The tradition of leaving a business to one’s progeny may be about to get more complicated, thanks to a new generation who views work and business differently than their parents and grandparents.
Millennials are often stereotyped as commitment-phobic, obsessed with technology and social media, and more than willing to flout traditional business conventions (think T-shirts and flip flops at a board meeting). Of course, no characterization can apply to everyone born during a certain time period. But the fact is, there are often significant differences between how adults in this age group approach work, business, and life when compared to baby boomers.
“Born between 1980 and 2000, Millennials are about 80 million strong, and we are on the brink of receiving over $30 trillion,” says Bryan Kuderna, Certified Financial Planner and author of Millennial Millionaire: A Guide to Become a Millionaire by 30. Much of this wealth will come through the inheritance of small business.”
If you are among the many baby boomers who will be selling or transferring a business to a Millennial in the next few years, how do you maximize the chances for a successful transition?
Here are three questions to ask before turning over the reins:
1. What Is Their Motivation and Passion?
If you think money is the main motivator for Millennials, think again. There are certainly those who are highly motivated by money and willing to put in long hours to earn it. But it is not unusual for other important factors, such as the opportunity to make a difference, to weigh just as heavily in their decision-making process. “Millennials are easily swayed by public opinion (i.e., Occupy Wall Street), and liable to scrap three generations of work if it can’t be considered ‘Green’,” Kuderna writes in his book.
Indeed, according to the Monster Multi-Generational Survey:
Millennials are looking for a career that offers greater purpose beyond just earning a salary (74% vs. 69% across). Flexibility is also a key driver in career decisions: In fact, Gen Y ranked paid time off (60%) higher than competitive salary (54%), and valued flexible work options more than other generations (37% vs. 33% across generations).
Probing and understanding motivation is important for those planning on leaving their business to the next generation. While Millennials may approach the business and the opportunities it offers differently, you want to make sure they are committed to its success.
“You can’t force someone into a business,” Kuderna writes, “They need to want it as bad as you did.” If there is a lack of passion for the business “it is easy for vendors or customers to notice and the quality will deteriorate.”
2. Can They Afford to Buy the Business?
This is a debt-burdened generation, warns Kuderna. “We go to school for 4 to 6 years, spend $150K on education, only to end up back home searching for a job.” Millennials may not be able to buy the business (or buy out key partners), or even get a small business loan to finance it.
Instead, you may have to consider a succession plan that considers sweat equity as part of the purchase, he suggests. Or utilize executive retention plans that reward key players or rising stars with a funding vehicle to one day buy shares in the company. A slower transition may be necessary, so start planning early before illness or other calamities force your hand.
3. Can You Help Them Succeed?
Your Millennial business owner is going to run things differently. He or she will likely embrace technology in a way you never did, and may shake up traditional conventions, whether that’s dress code, work hours, or working remotely.
“Don’t be so fixated on how we get the job done, so long as it gets done,” suggests Kuderna. But watch out for a sense of entitlement that could poison the business. Kuderna suggests Millennials who will inherit or take over family businesses fall into two main categories:
- Those who feel entitled to the business created by their parents or grandparents. They think, “I grew up in this business and it will always be there; there’s nothing to worry about.” Think Paris Hilton here, he says.
- Those who have only known the family business, and either want to grow it or can use what they’ve learned to create their own success. Think Ivanka Trump.
They are almost polar opposites, he says, and “if they are on the bad (end), they can go off the deep end.”
He urges owners to let these prospective owners prove themselves. “Treat them like any other employee so they have to earn their keep,” he recommends. Then work with them to ensure a smooth transition by helping them work with key employees and introducing them to key customers.
The good news is that many Millennials—66% according to a Bentley University study—want to be entrepreneurs. By asking key questions and planning ahead, you can help ensure your business continues to thrive under their care.