Happy Monday, everyone. There’s some compelling new AI research, but I want to do the big picture first.
Consumers are pushing back against price hikes, as indicated by earnings calls from consumer-centric companies. The Consumer Price Index report shows inflation cooling off, prompting companies like PepsiCo and Conagra Brands to consider value adjustments and address significant price increases. Delta Air Lines has also experienced resistance from consumers who are unwilling to pay higher ticket prices. Businesses are becoming more cautious about raising prices due to consumer sensitivity and stabilizing input costs, which may preserve their profits.
According to the Federal Reserve’s Small Business Credit Survey, small businesses with one to four employees face larger revenue declines compared to their larger counterparts. About 40 percent of these small businesses reported declining revenue, while only 40 percent saw revenue growth. Profitability is also lower for the smallest companies, with only 42 percent turning a profit and 40 percent operating at a loss. Factors like inflation and labor shortages have a more significant impact on the smallest companies, which already operate in a lean manner. However, this doesn’t mean these businesses are doomed to fail, as resilience and adaptability can help them weather challenging periods.
And I spotted this data point: The retirement of Baby Boomer small business owners is expected to significantly impact rural America, with many businesses likely to close as 52% of U.S. employer firms are owned by individuals over 55, per 2022 US Census Bureau Small Business Survey. This “silver tsunami” could lead to a mass exodus of retiring business owners in the next five to ten years.
Why do we care?
It’s difficult for many businesses to think about market conditions five to ten years from now. If you’re a baby boomer listener, you are more likely to retire yourself than worry about that data point. But my data on the listenership of this podcast tells me most of you are younger than that.
In your client meetings, I would start surveying the ownership to understand their operational time horizon, and leverage this data point for planning for transitions and retirement. With intellectual property as the main asset for many businesses, ensuring that is organized and ready would boost the value of the business. It has added side effects of preparing for AI too, but I suspect for most small businesses a discussion about the long term value of the business as it relates to data, with an eye to business transition, would resonate. And for younger owners, you can acquire these ending businesses.