America has experienced the worst inflationary economy in 2022 since the early 1980’s (https://www.thebalancemoney.com/u-s-inflation-rate-history-by-year-and-forecast-3306093) due to excessive spending in Washington DC creating an environment where demand exceeded supply (https://capitalhillnews.com/morgan-stanley-says-inflation-caused-by-excessive-biden-spending/), the Biden Administration’s energy policies causing shortages of products that touch every element of the nation from moms driving kids to school & soccer practice to products being delivered from E-Commerce purchases to construction equipment run of diesel fuel (https://www.uschamber.com/energy/energy-and-inflation-5-things-you-need-to-know-now), and economic leadership being slow to identify the problem and react by raising interest rates (https://www.marketwatch.com/story/the-fed-should-raise-interest-rates-now-11641354405), one of the prime tools used to stifle inflation.
Unfortunately, things in the United States economy are likely to get worse before they get better (https://markets.businessinsider.com/news/stocks/economy-outlook-gdp-growth-2023-2024-recession-risk-inflation-fed-2022-6?op=1), as it takes time, superior executive leadership, and appropriate action to change the economic direction of the largest economy in the world.
Time to batten down the hatches and prepare for the incoming economic storm? I believe the reverse is true. The following are seven reasons why I believe 2023 is a good year to consider entrepreneurship as a career option.
- Even at a reduced level of economic activity, the United States economy is still the largest economy in the world with a Gross Domestic Product (GDP) of approximately 23 trillion dollars (https://www.investopedia.com/insights/worlds-top-economies/). A painful decline of 3 – 4%, which is what happened the last time domestic energy policy was impacted by poor government policy decisions and a dependence on foreign oil rather than United States energy production (https://www.history.com/news/us-economic-recessions-timeline), would still leave America as the land of opportunity with more entrepreneurial possibilities to sell goods & services than in any other country in the world. China, the second largest economy in the world is still over 20% smaller than the USA’s economic engine and the next five largest national economies (Japan, Germany, United Kingdom, India, and France) combined have a total economic power less than 10% greater than China, but still significantly smaller than America. Simply, stated 96 – 97% of customer opportunities in the largest economy of the world is a much better venue for business ownership than anywhere else.
- It is always coldest in the night before the dawn of a new day. Spring always follows winter. Recessions historically have been less than two years in length. The recession that resulted from the dot.com crash about twenty years ago, one felt strongly in the Pacific Northwest, was less than a year. Fortunes are made by being at the right place in time with the right products and services. Entrepreneurship takes risk. I anticipate in 2024 and 2025 we will be seeing stories in the press about people who identified an opportunity and executed successfully in the business community. The question is do you want to read a story or be the featured party?
- The middle of the Baby Boomer population, people born in 1955, will be turning 68 in 2023 (https://www.census.gov/library/stories/2019/12/by-2030-all-baby-boomers-will-be-age-65-or-older.html). Full social security benefits are available at age 67 to anyone born in 1960 or later (https://money.usnews.com/money/retirement/social-security/articles/what-is-the-full-retirement-age-for-social-security). These facts mean that in 2023 over half of the Baby Boomer population will be eligible to retire with full social security benefits. Many Baby Boomers pursued the American Dream and built companies. A large number of them do not have interested family members in taking over the helm of the family ship. This unique historical dynamic is creating a buying opportunity in the business brokerage marketplace with more quality, mature, profitable privately held companies and family businesses being for sale than at anytime in recent history. Many of these businesses represented by large, established regional firms like IBA are being sold in competitive marketplaces in multiple weeks or a few months after being first offered for sale. It is recommended that buyers interested in these companies engage with firms proactively and not wait to see businesses advertised for sale in the public domain, as many of them do not spend long on the market, if they reach there at all.
- In periods of economic contraction, companies often assess personnel in terms of productivity (https://www.inc.com/jt-odonnell/heres-why-these-3-types-of-workers-will-lose-their-jobs-in-next-recession.html) in relationship to compensation. It is common for them to focus analysis at the middle management and vice-president level to determine if direct reports can skip a level with a position being eliminated, lower cost people are ready for promotion and more responsibility, and if high compensation staff are being paid for what they did versus what they are doing. Many of the people under this scrutiny are in the 50 – 70 year old demographic group. It is not uncommon for knowledgeable, experienced, highly skilled, risk acceptant parties in this pool with capital reserves to problem solve through layoffs or the potential of being let go or asked to retire on the company’s rather than their own timetable to buy a business or franchise to bridge the time gap necessary to facilitate retiring on their own terms with appropriate financial resources, so they can age with dignity in comfort. One of the advantages of owning a business versus being employed is that a business can be sold as an exit strategy. It is common for IBA to sell entrepreneurs in this demographic group companies and have them return 7 to 10 years later to have us execute a sales strategy that facilitates retirement. There is no greater testimonial a business broker can receive than to have a buyer return as a seller years later with the knowledge they bought a company in a professionally facilitated transaction at a fair value that met or exceeded they expectations with a desire to have that professional do for them what they did for their prior client.
- The best place to be in an inflationary economy is in the ownership chair. This is true because only in an ownership position can pricing be adjusted and expenses managed to protect or increase profit for personal benefit.
- The best place to be in a recessionary economy is in the ownership chair. This is true because the last person to be let go in a company is always the owner. Ownership also has the ability to take on more responsibilities to protect personal income. In addition, Ownership provides the ability to support family & friends with employment opportunities when they are experiencing difficult times.
- It may go against your instincts, but inflationary periods are one of the best times to borrow money. This is true for a couple of reasons: First, inflated future dollars facilitate the cheaper payback of borrowed capital. Second, loan interest rates, although what may be perceived high at inception, will often adjust automatically as they fall or can be refinanced in the future. In May 2005 the Prime Interest Rate was 6%. It peaked at 8.25% in June 2006. January 2008 it was back to 6%, a complete cycle managed by the Federal Reserve in less than three years (http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm). The case could also be made that we have been living in a time of artificially low interest rates for numerous years. The average Prime Interest Rate in the United States from 1950 to 2022 is 6.49%. Entrepreneurs incorporate market dynamics into their business models. Success has been achieved by business owners in every economic environment throughout the history of the United States.
Joe Rogan, launched a podcast in December 2009, following the guidance of his famous quote “The Universe Rewards Calculated Risk & Passion”. Today, his podcast is one of the most listened to information/entertainment sources in the world (https://www.edisonresearch.com/top-50-most-listened-to-podcasts-in-the-u-s-q2-2022/). Opportunity is knocking for those who wish to push off from shore and seek new horizons. The sea ahead will likely have turbulence, but the potential positive outcomes are limitless. IBA has been successfully sending people on successful entrepreneurial journeys since 1975. We welcome the opportunity to share our knowledge, experience, and resources with business buyers. All conversations are held in strict confidence.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.