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The Retiring Business Owner Myth
Jon Matzner
April 15, 2024
The Retiring Business Owner Myth: Why the "Grey Wave" Isn't What You Think
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We've all heard the narrative: a tsunami of baby boomer business owners are set to retire, unleashing a flood of business buying opportunities.
They call it the "Grey Wave," a seemingly inevitable surge of businesses hitting the market, ready for eager buyers to snatch up.
But like most popular narratives, this one is more myth than reality.
Yes, there is a significant number of retiring business owners.
Demographics don't lie.
However, the assumption that this translates into a frothy buyers' market for quality businesses is misguided at best, and dangerously misleading at worst.
The truth is, many of these businesses should simply shut down.
They're not valuable assets waiting to be acquired; they're more like old cars destined for the scrap heap.
Just because a business has been around for decades doesn't mean it has a future, under a new owner.
Of course, there are some that have value to an existing player… who, for example, buys the customer list or equipment.
Smaller still are ongoing business that would be appropriate to buy as a new entrant - that only make sense under appropriately “Risk Adjusted” deal terms… seller notes, earnouts, that kind of thing.
Smaller, ever still, are ongoing business that would be appropriate to buy as a new entrant, with full recourse SBA 7A loans, and at the current financing rates.
The reality is that truly high-quality businesses are still rare, and will remain rare.
Like any rare commodity, they command a premium.
This isn't to say that there aren't opportunities out there.
Of course there are.
But the idea that we're in some sort of buyers' paradise is mental masturbation.
Picture a true buyers' market.
High-quality businesses would be abundant, with sellers eager to negotiate favorable terms.
Deals would be structured to benefit the buyer, with things like seller financing and other buyer-friendly terms as the norm.
But that's not what any of us who do this, see.
Instead, the market is flooded with overpriced, garbage businesses.
Many are barely hanging on by a thread, riding post-COVID spikes, entirely dependent on the owner.
If you do manage to find a half decent business, the seller and their broker know this… and the pricing expectations are out of this world.
This isn't a buyers' market.
This isn't a buyers' market.
This isn't a buyers' market.
The truth is, it's a mirage, perpetuated by those who stand to profit from the hype.
The real danger of this mirage isn't just that it's misleading—it's that it could pressure amateur buyers into making disastrous decisions.
Imagine an aspiring entrepreneur, bombarded with messages about this "once-in-a-lifetime" opportunity.
They're told that if they don't act now, they'll miss out forever.
Fearing this, they rush into buying a subpar business.
One they don't truly understand and aren't equipped to run.
They probably finance this purchase with full recourse debt, putting their personal assets on the line.
They've been sold on the idea that massive recourse debt to buy a business from a boomer is the “smart way” to get started in small business.
But when the reality of running that business sets in— they find themselves in the pain cave.
Soon they're facing not just the failure of their entrepreneurial dream, but a financial setback that could take years, if not decades, to recover from.
(I’d laugh, but I get messages from these people on Twitter, and it sucks)
And for what?
A business they never should have bought in the first place, sold to them under the guise of a “generational opportunity.”
This is the real cost of the "buyers' market" myth.
It's not just about misleading people about the state of the market.
It's about the very real human consequences of those misperceptions.
Rushing or feeling pressure to make a business purchase, especially with full recourse debt, is a recipe for disaster.
So to all the aspiring business owners out there, my message is this: Don't let the "buyers' market" hype push you into a bad decision.
There are many many many many many ways to get started in small business, without (literally) betting the roof of your childrens’ heads.
… and if you decide to pursue the acquisition path, have the courage to walk away from a bad deal, no matter how much the broken deal fees hurt your soul.
Yallah Habibi,
Jon
Passage of the Week:
Whether you’re a student, a teacher, or a parent, I think you’ll appreciate this story of how one teacher can completely and permanently change someone’s life in only a few lessons.
I was seventeen and about to start my first year at Berklee College of Music.
I called a local recording studio with a random question about music typesetting.
When the studio owner heard I was going to Berklee, he said, “I graduated from Berklee and taught there, too. I’ll bet I can teach you two years of theory and arranging in only a few lessons. I suspect you can graduate in two years if you understand there’s no speed limit. Come by my studio at 9:00 tomorrow for your first lesson, if you’re interested. No charge.”
Graduate college in two years? Awesome! I liked his style. That was Kimo Williams.
I showed up at his studio at 8:40 the next morning, super excited, though I waited outside before ringing his bell at 8:59.
He opened the door. A tall man in a Hawaiian shirt and a big hat, with a square scar on his nose, a laid-back demeanor, and a huge smile, sizing me up, nodding.
(Recently I heard him tell the story from his perspective. He said, “My doorbell rang at 8:59 one morning and I had no idea why. I run across kids all the time who say they want to be a great musician. I tell them I can help, and tell them to show up at my studio at 9:00 if they’re serious. Nobody ever does. It’s how I weed out the really serious ones from the kids who just talk. But there was Derek, ready to go.”)
After a one-minute welcome, we were sitting at the piano, analyzing the sheet music for a jazz standard. He was quickly explaining the chords based on the diatonic scale — how the dissonance of the tri-tone in the 5-chord with the flat-7 is what makes it want to resolve to the 1. Within a minute, he started quizzing me.
“If the 5-chord with the flat-7 has that tri-tone, then so does another flat-7 chord. Which one?”
“Uh… the flat-2 chord?”
“Right! So that’s a substitute chord. Any flat-7 chord can be substituted with the other flat-7 that shares the same tri-tone. So reharmonize all the chords you can in this chart. Go.”
The pace was intense, and I loved it. Finally, someone was challenging me — keeping me in over my head — encouraging and expecting me to pull myself up quickly. I was learning so fast, it felt like the adrenaline rush you get while playing a video game. He tossed every fact at me and made me prove that I got it.
In our three-hour lesson that morning, he taught me a full semester of Berklee’s harmony courses. In our next four lessons, he taught me the next four semesters of harmony and arranging classes.
When I got to college and took my entrance exams, I tested out of those six semesters of requirements.
Then, as Kimo suggested, I bought the course materials for other required classes and taught myself, doing the homework in my own time. Then I went to the department head and took the final exam, getting full credit for those courses.
By doing this in addition to completing my full course load, I graduated college in two and a half years. I got my bachelor’s degree when I was twenty.
Kimo’s high expectations set a new pace for me. He taught me that “the standard pace is for chumps” — that the system is designed so anyone can keep up. If you’re more driven than most people, you can do way more than anyone expects. And this principle applies to all of life, not just school.
Before I met Kimo, I was just a kid who wanted to be a musician, doing it casually. Ever since our five lessons, I’ve had no speed limit. I owe every great thing that’s happened in my life to Kimo’s raised expectations. A random meeting and five music lessons showed me that I can do way more than the norm.