaning, laundry, yard maintenance and repairs. “Do it yourself” faded as a point of pride, replaced by hiring an expert to do it better.

The explosion of franchising was fueled by the rising tide of Boomers serving Boomers. They provided both the service providers and the consumers who paid for those services. By the 1980’s, the portion of the US Gross Domestic Product from services had risen to over 70%.

For franchisors and their franchisees, the model fit Boomer ambitions beautifully. Once established, franchisors had a ready market of hard-working ownership prospects. Many, and probably most franchises are driven by the personal efforts of the franchisee. He or she often opens the business, closes it, and delivers or supervises the delivery of most of the services.

Franchisors are relieved of the expensive, time-consuming roles of motivating employees and managing the day-to-day operations. They don’t need to set sales goals or create growth incentives; Boomer owners do that all by themselves.

What happens when franchisors run out of middle-aged Boomers to buy and drive their growth? The youngest Boomers are now entering their 50s, and are no longer prime candidates for start-up ventures. The oldest Boomers are rapidly (at a rate of 1,000 every 8 minutes) moving out of their peak outsourcing consumption years.

On August 6, 2011, Standard and Poors Sovereign Credit Rating Unit downgraded America’s debt rating from AAA to AA+. The next day the head of the unit, David T. Beers, was asked in an interview to estimate when the top rating might be restored. He replied, “What Americans have to understand is that this country reached its demographic peak ten years ago.”

“Awake at 2 o’clock is a weekly column for business owners. This series has been examining the impact of the Baby Boom generation on cultural shifts and the economy of the United States, in order to build the base for the rest of the discussion to come.

What will happen to the millions of Boomer-owned businesses when it is time to hand them off to a generation that is smaller, has very different values, and has far more options? Our next column will begin examining those buyers- Generation X.

(This is the fifth installment in a series about “Beating the Boomer Bust.” Previous installments are The Approaching Tidal Wave, The Pig in the Python,  The Brass Ring and Work-Life Balance.)

 

Work-Life Balance

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The term “Work-Life Balance” is widely cited as first occurring in the United State in 1986 in a research paper. I can’t identify the specific source of this much-referred usage, but it is telling that it would pop up when the last Baby Boomers had just turned 21. They were all in the labor pool, and their competitiveness (see The Brass Ring) was rapidly becoming the norm in the workplace.

In the period beginning in 1912, the Federal Government began passing legislation to limit the number of hours that could be demanded of a worker. With the passage of the Fair Labor Standards Act of 1938, the concept of a 40 hour work week was enshrined in national labor regulations.

In the decades following WWII, the average work week hovered between 39 and 41 hours. As the Boomers assumed their dominant role in the workforce, however, it began to climb for the first time since prior to the Great Depression, and by the mid 1990’s was in excess of 47 hours a week for the entire working population. The race was on!

Just as it doesn’t take an economist to understand why a having lot more people creates additional demand, so it doesn’t take a PhD to explain why working more produces more. Combine a generation that was 50% larger than its predecessor, and have that much larger labor force work 20% more, and you have a rising tide that has carried the US economy through today.

But even those factors don’t fully explain the force that was the Baby Boomers. Driven to succeed, they sought new ways to increase household income. One of those became obvious. As the university system opened up to women, educated and ambitious Boomer moms were pressed into service as wage earners. The two income family became the new norm.

Between 1970 and 1980, while the US population increased by 11%, the workforce grew by an astonishing 29%!

“Work-Life Balance” wasn’t a term before the Boomers, simply because it wasn’t a widespread issue before the Boomers. The returning WWII GIs didn’t wrestle with the dividing line between work and life. There was work, and then there was life. You left the office at 5:00 (or the plant when your shift ended) and came home to your life. In the idealized middle-class family, Mom had spent the day caring for the children and preparing dinner. Weekends were for outings and backyard time with friends (in your new subdivision home).

Boomers abandoned that model by the millions. Although the wife still assumed the bulk of the duties of child care and food preparation (and does today), she had to fit it in around a work week spent supporting a lifestyle of success.

In 1984 (when the Boomers ranged from 20-40 years old- prime child-bearing time) Chrysler Corporation introduced one of the greatest product successes of the decade; the minivan. Built on a car chassis (so women could drive it more easily) it had the first feature that acknowledged automobiles as something other than transportation- cupholders!

Now families had transport that accommodated their need to feed children in between school and activities and home. McDonald’s installed its first drive-through window in 1975 (the oldest Boomers had just turned 30). Mom became an efficiency machine, going from work to school to soccer without ever getting out from behind the steering wheel.

In a foreshadowing of what happened to many products that depended on Boomers to support them, over 1 million minivans were sold in America in 2005, when the youngest Boomers turned 40. By 2008, just three years later, minivan sales had dropped by 80%, to just over 200,000. The Boomers were now in their 40s and 50s. More affluent, they could afford to move up en masse to SUVs. (Everyone had cupholders by then.)

The Boomers had reshaped society, first as children, again as working adults, and now as parents. This reshaping went much further that simple productivity. In their quest for identity through work and material success, the Boomers were about to engineer the biggest change of all.

Since 1776, with a small drop during the Great Depression, every generation of Americans has begun promptly producing a new, larger generation upon turning 20 years old. The Boomers broke that mold. Their need for higher education and early focus on potential careers delayed their marriages and child-bearing by years. Once they began having children, the challenges of juggling job and family, along with medical advancements in birth control, led them to have fewer children than their parents did.

As a result, the tenth generation born as United States citizens (known by their Roman numeral as “Generation X”)  was smaller than the Boomers that preceded them by almost 10,000,000 lives.

By now, you have had enough indoctrination regarding the economic effects of rising and falling populations to understand the implications of a shrinking work force. It is no coincidence that the suffering economies of Europe, Greece, Italy, Spain and Portugal, have had the four lowest birth rates in Europe for the last 30 years. Fewer workers are simply bad for an economy.

But Generation X will impact retiring Boomers through more than just numbers. They grew up in minivans, watching their parents work longer and harder in pursuit of success. They aren’t impressed by the results, and are returning to values that separate work from life.

That may be good for them, but it isn’t promising for Boomer business owners on many different levels.

(This is the fourth installment in a series about “Beating the Boomer Bust.” Previous installments are The Approaching Tidal Wave, The Pig in the Python and The Brass Ring.)

 

The Brass Ring

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A long, long time ago (I’ve actually ridden only one such in my lifetime) Carousels had a spring-loaded sleeve of brass rings protruding near the innermost (and least popular) track of horses. A bigger kid could lean out and yank a ring from the sleeve with considerable effort, and be rewarded with a free ride.

Today, of course, we can’t even read the description of such an ill-conceived device without cringing at the thoughts of fallen children, their bodies horrifically mangled in the giant gears of the turntable, and the litigation and public outrage that would follow. Times change.

“Reaching for the brass ring” has become a metaphor for chasing success. As I discussed in last week’s column, the massive number of Baby Boomers would have affected the economy regardless of their other tendencies, but their commonality and competitiveness raised that impact by an order of magnitude.

If you are a Boomer business owner, I defy you to say that you’ve never complained about the work ethic of the younger generation. From the mid 70’s to the mid 90’s (prime time for Boomers in the workforce) American white-collar workers saw the rise of an average work week from just over 40 hours to almost 54. This while our European contemporaries were  campaigning for (and winning) 35 hour weeks and ten weeks of vacation. What made American Boomers so competitive?

Our numbers. There were simply too many of us to accommodate at every stage of our lives. Just as the impact of ageing Boomers leaving the workforce will come as a surprise to most, so the flood of people into schools, homes and jobs took the majority of businesses (and governments) by surprise.

I attended public schools in the 1950’s where 45 or 50 children were the norm in a classroom. It had nothing to do with unenlightened teaching methods or weaker unions. There simply weren’t enough classrooms. Between 1945 and 1957 the annual number of new births in the country increased by 53%, from 2.8 million to 4.3 million. They couldn’t build schools fast enough.

When I started college in the late 1960’s, they were pulling trailers into muddy fields and calling them community colleges. There weren’t enough universities for all those who wanted to attend. And when I graduated and applied for a position in corporate America, their hiring offices were like the Department of Motor Vehicles, with group testing and rows of interviewing offices.

It was a time of plenty in America, but there wasn’t enough of what the Boomers were seeking. The “Spock Babies,” as we were called, had been raised to believe that every one of us could, and should, succeed. We all expected the corner executive office, but there weren’t enough places for everyone.

(An aside: I’ve always been curious about Gene Roddenberry’s selection of a name for the First Officer of the Starship Enterprise. Was there some subliminal appeal that helped make Star Trek one of the most popular Boomer shows in history?)

From 1966, when the first Boomers turned 21, through 1975, the rate of college graduations in the United States tripled on an annual basis, from just over 600,000 to nearly 1,700,000 a year. (See the timeline at The Boomer Bust)

Baby Boomers competed for the better places in schools and for admission into the better universities; and then competed fiercely for jobs when they graduated. Once employed, they were part of a glut of other qualified Boomers; roughly the same age, and with similar qualifications. The brass ring went to the ones that worked hardest, longest and smartest. An entire generation accepted competition as a way of life. It was a numerical inevitability.

But many Boomers were squeezed out by the numbers, or were disinclined to engage in a battle for promotions and raises. They still wanted the gratification that Dr. Spock said they should have. They still expected the brass ring.

They went into business for themselves.

From 1975, when the first Boomers turned 30, until 1986, the formation of new businesses in America jumped from 300,000 to 700,000 annually. By 1990, when the oldest Boomers turned 45, the number of new business formations had fallen back to 600,000. It has remained there since. As our population has grown from 190 million to 310 million, the number of business start-ups has been flat.

The massive number of small businesses in the United States, the source of 67% of all new job creation since 1995, is clearly the product of millions of Boomers who sought success outside traditional wage-paying jobs. For the first time since the industrial revolution, (when production consolidated into large enterprises) America became a nation of shopkeepers again.

These are the businesses that are beginning to be sold. Whether there are enough buyers is another question.

Picture Credit

The Pig in the Python

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The title of this section refers to a well-known biological phenomenon. The python family of snakes have hinged jaws that allow them to swallow animals much larger than their heads. These animals are gradually consumed as they pass through the snake’s digestive system. If the prey is very large, you can plainly see the shape of the animal as it moves through the snake.

It is just as easy to identify the progress of the Baby Boom generation through the American population. Whatever stage of life the Boomers were experiencing, the country was experiencing. And we all experienced it together. (see my timeline at The Boomer Bust) Although the pure size of the Boomer generation underlies a lot of its impact, there were two other factors, commonality and competitiveness, that greatly enhanced it.

I grew up in the industrial Middle-Atlantic Northeast. “Ethnicity” in my world meant Polish, Italian, German or Irish. Of course we had discrimination, bigotry and ghettos. I cringe at some of the racist nursery rhymes I was taught by my friends. (Thankfully, if I recited them at home my parents quickly explained why those words were bad.) But we didn’t have Jim Crow laws, or poll tests, and although my schools were largely white, it was as a reflection of the neighborhood, not of the law.

I had no idea what rhubarb or okra were until I was an adult. I had never heard of ice fishing. Iced tea came in one flavor; if you wanted it sweet you put sugar in it. When I was 20 or so, I remember reading a debate in a restaurant industry magazine about whether America was ready to accept a regional ethnic food as mainstream…pizza! I had a pizza parlor on virtually every corner. It shocked me to realize that everyone else didn’t.

Like most early Boomers, I grew up in a culture that was defined by regional and ethnic dominance. Children had for generations grown up with roughly the same attitudes, the same ideas, and the same habits as their parents. They just hadn’t experienced much else.

Then came television. The first stations broadcast in the late 1930’s, and television was a huge hit at the 1939 World’s Fair in New York, but WWII had put a stop to production of TV sets. Returning GIs were ready to spend on consumer goods, and factories built for wartime electronics production were more than ready to deliver. In 1948 the first networks began broadcasting syndicated content, and in 1951 color televisions first became available. The oldest Boomers were 6 years old.

Unlike almost every other country, the United States developed television as a private enterprise. As in radio, content was paid for by commercial advertising. In fact, many of the consumer brands that made radio so successful were the first to move headlong into the new medium.

Thus people watching television became “consumers.” The success of a show was determined by the number of products it sold. How long do you think it took for these advertisers to figure out that two out of every five people in the country could be targeted as a distinct audience? For the first time, a generation was identified as a market, and sold to by age, not by the regional or ethnic orientation of their parents.

The WWII generation had already proven their willingness to spend on their kids. Scarred by the Great Depression, they focused on working to give their kids got the things they had lacked. They started by making Benjamin Spock’s 1946 book, The Common Sense Book of Baby and Child Care a huge hit, buying 500,000 copies in its first six months.  Children’s toys, books and shows quickly became an entire segment of the marketing industry.

For the first time, children were growing up encouraged to perceive themselves as children. They weren’t little adults in training. They weren’t just future farmers, or future factory workers. They were taught by parents and advertisers to think of themselves as children first, and as the life successors of their parents second.

And, for better or worse, 78,000,000 of them were all being raised pretty much the same way, at the same time.

Commonality made the Boomers a cohesive force in the American culture and economy like no generation before them. But sometimes that commonality took on the aspects of a school of fish, where thousands of individuals all turn in the same direction at the same time. This happened again and again and, as you will see, not least in the transformation of small business in America.

When it was combined with Boomer competitiveness, it changed everything. Next week, how the American Baby Boomers became the hardest workers in modern history.

The Approaching Tidal Wave

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A year ago this month, I began speaking to business owner groups about “Beating the Boomer Bust.” Since then I’ve delivered the presentation over 20 times, both locally and to national groups, and the requests for it are increasing.

It’s the product of a year of research, and of fifteen years helping business owners prepare to leave their companies. I’m convinced, actually I am certain, that small business owners in America are ignoring a tidal wave of change that, just like a real tidal wave, will leave a few small businesses untouched while wiping many others from the face of the planet.

Am I being dramatic? Absolutely. Am I being overly dramatic? Not in the slightest. Peter Drucker once said “I don’t predict the future. I look at what has happened already and point out the inevitable result.”

Two years ago I set out to learn whether the birth rate curve of the Baby Boomers was duplicated in other areas of American society and the American economy. Not only did that prove to be the case, but the correlation is shockingly perfect. When the Baby Boomers reach  an age where specific life activities would normally be expected, the incidence of those activities escalates overnight (with one notable exception that I’ll discuss in future weeks), in volumes not seen before or since, and exactly corresponding to the birth rate increase that started in 1945.

Describing it as a tidal wave isn’t at all metaphorical. Like a tsunami, it is well documented. The causes are known. It is traveling at a defined rate of speed. Its arrival is both inevitable and on a schedule. It will get higher and more dramatic as it approaches the coastline (Boomer retirement ages), and those who ignore the warning signs will be very, very sorry.

The impact will be universal, but I am going to focus on the implications for small business owners. Those who are exiting now will still have some options between selling to a late-stage Boomer and selling to Generation X, and should know what the differences are. Those Boomer owners who are planning to move on (perhaps not retire – another topic we’ll address) in the next 10 to 15 years need to understand the changed market that they will be selling in. Late-stage Boomers should be building a very different business than the ones they started or purchased. Post Boomer entrepreneurs need to assess the many opportunities that these changes will create.

Let’s start with defining the Baby Boom. Most of us know what it is, but it’s more than just a mere demographic description. Since this entire series will be about the inevitability of numbers, we should put the boomers in an economic context. Their numbers helped determine the personality traits of a generation, and of the generations that followed.

An important fact to understand in our discussion is that the Baby Boom is an American phenomenon. We were late to join World War II, and suffered far fewer causalities as a percentage of our young male population. In addition, the US was never a battlefield in the war, so our returning armies were discharged into a healthy infrastructure, with an industrial base fully geared up for maximum production.

In 1945, as the GIs began returning from WWII, the US population was 140 million, and the birthrate was about 2.8 million. That number of births had been roughly consistent, between 2.5 and 2.9 million, from 1900 onward, with one noticeable dip in the middle of the Great Depression.

In 1946, the birthrate exploded to 3.47 million, a 24% increase in one year! New births broke the 3.5 million mark for the first time in 1947, 4 million in 1954, and peaked at 4.3 million in 1957. They didn’t fall back below 3.5 million a year until 1971, and then didn’t reach the 4 million mark again until 1989.

In 20 years (1945-1964) the United States had added 78 million new, natural-born citizens to the population. By 1965 the US population had grown to about 195,000,000. which meant that two out of every five people in America was under 20 years old!

This was the uniquely American phenomenon that was to influence everything for the next sixty years. The impact of the Baby Boom has changed social and cultural mores, the job market, business structures and economics. As they exit the workplace, the Boomers will have one more giant shift to their credit, and it will change the face of small business in America.

If you are a Boomer business owner, know a Boomer business owner, or provide services to a Boomer business owner, I encourage you to share this first chapter of the series. By the time we reach the end, I can promise you that you will view the next ten years in a whole new light.