The Exit Engine Podcast: Episode 2

Welcome to the My Exit Engine Podcast, Episode 2. Hello, John.

Joe, how are you today?

I'm doing great, man. Did you ever hear of the silver tsunami?

You know what's funny? I Googled silver tsunami in business. Guess how many results I got on Google?

I don't know. Was it a lot?

7.62 million.

Million just on silver tsunami.

Silver tsunami in business.

Got it. And Silver Tsunami in business— Silver Tsunami is not a superhero.

That's a good point. We should probably define what we mean by Silver Tsunami.

Yeah, right. So it's not a superhero. I looked that up. It's not. I thought it was originally. I imagine some very gray-haired, you know, grandpa guy, um, on a surfboard.

And we've— funny, we've also— I was just going to Silver Surfer. We've all heard of the Silver Surfer.

Surfer. That's where I'm getting it. That's what it is, Silver Surfer. Okay. All right. So it's not the Silver Surfer.

This is not— this is Silver Tsunami.

Baby boomer economy is actually like a term for a phenomenon that's going to happen, supposed to be happening with the baby boomers transferring all this wealth because they are all hitting retirement age at the same time.

Which is crazy, right? I think the end of the baby boomers, all of the baby boomers will be 65 by the end of 2025 or by the end of 2024.

2025, right? Yeah. So 2024, I think 64 to— yeah, 64 is the end, I think. The birth year, right? So we're going to talk about that today, and it's going to be, uh, but before we get to that, um, thought there's just a couple of things we wanted to kick around. First of all, some, uh, programming notes, okay?

Yes.

Uh, so for, uh, anybody who's watching, for listening, watching this or whatever, uh, thank— first of all, thank you for watching, and please obviously like and follow and do all that cool stuff for us. That would be awesome. Um, share this obviously with anybody that you know who owns a business. And I mean anybody who owns a business, because this is just about the most, probably the most important thing they'll ever engage in if they are smart. And I'm not saying that facetiously, it's true. The reality is, is that anybody who pays attention to what we're teaching and what we're, you know, what we're talking about here is going to be rewarded with a better business and also with a better exit and ultimately a better overall outcome. life and retirement. And we want— our goal here, I was thinking about this the other day, Jon, our goal, get as many people to retire on their own terms as possible. That's what we're doing here. That's what—

I could not agree more. I think that's a noble goal.

Awesome. So we're gonna— so to that end, on the 22nd of May, do you know what the 22nd of May is gonna be?

That is going to be our live event.

Our first live Exit 101 event. This is an event for everybody, no matter what their level, no matter where they are. It's a free event, I should say, and it is going to be about an hour or so long, and it's going to give you the basics of all the things you need to know about developing an exit plan and the importance of exit planning. We're going to have a special guest That is yet to be announced. It's going to be, but that's going to be really cool. We'll talk about that next week. Probably I'll have that locked down, but this special guest is going to help us talk, has a lot of experience in M&A, especially in the smaller, the lower end of the middle market, and is going to help us teach a lot about this kind of hands-on workshop that we're going to do on the 22nd. So I'm really excited about that.

It's great. Looking forward to it.

Absolutely. All right. So before we get to the silver tsunami, one thing I wanted to talk about was I came across this great article that mentioned all of the worst M&A deals that have ever happened in the history of the world.

Well, this will be great.

And I thought I would share just a couple of them with you all because many of them are— almost all of them are really, really well-known names. These are obviously much larger deals than most people will ever enter into. These are multi-billion-dollar deals, but they are very interesting because they are based on— they are all names you know. One of the things that really stuck out to me was this. Do you remember back in the year 2000, There was a company called America Online. Do you remember this?

AOL addresses? Yeah, of course. I never had one.

And yeah, you never had an AOL account?

I don't think I did. No, I'm trying to think. I don't think I did.

No. That was like most people's like first foray into, uh, internet and, uh, chat rooms and stuff like that, right? And I remember working at the advertising agency I was working for and getting on the one modem that we had at the time back in that That was used for mostly for like email routing and stuff like that. And being able to—

All right, we sound a little old right now, but go continue, continue.

I'm very old. No, no, I'm, I am, I, I am. Yes, I'm being, I am being old. But look, we're going to talk about even older people in a minute, so I feel okay about it. But AOL gonna buy Time Warner.

It's funny.

AOL.

Yeah. So I remember it vividly. I was working in Chicago for my first job out of college and I was working in the financial markets. And I remember hearing that AOL was going to buy Time Warner. And I have to say, my first reaction was, what are they doing? Like, why is this online company, why is it a company that Help people get online buying this giant content behemoth.

And that ended up being actually the downfall, because the second they closed, right, this is a $165 billion deal, right? And that basically was all in shares and debt, right, and stuff like that. And basically, so that basically meant that stock— the AOL stockholders now after this deal owned 55% of this new entity, and the Time Warner people owned 45% of it. Okay, so basically the idea seemed fine, both sides were into it. It was kind of like they thought that the cut— that, as you correctly mentioned, that the content and that stuff of AOL and Time Warner together was going to be a big, uh, you know, a kind of a big boon. Um, but what ended up happening, and this is the theme that we're going to talk about a lot here at ExitEngine, Because this is a very, even at the lower levels, this is a very common thing to have happen. The, the, uh, in this particular case, the AOL segment completely lost all its value. All the advertising dollars went away, right? Because the dot-com bubble, if you remember that, completely burst basically the day after they made this agreement.

Right. Yep.

So basically, all the advertising dollars went away. The new entity lost $99 billion in 2 years. Right. Right. The transaction is considered one of the worst mergers.

I didn't realize it was that much, frankly.

I didn't realize that. Huge. Crazy. Right. They basically, they separated again, right back in less than 10 years, they separated back out. And of course, what happened to AOL? It still survives as a baby boomer email account. That's about it.

That's one.

There's another one I wanted to mention. There's one more. This is, so this, again, this is very common. This is, this is at the, even at the highest levels, right? Just because a deal goes through doesn't make the deal good. It's not necessarily a successful deal. And when we're talking to our, to our people in our, in our community here at ExitEngine, one of the things that we, you know, profess is You know, is understanding what it is that you want out of the deal. What is it as a seller? What do you want to get, right? It's not just about money, right? It's about what will happen to the company as a result of this merger or this acquisition. And look, for some owners, the thought is, it doesn't matter. I'm just out. I got my bag and I'm out. That's fine. There's nothing, absolutely nothing wrong with that. But one of the things that stops a lot of deals from happening is that the sellers are unsure about what that will look like, and they can't picture what will happen to the company, to their employees. In some cases, they may even still retain equity, and how will that work? So here's a great example, and we talked about this a little bit last week about— and I know that you've got a great story that I want to hear too. About this exact thing, but let me just give you this big, huge miss in the world. Daimler-Benz, the people that own Mercedes-Benz, Daimler Chrysler, right? Okay. This was in what year was it? 98. Okay. So Daimler-Benz merged with Chrysler, which is at the time was America's third largest car manufacturer, and it was a $37 billion deal. Okay?

Crazy.

It was the biggest acquisition of a foreign buyer of any US company in history. All right? And it was going to make the cars look really good and whatever. I bought my first Chrysler product as a result, right after this merger, and I ended up suing Chrysler for— under the Lemon Law. But that's neither here nor there.

Did you win?

Um, I did. I did, actually. They said— well, they settled. I had to go to deposition and the whole thing. It was great. Uh, but the, uh, issue here is that this is, this is the thing that happens with these acquisitions, and it happens a lot and happens a lot more at the lower levels. And I know you want to talk— I want you— I want to hear your story about this. But the thing that happened here was this was the— this was a clash of cultures. This American car company, right, that's been been around for 100 years almost. Okay, and this and and Daimler Daimler the the Mercedes, right, had been around for just as long in its own kind of culture, but very different cultures.

Very oh gosh yeah.

So right, so the corporate cultures come together. Organizations were never fully integrated. the synergies of the whole notion, the notion of coming together and the synergies they could find and the cost savings and the redundancies and all that stuff they were going to be able to, to get that was going to make them more efficient and all that stuff never happened. Never happened, right? It was supposed to be a merger, like, of 2, like, equal partners. And the reality is, is that nothing was ever integrated. Nobody could get along. The Chrysler people and the, and the, and the Daimler people never really saw eye to eye. And basically it was, it's considered one of the biggest disasters in M&A history. Big fail.

Yeah. And yes, like, yes, they spoke different languages like German and English, and that's like a metaphor for the whole company, right? It's the companies were run so differently. They thought of what they built so differently and what they delivered to customers in just a diametrically opposite way that it was bound to fail. And they should, frankly, they should have known that it was bound to fail and identified, really got down during due diligence and also during those meetings that they know you said they sat around one of those giant boardrooms in either Berlin or Detroit, and they should have figured some of this stuff out and been like, someone should have said, maybe they did, we don't know, said, I don't know if this is a great idea. Because less than 10 years later, Daimler sold Chrysler to Cerberus Capital Management, which is a turnaround firm, right? A private equity firm that turns around companies. So total disaster.

Total disaster. And the Jeep that I bought during that time and the whole thing, I had to return under the lemon law because it was a complete piece of BS. But that's— and that's, look, that's the point is that's the learning. Okay? The learning here is what? That even if you're a big giant company and the whole thing, and you think that there's all these synergies and look at all this stuff that we're going to get and how we're going to make these companies, this company better, or whether that's an actual merger or actual acquisition, the reality is that without planning to a very fine degree, what is going to happen? How are these 2 companies are gonna integrate, right? Am I, am I being bought by a private equity group who's gonna install a new CEO, right? Is there gonna be a whole operational team that's gonna come in? Are the people— what are the roles of the people that are staying behind at the, at the, at the acquired company? What, what's their role gonna be? And, and how do these 2 cultures come together? I had the exact same experience in, in my situation, which was, you know, we got a nice amount of money for our, for the digital marketing company that I owned, but the integration was nonexistent. It was like, it was just, we just worked for another company one day. And while they were integrating our service, meaning that they were starting trying to offer their service to their current existing clients, there was very little actual like, let's work on the cultures coming together. Let's work on the individual kind of people and the roles and how we're going to integrate these things. They just gave everybody a managing director title and said, go for it. It was awful.

And one of my stories, I have 2 stories I want to tell. One, my first job out of college was a consulting company. Long story short, it got— it was— I joined them in '97. It was bought in 2000. And the same sort of deal. The big company came in. I'm not going to mention their name, but they came in and they had their merger plan was written down and it was beautifully typed, as someone has said to me before. And it was on paper. But it didn't make any sense. And what happened as a result of that was we left the company and formed another company to compete with them. And from there, from the acquiring company's perspective, that was a disaster because they wanted to keep everybody, but they didn't do anything with us. They never met with us to say, hey, this is what's going to happen in the future. It was just, this is the plan, get on board. And they didn't even give us— they didn't even mention the option of leaving because they never thought we would leave. So we did. and started another company and competed with them. The second story is what I used to plan for in the mergers and acquisitions that I was doing for another company. And we would plan for leakage and seepage and people leaving, and we would have as high as a 50% threshold for people leaving. And that was still okay from the perspective of us acquiring them, meaning that It still made economic financial sense if 50% of the agents, or real estate agents in that case, left the firm. And there can be all sorts of reasons for that. There could be, you know, geographic reasons. Maybe you get some of the agents who are not productive to do that, to leave.

There's redundancy in cases.

There's redundancy, right?

There's overlap.

Sometimes if we had 5% leakage and people leaving, we'd be upset because we're going to a new geographic area. But I guess the point of what the whole thing was is, yes, you're gonna have people leave. That's understandable, and people may leave for all sorts of reasons. But if you don't understand why they leave, and if you wildly get that number wrong, then quickly, in those 2 cases, the ones you mentioned, AOL and Time Warner and Daimler and Chrysler, it quickly made no economic sense if all this seepage, leakage, client leaving, people leaving, What are you buying? What did you end up buying 10 years later? Then you would realize you didn't actually buy anything.

No, exactly. And I think that the reality is that you would have thought, I would've thought that going into that would've been a lot more less about the money. The money thing is the last part, meaning that the dollar figure you put on the transaction and that kind of thing to me is like the last thing you do. Because what, what should have happened first was, what are we going to— we can, we can sit there and aspire to the notions that, well, obviously there will be some kind of, uh, overlap and, and there will be redundancies and there will be efficiencies we'll find and there will be, uh, ways of, of, you know, production processes and things like that that we will be able to combine together or whatever the reality is. But the, the— but dude, That stuff has to be done as part of the transaction ahead of time. It has to be planned for. You have to know exactly what those things are going to be and how much money it's going to save you and the whole thing, because that becomes part of the valuation.

Yeah, right. That's talked at as of synergies. Excuse me, I spoke incorrectly. That's a synergy, right? That's a synergy that the buyer gets from the seller by, as an example, having only one accounting department, having only one finance department, having only one IT department in the future, right? Those are the reasons, those are the ways you can truly scale if you want to and you're able to get rid of those types of things. But that means, again, someone's gonna have to change. Either Chrysler has to go on the Daimler platform or Daimler has to go on Chrysler's platform. And that wasn't hashed out. I have one more quick thing I wanna mention because this happened, this happened in another acquisition I was a part of. And it was a geographic, and it was sort of like Daimler Chrysler, but it was within this country. We bought a company in California. We were going to use their technology. And man, we're still, we're speaking the same language. We're in the same country. We have the same flag. But man, the culture could not have been more different. And they were good people. We were good people. But New Jersey and California, they had different ideas about How to run technology and how to— they were great at technology. We thought we were great at business and we combined the two. Oh gosh, if only if, if only if we could have done that. And man, we learned a bunch of very hard lessons. And a lot of those lessons, to your point, Joe, weren't discussed before. They were found out after in post-merger integration when we both sort of left the meeting and said like, I remember being on the plane back from California being like, how is this gonna work? And how am I gonna explain this to my boss?

And, and it's the thing, what happens is nobody, no, everybody's afraid to bring it up. If it, if it doesn't come up as part of the process in terms of, right? And, and I think one of the reasons, look, what you did in a past life was kind of run these, these mergers, right?

Mm-hmm.

I mean, your job was to basically say, hey, look, we're gonna, this is what we're doing. Okay. And I'm gonna, I'm going to oversee this whole thing, right? And, and a lot of what, you know, um, the issues that arise from that is if I don't have on my agenda, okay, here's the thing that we need to talk about right now about synergies, what those synergies are exactly, um, what, what we will be doing in terms of— it's easy to say our accounting, our marketing, blah blah blah, all that stuff will now only— we'll only need one of those. But which one?

Yes.

But will you need— because is the market in the rest of the world for the Chrysler product the same as the advertising and the whole thing for the Mercedes product? No, right? Those are different things. So are you really going to actually have synergies there, or are you going to have to have 2 completely distinct, separate and distinct marketing arms for each of those things? My hunch is you're going to need— gonna need those things.

Yes, right.

Accounting. All right, maybe, maybe accounting could be one of those synergies, right? You, you're, you're not— they weren't really— they weren't going into it making a, uh, matrix company that was providing all these kind of services like the way that like Realogy is in the real estate space, right? Um, where that's what they're providing. Each individual arm still has its own marketing department. Each brand has its own strategy and its own people doing that stuff. There's no redundancy there. There's redundancy potentially, or at least synergy, I mean, in tech, in some technology.

Exactly.

There are some things that can pop up from— but the reality is, in this, in the case of Daimler Chrysler, or in any case, the, the learning here for all of us and our community is, is that you need to first, A, pick somebody on your staff, or, or an outside person if you need to, to be the person who heads up this activity. I am going to be the person who runs the merger and/or acquisition from our side. Right?

Yep. And go ahead. Sorry.

I was gonna say, and number 2 is, whoever that person is, their job is to make sure that everything is discussed, everything that can affect the future, all these things, and that we're right and we're not just assuming that there will be synergies here and that we're not just trying to make a deal so that 2 CEOs can get golden parachutes. So that's probably more like what happened in this case. Um, but the reality is, is that if you're really serious about this and you want to get the best potential outcome, which is— which in our world is defined as a— the seller gets the thing they want to have from life.

Okay.

Then you're gonna, you're gonna have to talk about these things and you're gonna have to have concrete plans on how they're going to work. And who's going to be in charge and how the things are going to go and what things are going to go first. You don't wait until the day after the merger is done and the checks have all been cut to start talking about this stuff.

Yeah. And what I view my role in doing that as, or part of it is like checklists, right? You're going through the list of things that you need to do, that you need to integrate, that you need to make a decision on. And I don't know if you remember, Donald Rumsfeld had a book and he had a very famous quote from his book and it was called The Unknown Unknowns. And you have to be comfortable with, there are certain things that you're not going to figure out until the post-merger, but you have to minimize those to make it so small because the unknown unknowns, hopefully that they're small and you realize them and you're like, oh, I didn't think of that in planning. But if you can plan and you can get Like a checklist of things that you need to address and get that checklist as comprehensive as possible. Run it by people, have that person that's managing the list share it with other people and get that list down or get that list as big as possible. And then you run down that checklist to minimize those inevitable things that come up post-merger, that try to make those as small as possible. That was my experience and that helped me a great deal in making Absolutely.

And it's more successful. Totally. And I think that even in an acquisition standpoint where the owner might be leaving completely, all right, in a buyout, and now there might be an earnout involved, there might be equity rollover, there's all kinds of permutations and things like that. There might still be— that owner may still return, may retain some equity or things like that. Maybe they're going to come back as a consultant, a paid consultant, whatever. The reality is that that's probably maybe the best-case scenario because at least you've got that legacy person is there to be able to say and go, whoa, whoa, whoa, you know, hey, this isn't working the way we thought it was going to. The reality though is that if you've got a new CEO installed, for example, as a part of that acquisition, then you are— there's not a whole lot that anybody else can do if that CEO is not willing to, or able, or capable, or whatever, to go through those, you know, those things post-merger or post-acquisition, right?

Agreed, agreed.

So anyway, those guys, for all of you out there, the learning here is this, is that you need to be able to make sure that what you're doing before you get into any deal, or before you go through any deal, is to make sure that doing the due diligence also involves what does the What does the— part of your exit plan, sorry, is considering as many of the permutations as you possibly can about what will happen to the company afterwards. How will it integrate with the next thing? What are those things there to do? Because that's going to make your life as the owner better if it goes smoothly. If it doesn't go smoothly, you're going to be looking back on this as like the worst thing that ever happened to you. And after 30 years of owning a business and putting your heart and soul and everything and whatever, And to have it, you know, go any other way than what you want it, the way you want it to go, right, is, is what a, what a colossal waste of a lifetime. I mean, gosh, I mean, it's one thing to walk away with a bag of money. It's another thing to walk away with a bag of money and a good feeling in your heart about where your company is going to be headed, with or without you. And also to know that, you know, that you did a good, that you did a good thing. You did a good deal. You made something better, that you didn't just sell out of it and whatever. I think that's what a lot of people are afraid of. This is going to segue into our big topic today, which is this silver tsunami. The notion is that if I don't— I'm not looking to just get money. Most of these baby boomers, especially the ones who are astute enough to understand what the market can do for them, in, in this thing is they are looking for something more than that. They're looking for a legacy, looking to kind of keep this thing alive and going in a lot of cases before, you know, and they can still point to it. Like we said, we always, you know, use the example of their names are on the trucks, you know. I want to keep my name on the trucks. I don't want you to change this company or whatever. It's okay if it can be a so-and-so company, whatever, you know, as in a little type below the big, you know, whatever, but I think the notion here is that whatever we, we should be able— we can— these are mistakes that are avoidable. And even in these big situations like Daimler Chrysler, they were avoidable.

Mm-hmm.

They just chose not to do it. It was bad management. It wasn't handled correctly, and it ended up being a colossal, you know, huge waste of money. People were fired, people were laid off. I mean, if you don't remember about, you know, it was a long time ago, but I mean, this was the, the outfall of this. Was, was nothing but a— looked like nothing but a giant win for 2 CEOs that basically were, were getting huge deals as a, as a way of putting this company together with no regard for what was going to happen afterwards.

Exactly. Yeah.

Our silver— so that, that brings us to basically to our, to our situation.

Yeah.

The silver tsunami. So let's talk a little bit about the silver tsunami. And the fact is that very quickly, this is the idea that the baby boomer generation is all going to retire one day, all at the same time.

And they're going to do that. And then they're going to all sell their houses and they're all going to sell their businesses right now, next year, next year after.

That's it.

Because at 65, all of these baby boomers are going to want to get out of their business and there's going to be a massive amount of businesses for sale, massive amount of houses for sale, and they're all going to move into retirement homes.

So we're looking at basically, so the baby boomer generation was like what, like 1940, 1940 or so to 1964?

Yeah.

Right about.

I think, I think technically defined in 1946 to 1964.

Yeah. Technically. Okay. So the reality is, is that the, yeah. So the baby boomers are basically anywhere right now between like 80-something, you're 80 or so and, uh, 65. Okay. So about there. So, and we're basically, we are one year away from the, that being that generation Being 65. So that's the youngest part of that generation. So now we're in a situation where— so this tsunami that everybody's talking about, it's going to happen, and all these people are going to sell their businesses and their homes and all that stuff. It's all going to happen at once. It's going to be this giant transfer of wealth, and it's going to be transferred from this one generation to the next generation. And what's that going to look like? And where's it all happening? All this M&A activity. Well, guess what? M&A activity is still down, a lack of companies to buy. There has not so far been any kind of a silver tsunami whatsoever. This should have been going on for about 10 years already.

Yep.

It's not. And so the question is, why is it not? What is the problem with the market that is keeping this stuff? Because it makes sense on paper that all these people will retire or die. I mean, it's just inevitable. So what's happening and why is this not happening the way that it was predicted?

That's one of the reasons I believe, and after doing some research, I believe that, you know, the 65 is the— oh no, 75 is the new 65 in the sense of people at 65 years old or 66 or 68. Let's just call, let's just say you're 68 now and You've been retired or you're supposed to have been retired for 3 years. That's just not the case anymore. People are living longer, right? They want to maintain things. They want to stay in their home and they want to maintain their business. And retirement planning and succession planning, Joe, do you think most people think it's easy or hard?

I think they think that Exit planning is hard and unpredictable, which is why they don't do it.

Right. And they don't do it because they don't know. They, part of it is they don't want to make, they don't, change is hard. They're later in life, they might have been doing this for 25 years, 30 years. But that's what one of the things that ExitEngine does and we can help you with is doing that planning that you're not used to. It's using a different muscle. In your brain and your body to make that plan and create the plan and have an objective to say, what do you want out of this business?

No question. And I think that there's— so that's hard. So to be able to— the first thing is to know what you are. The first step in our process is always to think about what— how do you picture yourself at the end, right? And meaning at the end, At the exit, it's not the end. Hopefully, it's not the end for you. But where do you see yourself? How do you picture yourself? Where are you sitting? Where are you? Who's around you? Right? What what's the what's the what is the step? Where what is the future you doing? Right? And that can you that's something that you can do at sixty-five. A little late, but it's something that you can be doing at thirty-five. Right? And the reality is that and that and that might change over time. And that's okay. But the reality is, is that keeping that and keeping that up to date the way that you keep your, you know, your email box up to date or your, you know, or your resume or whatever those things are, right?

Yeah.

Things change over time. And so being able to adjust that, but you gotta start somewhere, right? And I think so, I think you're right. I think one of the big issues is that people are afraid to give up their businesses. And one of the— there's— and I believe there's about 6 reasons potentially why that's this, that we're in the state that we're in right now. And the first is, you nailed it. The first is that there's been a lack of exit planning going on in general, which is why we're here, what we've noticed, and what we think is a really important thing for people to do so that they can optimize their exit whenever that exit is. So, if you've been head down for 30 years working at your business, growing your business, doing your thing, making a good living, probably able to put some kids through college and, you know, and all that stuff, which is important things. Um, you're, you're taking a couple of good vacations every year. You maybe you got a second home, you know, you're down the shore, you're right, you're whatever. You got a hot place in Florida. You're, you're halfway retired, maybe even in case if you're doing it well. The people who are doing it well, okay, are the people that are, are at this point in time not spending that much time on the business.

Yeah, exactly.

Ratio-wise, because those people have set up a business that's now able to run without them. And that's gonna be always be one of the key pieces to selling it, um, is to be, is that right?

Yeah. And, and, and that type of business, as you mentioned, Joe, where it can run without you, the owner, is something that a buyer really would enjoy and really would look to, to buy a company like that that can be sort of, again, run by itself.

That's exactly right. So the first, I think the first big reason is that there has been a significant lack of really thinking about this because I think, look, the reality is most people aspire to be business owners. They don't aspire to be anything past that.

Eric, that's a good point.

All right. So when we hear about people, even young people, what do you want to do? Well, I really want to own my own business and whatever. And that's, that, that's been an American dream since, you know, World War II. The reality is that was a— that's— this generation grew up, the baby boomer generation grew up with the knowledge that the first generation probably had the knowledge that they could be anything they wanted to be. Business-wise, they went. They were the first giant wave of college-educated people. They're the first giant wave of people that were that didn't you know that they they had to deal with like things like Vietnam and stuff like that, and the turbulent sixties, and the upheavals in the social structure and social order and stuff like that, and and all those things. But they they but they they they weren't their parents who were at war in World War. 2 who were going off and volunteering for their country and doing all this stuff, right? They were the progeny of that. So, they grew up with the first generation to really experience the American dream for the first time, right? So, that's the first thing. So, letting go of that is really hard.

Yeah. Especially as you point out, it's allowed you to make your mortgage payments. It's allowed you to put your kids through school. It's allowed you to have the lifestyle that you have, the house down the shore, and etc.

So now, so let's look at some of the things that have happened over the last ten years that would may have prevented anybody who's a little bit leery, okay? As this baby boom generation is, okay? They grew up in a place. They grew up. It's hard work. It's it's nose to the grindstone. It's it's it's and I'm not making. I don't mean to make generalizations here, but it is. You know, the family is not really my. Bringing home the bacon is my responsibility. But what happens at home? I really have nothing. do with, you know, that was a generation that was like that, right?

Yes.

We're talking about a generation that came of age in the '60s. And, and by the time, you know, a lot of these people were in the '70s, the whole thing, they started opening up their own businesses. And then that's where, that's where we've gotten to today. And the ones that were successful and maintained, they're there. And I think there's something about— there's, there was that 65,000, you know, middle market— sorry, small end of the middle market businesses, okay? We're talking about businesses that are basically between $5 and $30 million or so, okay? Which is the majority of the market, are all owned by, you know, by, you know, the baby boom generation, okay? So, that's at least that amount of businesses we can expect to be turning over within this kind of time period, okay? But there, I think that there are a couple things that we just said, but I think there are bunch of other things that have conspired against this. And it's happening, and the same thing is happening in the real estate market. So, the first thing is that we've hit an unpredictable time in politics.

Yeah.

And there's a huge divide, generational divide, political spectrum right now. There is a— the baby boom generation is concerned about holding on to their wealth, even if it's for their family, but holding on to their wealth. They are— they are— they don't want anything taxed. They don't want anything to be taken away. They have lost faith in most of the government. They don't want anything to do with that stuff. They just want to be able to be free to do their own thing and to make as much money as they possibly can. And that's That's the promise that they were given by Ronald Reagan. So, they're going to— that's fine. That's all good. The problem is the way that the economy has been and the unpredictability of the economy over the last almost decade has basically contributed to the fact that people are afraid to give up their businesses, to give up their livelihood, because they are afraid of the volatility of the stock market has been. They're afraid to take all that stuff, all that money, and put it into the stock market because they're afraid they're going to lose. People in 2008 lost half their retirement savings.

Right. And look at the pandemic, right? The pandemic was different than the financial crisis, but it still led to a crazy decline in the stock market that was very, very quick. Hopefully, no one took their— not many people took their savings out or their investments out then. But man, that month of March 2020, about 4 years ago, was volatile to the extreme. Absolutely.

And, and every— and the predicting of the stock market, or the, the, a lot of the media talk about the economy in general and inflation and all that stuff was, um, was, was, was negative. It was, this is the way it's going to go, and the whole thing. Now, it didn't really happen, really happen the way that they thought. The inflation thing happened. That's a whole other discussion we can have about why that happened. But right now, the stock market hit over 30,000. There's all— the stock market has actually done well. And if everybody was able to stay calm and keep their money exactly where they were in the whole thing, they probably made it out okay. The problem is that because of the insecurity around that, people were loath to part with their businesses. This is my income. This is my livelihood. I'm not going to— this is not a good time. Let me wait this out. So we're seeing a lot of people wait it out for that reason, right?

And also, one of the other things I was, as I was doing some research for the, for the pod, you know, many of the people who could have sold, again, we mentioned the pandemic, that's not a great time to sell. Many of the people who wanted to sell maybe would pass it along to an heir, right? Would pass it along to a child. Or, you know, I was in this position where my parents sold their business. I just, I wasn't interested, right? They had a business that I wasn't interested in. And I think that's happening to a lot of businesses that either the parent started, the baby boomer started a business that made sense back then and was a profitable business and is a profitable business. But Joey and Sarah don't want to run a widget company. That's not what I want to do. They don't want to run a bakery. They don't want to run a, in my case, a candy store. They want to do their own thing or they don't want to have the stresses and pressure of being a business owner.

Because they saw their parents have. Yeah.

They grew up in a small business. They grew up in a thing where we turned our sunroom into a candy store, I mean, a candy shipping factory. And it was fun. And my sisters and I are nostalgic about it. But man, I don't want to put my kids through that. Not that it wasn't a great childhood, but like, that's just not Not what I want. And I think that's another barrier to get back to. The point is another huge barrier of having these people sell. Well, I thought I was going to pass it along to Sally or Paul and they're not interested. Who am I going to sell this thing to, Joe?

Who am I— Succession planning becomes the issue, right? I didn't do any succession planning. I just assumed. I didn't think this was going to be an issue. I couldn't foresee any of this, blah, blah, blah. And so now I don't know who I'm going to even give the business to. And what do I do, right? Am I— now I'm in a situation where I either have to sell this thing or I got to let it die on the vine or whatever that's going to be. And so I might as well just stay here until I die, right? I'm making money.

And not having a plan, right? To your point, Joe, not having a plan is having a plan, right? Not having a plan is going to lead to an outcome, and the outcome is either you're selling it for a song Not getting enough money from, from the sale, or you let it die and you close it.

Just let it go and you let someone— I'll let, I'll let them deal with it when I'm dead. I mean, that's, that's actually a viable strategy for some people to say, I'm making this money, it's coming over the fence, it comes over, I get to do my thing, right? And if you don't want the business, then screw you, fine, whatever, and I'm just gonna do it and then you guys can deal with it after I'm gone because and whatever, which becomes a real big headache for the surviving members of the family don't want to have either. Because if they wanted to be in the business, they'd be in the business. Now they've got this business bequeathed to them, and they really don't. And so there's never going to be a good sale out of that. But you've got employees, you've got all these people there and the whole thing that are going to be things. Sounds like a time for a leveraged management buyout. But in any case, So that's a huge— no question that that is. Yeah, well, we can— we get numbers on that. 70% of people surveyed have said that they want to leave their business to their children, and only 30% actually do.

So right there, that gap is insane. And in my experience, that's exactly correct too.

So, but you got to know that before your children get to the age and before you get to retirement age. The point is to know that, you know, that if you're willing to, you got to know exactly what's going to happen. Before you even can even think about uncomfortable, you know, leaving, you know, uncomfortable, a comfortable, you know, situation, especially when you're going into an unknown situation, which is what retirement is for many people, right? What am I going to do?

Yeah. As my boss, my first boss always said, it's better to have a plan and not use it than need it and not have it.

So that's exactly—

may have even said that in the last podcast, on the last pod.

So yeah, I think there's a couple. But the point is, that's great advice. This is sage advice, guys. I mean, this is exactly the stuff. I mean, to understand that if you think you can't predict the future, the reality is that you're not even— you just have to try to think through all the potential outcomes, right? We're not actually— it's okay if we're not accurate. Well, we have to, but if we cover all the bases, then it won't matter what happens, right? And there are things that— look, there are things, there's a couple of things on this list that are out of your— completely out of anybody's control. Okay. I mean, I think because of the pandemic and the economy and the whole thing related to that is financing. So right now we're in a situation, the whole thing where, you know, where the, where the, you know, the rates, you know, you know, for lending and the whole thing are higher than they've been in a really long time. And that's slowing some, you know, that there's a credit crunch that starts to kind of slow some of these, some of these businesses from being able to get to the place they thought they'd get to.

Yep.

It also constricts, despite the amount of dry powder that there is in private equity firms right now. The private equity firms are only interested in healthy businesses, right? The private equity firms aren't interested necessarily in taking on a lot of debt, right? They don't want to buy a company that's heavily financed, right? Or heavily—

That number, interestingly enough, I was looking at it. That's almost $1 trillion in dry powder as of the end of the year in private equity firms. So that's just like one category of potential buyers. But think of that, $955 billion in dry powder that's available to be deployed.

That's like the gross domestic product of like a small country.

It's insane. It's insane.

Insane amount of money sitting there not being used. not being invested because they can't find businesses to buy because baby boom generation has not actually executed this great silver tsunami. Another reason that this stuff is happening is the— sorry, I just lost my place. There's a whole bunch of Stuff that's changed as a result of technology, right? When baby boomers started, when they started these firms, they— they're the technology— most of the technology that we know of and think of today is kind of commonplace. The internet, right, as one big example, whatever. But I mean, cell phones, right? Um, the microwave oven. I mean, you can go back and still You know, we're going back in time and still, you know, be, be, be when some of these businesses were started, you know, this stuff did not exist, right? Um, the adoption and the inability for these baby boom generation in many cases to adopt technology that helps the business be a better business, right? That, that creates efficiencies, that, that can, that can reduce costs.

Open up new markets, right? Gary Vee, you know, Gary Vaynerchuk has the Wine Library in New Jersey, right around the corner from me here in Springfield, New Jersey. And he took his dad's wine business and he expanded it incredibly. And this is 15, 20 years ago, but his dad was never gonna do that. His dad never was gonna use the internet. It took his son, a different generation to come in and help him sell the wine over the internet. Imagine that.

That's exactly right. And that's something that, again, that couldn't— that if you are— again, it's not— we're talking about human beings here, okay? And I like to always kind of bring that back because, again, we're not— this isn't about shaming people or telling them that they're wrong or whatever. This is a generational thing, okay? It's the same reason why you have to help your mom use her cell phone. It's just that they haven't— they didn't grow up with this stuff. They came to them later in life where they were already set in their ways. They had a— in this case, they had a functional, operating, profitable business that was giving them the good life that they could see. Because the other thing that's going on here, guys, is that you can only— right, you can only— the human being is only— is limited by its imagination. And I can't wait to go on this journey with everybody. So thanks a lot.

Thanks, Joe.

John, we'll talk to you next week.