Australia’s small and medium business sector is poised for a major generational shift, as senior custodians prepare for retirement and consider their succession options.
Yet entrepreneurship remains a hard sell for many younger Australians, causing many family-run businesses to question if they will stay family-run.
That uncertainty is opening new opportunities for outside investors, who promise a third option beyond voluntary wind-ups or sale to a competitor.
Founding a small business was once considered a mainstream ticket to financial security, or at least a fair chance to make a living.
Contemporary data suggests that has changed in the past 40 years, and young people are less likely to lead a small business than they once were.
Nearly half of all small business owners are aged 50 or older, a proportion which has increased every year since 1996, according to the Australian Bureau of Statistics.
Some 22% of business owners are aged 60 or over; on the other end of the spectrum, just 8% are aged under 30, a proportion which has halved since 1976.
Groups like CPA Australia suggest young people may be wooed by the relative stability of employment, while many employer organisations suggest the regulatory and financial difficulty of establishing a business could deter younger founders.
Government policy in recent years has focused on economic dynamism, which means encouraging more new businesses into the economy to challenge multinational incumbents.
The same generational challenge also appears in many well-established businesses: beyond founding a small business, do young Australians still want to take over an existing one?
And what happens if the answer is ‘no’?
“The idea of a 20-something-year-old taking over the stationery distribution business is probably not sexy to them,” said Jason Andrew, chartered accountant and founder of Arbor Permanent Owners.
“‘No, that’s really boring, all you do is sell stationery to X, Y, Z customers,’” he said. “‘I want to do something in tech, or digital, or with a creative skillet.’”
Speaking to SmartCompany, Andrew suggested genuinely valuable SMEs often fall outside that scope.
“Really, the backbone of the economy is boring businesses,” he said.
“The trade businesses, the manufacturing businesses, the food production businesses.
“These things have been around for decades, and are an important part of the Australian supply chain that are probably not interesting to young people, because they’re not in tech, or not in digital.”
That is certainly not true in every case, and family succession planning is hardly a lost art.
Still, Andrew is convinced the generational gap poses an opportunity for savvy investors — and custodians considering their future.
Arbor Permanent Owners is part of a small but growing cluster of ventures promising a middle ground between a competitive buy-out, or a private equity acquisition likely to tear out a family business’ culture.
Some alternative options do already exist.
Search funds — investment vehicles allowing first-time entrepreneurs to purchase a business instead of founding their own — are present domestically, but have only recently emerged in the Australian market.
Investment vehicles like the Australian Business Growth Fund have the same interest in mature and profitable SMEs, yet that particular fund does not take a majority stake in the businesses it invests in.
By contrast, “our mission really is to preserve and protect the legacy of great Australian businesses,” Andrew said.
The venture is seeking “businesses that put the kids through private school, paid the mortgage, and probably businesses that will continue to be around for another 30 years.
“What we’re doing is providing a home for these businesses, basically, and providing an easy succession plan for the vendors of these companies.”
It is still in its infancy and is speaking with family offices and high-net-worth individuals seeking to diversify their investments.
Curiously, ownership over dependable and long-lived businesses is appealing to former startup founders, Andrew said, given their appetite for ‘safer’ investments.
Arbor Permanent Owners has examined 70 businesses in the last six months, underscoring ventures with an average turnover of $25 million, and 20-30% EBITDA profit margins.
More ventures like his own are coming, Andrew added.
“I think there will be more people like us popping up in the next five years who probably are starting to identify the opportunity.”
They will represent a two-way bet: Australian small businesses are worth investing in, and incoming generations may not recognise the ‘boring’ business opportunities lying before them.
“We’re looking at industrial services, looking at manufacturing, businesses building supply products, looking at distributors,” he continued.
“No 22-year-old wakes up one morning and decides they’re going to start a manufacturing business producing widgets for the building industry.
“It’s just not in the same vocabulary.”
Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on LinkedIn.
Senior Business Journalist
Focused on the small business sector, David’s work covers the political, regulatory, and economic issues facing Australian entrepreneurs. Prior to joining SmartCompany, he was a reporter for Business Insider Australia. You can follow him on LinkedIn.
