Silver Tsunami: Capture the Past or Create the Future?
The choice is ours, and here now.
In 1980 there was a person who worked to become a plumber. Let’s call him Sam.
Sam was a solo act for a few years. It paid the bills, but demand eventually grew beyond what he could personally service. As a result, he hired another plumber, taking a personal pay cut to do so.
For a while, that hire seemed like a crazy idea. Sam had to hustle to make sure there was enough work to keep them both busy. His paycheck came last–after his employee’s, servicing the work truck, some local advertising, replacing the toolkit. Some months, Sam’s pay was a fraction of his employee’s. Others, it was zero.
Year after year, local plumbing demand outpaced Sam’s team, so he hired and grew. Sam the plumber was now also a one-man hiring, marketing, customer support, and finance department.
Each time a new plumber was added to the team, Sam weighed whether the new plumber was likely to unlock enough business to pay for their wages or salary.
If he got this wrong, despite being over a decade into a successful business, he would occasionally forego his own salary or take on extra jobs himself as free labor for the company.
If he was right, Sam gave himself a share of the profits.
This balancing act happened for decades on end.
Eventually, particularly in the last ten years, it has all started to pay off.
His large, longtime client-base became a predictable revenue generator. He built a stable team of ten and rarely markets himself thanks to loyal clients. It is an efficient six to seven figure revenue generating machine.
For Sam, as the business grew more efficient, he took home more of the profits. Sacrificing his own pay to grow the business eventually netted him a lucrative income stream. It was a laborious, occasionally even harrowing, few decades, but Sam is now comfortable, if not well-off.
The Crashing Tsunami
Sam’s journey is a stereotypical droplet of the “Silver Tsunami.” Here’s a quick primer on this phenomenon:
2.3M Baby-Boomer-owned businesses
Employ 25 million people in America
Less than half have succession plans
In short, Baby boomers own a ton of businesses, employ a ton of people, and have become the wealthiest generation in human history doing so. This is the single largest wealth transfer in the history of humankind – estimated $53TR to be exact.
Proactively dealing with this wealth transfer is a societal priority. Legacies, nest eggs, and the future of our economy are on the line.
I have ideas.
A Frenzy for Lucrative Faucets
The Sams of the Baby Boomer generation built six and seven figure faucets and a lot of them will continue to work for years to come.
Realistically, much of this wealth has been taken home and stored away. It got invested into stocks, real estate, college funds, and more. A lot of this is getting written into wills for the next generation. That said, make no mistake, the vast majority of it came from these businesses. It all started as dollar of revenue or asset/equity appreciation in these small businesses. Silver Tsunami businesses are the crux of this wealth transfer.
There is a frenzy under way to capture the wealth from these faucets. This is the trillion dollar tsunami that is crashing as we speak.
So what do we do?
The free market is already doing the obvious thing. Money and talent are flowing in to secure these wealth generating machines. For example, an earlier newsletter highlighted the search fund opportunity, a micro-asset class (for now) of business-owners-to-be, backed by investors, buying up the stable and profitable Baby Boomer businesses. This is just one of an ever-expanding variety of business models addressing the Silver Tsunami.
That said, keeping a bevy of decades-long profitable business profitable is not the interesting opportunity.
We can leave it to the MBAs to weigh the pros and cons of search funds, hold cos, tech disruption, and whatever other solutions arise. The opportunity is too vast for any single solution to be the right response, as opposed to “all of them” being the right response, anyways.
More importantly, if there was ever a moment of transition from historical economy to future economy, this is it.
Capturing Dollars vs. Creating Value
In Sam’s era, dollars were used to assess value creation. I’ll even concede that this was a “good enough” measure for the time. Through business creation, the Sams of the world created more wealth than the world has ever seen. It was such an effective playbook that we let it run for decades. Hard work and persistence translated into business creation which created wealth for the business builders. This wealth was fine proxy for the value we got as a society from these businesses. It is an amazing time to be alive, and this is a large reason why.
What the old economy didn’t account for, is that Sam is getting old and wants to be done working.
It also didn’t fully account for the massive subsidies the old economy was built off of. Likely unbeknownst to him, Sam rode the financial tailwinds of subsidized capitalism. Yes, there was government subsidy - mortgage rates, social security that will actually be there at retirement), healthcare and education before they became unaffordable hot messes. There was also environmental subsidy. Sam didn’t have to account for his business’s footrpint, nor did his suppliers. His customers didn’t have to care about water waste (yet). The old economy relies on unaccounted for subsidy from all directions.
Sam’s playbook may have been the best we had at the time, but that time is running out and those subsidies are becoming debts.
We should be demanding that the successors of the Silver Tsunami work off of a new playbook.
They don’t have to.
The Silver Tsunami is by default a value capture opportunity. That is why everyone is clamoring to find how to fit their solutions onto annual six figure faucets like Sam’s?
Occasionally, the next in line to that faucet is a longtime employee who was a part of Sam’s journey. Or maybe another local outfit wants to buy Sam’s business and customer base? Perhaps Sam even has a kid lined up to inherit the family business and carry on his legacy?
However, given the scale of the tsunami, hundreds of thousands of times over, a bright-eyed grad student will do the simple math, pitch PE backers, and step into Sam’s six figure job without ever having to turn a wrench, let alone sacrifice to keep the team fed first.
Some successions will seem worthy, some will seem privileged. We will neither grasp all the nuance nor judge it fairly. In fact, let’s accept that the vast majority of successors will be mainly be collecting cush paychecks thanks to their ideal positioning below these faucets. Lamenting others’ wealth is counterproductive.
While Sam may have worked decades to build an income stream, his successor likely will not. That doesn’t mean his successor didn't’ earn the right to inherit the fruits of Sam’s labor fair and square.
However, after the faucet has been captured, we should demand value creation.
Sam’s value creation happened over the course of decades. He built a plumbing business which served his community. The old playbook rewarded him according to the rules of the game.
Sam’s successor is capturing a fantastic income stream from day one, dodging decades of hard work in the process. They owe it to Sam to continue to grow the business’s value to its community, though this time in the future, less subsidized economy.
Sure, that may mean improving on Sam’s plumbing business. Our future economy will still require plumbing.
However, as every politician will repeat, “small businesses are the backbone of our economy.”
Transitioning to our future economy requires we flex this backbone to ditch our inherited subsidies:
Take the silver tsunami cash-printing machine and make it a cash sharing machine. Employee owned businesses outperform their peers anyways. Start redistributing those profits as the first step in growing revenue.
Are there processes of the old business which could be more resource efficient? Doing more with less means making more while spending less.
Could impact-linked compensation become a norm? Is it a matter of retraining our future business owners or applying pressure as communities on our local business owners?
These are my top of mind actions for business beyond subsidized capitalism. You can fill them in with your own too. They require finding a larger reason to exist than simply collecting a paycheck.
When done right, they are competitive advantages and a larger reason to exist. Discovering this overlap is the once-in-humankind opportunity. It won’t be easy, but that is how the Silver Tsunami goes from a value capture to a value creation phenomenon.
The compensation to create is already taken care of. You can thank Sam for that.
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