Innovation and the baby boomer exodus

Published at Dec 18, 2015, in Features

With Australia, in particular entrepreneurs and start-ups, still talking about Malcolm Turnbull’s innovation initiative, it seems there is a consensus that despite being the most comprehensive and integrated package of measures to support innovation and entrepreneurship we have seen for many years, it still falls short in some areas.

Geoff Green MD of GRG Momentum and author of The Smart Business Exit is concerned about the exit of baby boomers and the inevitable consequences this exodus.

Whilst the Innovation Statement is particularly focused on start-ups and will provide a range of tangible initiatives to help new businesses get up and running more easily, improve their prospects of getting funding and innovate more effectively, the baby boomer problem is the elephant in the room.

“The Australian Government needs to focus on two other key areas,” said Green.

The first is to encourage existing business to be more innovative. The second is to ensure innovation is not lost when business ownership changes as it inevitably does as older generations transition.

“A key point made in the Innovation Statement is that Australians are renowned for their smart ideas, but often fail to commercialise them. In other words, we are very inventive but not so innovative,” Green says.

“As the Innovation Statement goes on to highlight – you have to move past inventive and become innovative. It’s innovative companies that go on to build and sell products and services, create jobs and drive wealth creation.

“Many of our established businesses, both public and private, have under developed innovation or good ideas capable of innovation. The Innovation Statement will provide a strong foundation for further initiatives to encourage greater levels of innovation in established businesses. The emphasis on much better collaboration between industry, the investment community, academia, our research facilities, particularly CSIRO, and government is really encouraging as it’s a key to achieving these outcomes.”

However, this is just one facet. The transition of business ownership is the real sleeper.

According to a PwC analysis more than 1.4 million owners employing upwards of 7.9 million people and contributing almost $500 billion in GDP will retire in the next decade.

“We are moving into uncharted waters in terms of business ownership transition due to baby boomer business owners rapidly heading towards retirement,” Green says. “While accurate data on the extent of the issue is problematic, it appears that over 70% of our private businesses, worth in excess of $1 trillion, is owned by baby boomers, most of whom are looking to transition out of their businesses over the next 10 to 15 years.”

This scenario (being referred to by some commentators as the ‘baby boomer business exit tsunami’) is likely to result in many retiring business owners being unable to extract value from their business exit to fund retirement and businesses that can’t be sold being forced to close.

The potential economic consequences of this are significant:

  • loss of jobs
  • loss of innovation (particularly when businesses fail to sell)
  • lessening of competition in various markets
  • the inability of many private business owners to adequately fund their retirement (which will effectively move the burden back to government).

“In over 30 years working in this area I’ve never seen such high levels of innovation being lost due to private business owners not being able to effectively pass their businesses on to new owners,” says Green.

“And it’s only going to get worse as more baby boomer business owners look to exit their businesses.”

There was a good opportunity for this issue to be addressed in the Productivity Commission’s report on Business Set-up, Transfer and Closure, which was released just prior to the Innovation Statement. Unfortunately, there was little focus in the extensive report on the likely loss of substantial innovation as baby boomer business owners exit their businesses.

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