The Succession Crisis of Baby Boomer Businesses

A crisis is brewing in Montana and across the country for business owners in their 60s and 70s. More and more baby boomers are facing a stark reality – no one wants take over their enterprises and the anticipated economic loss could reach well into the trillions of dollars.

In 2002, Joyce Previte was on the road to recovery from breast cancer when she launched Grandma Hoot Products out of Florence, Montana. She began manufacturing and selling her own unique Chow Chow relish condiment throughout the region, picking up the complexities of food product regulations and licensing along the way. Other products would soon follow, including jellies and BBQ sauces. Seeking assistance for her growing venture, she asked her husband Keith to jump on board. The family business started humming with Joyce making Grandma Hoot’s products while Keith managed sales, marketing and distribution.

Fast-forward 16 years – Grandma Hoot products can be found on the shelves at Rosauers, Harvest Foods and Missoula’s Good Food Store. And Chow Chow has a legion of hardcore fans who won’t touch a hot dog or hamburger without the distinctive relish, even eating it straight from the jar. By any measure, Grandma Hoot is a success story.

Yet a year ago, Grandma Hoot nearly ceased operations. Joyce and Keith, now in their 60s, were feeling the physical demands of the day-to-day operations and decided it was time to quit but had no idea how to make an exit. Neither their daughter Molly, a recent Montana State University graduate, nor any of their friends expressed any interest in taking over the business. Lacking any prospects for succession, Joyce was resigned to closing its doors.

Grandma Hoot’s predicament is far from unique. In fact, there is a tsunami cresting across the nation of baby boomer-owned businesses that are facing the daunting prospect of closing their businesses. The numbers are truly mind-boggling – according to the U.S. Census Bureau, baby boomers own about two-thirds of all companies (12 million businesses), with more than half deemed to be family enterprises. And this demographic group is exiting the workforce in record numbers at 10,000 individuals daily. Their challenge has been how to successfully hand off their hard-earned legacy.

The succession crisis is even more acute in Montana. The Treasure State has a significantly higher preponderance of family-owned businesses than the rest of the nation. According to the Family Firm Institute, family-owned enterprises make up approximately 80 percent of all U.S. businesses. That number is believed to exceed 90 percent in Montana.

From Main Street bakeries, liquor stores, cattle ranches and winter wheat farms to Billings-based First Interstate Bank and shipping powerhouse Washington Corporation, family businesses are almost entirely driving our economy. But unlike in larger markets, our region has fewer service providers dedicated to the unique challenges faced by family businesses. Notably absent are family enterprise advisories, family wealth managers, governance specialists and investment bankers who can assist in planning and guiding successful transitions.

In many cases, Montana’s family-owned businesses are left to fend for themselves. Some have been successful, such as Butte-based Markovich Construction, which is now in the hands of the third generation, while others have secured business continuity by selling to Montana-based buyers. Just a few years ago, Murdoch’s Ranch & Home Supply, owned by Dave and Suzanne Peterson, merged their business of 30 years with Missoula-based Quality Supply. In the process they secured the jobs of more than 160 employees.

Then there are the more creative attempts. This past December, the sisters behind Woods Bay Grill near Flathead Lake announced a contest where the winner of a 300-word essay, along with $150 entry fee, would secure ownership of their restaurant.

This crisis may well mark the end of an era for many Montana family businesses. With the vast majority of family business owners lacking a viable succession plan, the likelihood of eventually closing is growing every day.

Yet there is a silver lining – this crisis is opening the door to an unprecedented opportunity for budding entrepreneurs. Buying a baby boomer business is often a vehicle to earning a better living. Alternatively, for urban dwellers seeking to start a new life far from the big city, taking over a successful family business can be a means to integrate into a Montana community.

In both instances, the acquisition of a business with a transparent track record and existing customer-base is significantly less risky than starting something from scratch. This is especially true for next-generation owners. They can work alongside the business’ previous owners during the transition phase, while also infusing it with the latest management practices and a renewed vitality and mission.

Fortunately for Montanans, there is help on the way. Family Business Partners (fambizpartners.org) is a community-based organization focused on providing family-owned businesses with education, knowledge and resources specific to their needs. Its mission is to provide guidance and access to relevant support services necessary to protect not only their hard-earned legacy, but preserve and expand the jobs they have brought to Montana’s economy.

Which now brings us back to Grandma Hoot. This past spring, Taka and Melissa Kagiyama, a couple in their early 30s, purchased Grandma Hoot Products. With Joyce and Keith close by to answer any questions, Taka and Melissa are busy putting their own imprint on the business including a name change – Key to the Mountain, a direct translation from Taka’s Japanese last name.

Keith Previte is pleased someone eventually came along to preserve their legacy saying, “We are happy for them and glad they are keeping it alive.”