How the macro-succession crisis is going to hit the entrepreneurial sector

I’ve written recently about some generational issues facing companies – most notably the “macro-succession crisis” that I suspect very few corporations have even thought about in meaningful detail. In that post I examine how the coming Baby Boomer retirement explosion is going to engender all kinds of crisis, especially in larger legacy corporations that are so top-heavy with Boomer leaders that their Gen X successors are ill-prepared for the transition that must begin taking place in the next five years.

But if you’re a different kind of company – say an entrepreneurial outfit started and run by front-edge Xers (people now in their early to mid-40s) – you’re in good shape, right? You aren’t facing a retirement wave. You aren’t facing the need for a painful adjustment from Boomer-style leadership to the far different style of Xer execs. And this means there’s going to be no leadership vacuum at the top sucking everybody higher in the organization and creating trainwrecks at the Xer-to-Millennial lower management level, either. Life is good

Except that you’re wrong – the macro-succession crisis is coming for you, too. A hypothetical case study illustrates how.

Say OldDog, Inc. is a Fortune 500 manufacturer of widgets. They dominate the market, and as is always the case with these kinds of companies, they have extensive relationships with a wide variety of vendors. One of these vendors is NewTricks, Inc., a smaller (less than 100 employees), agile “new economy” thingamajob firm that relies on virtual offices and remote teaming. As you know, thingamajobs are critical to the manufacture of widgets, and NewTricks’ greatest value to OldDog is their innovation, agility and responsiveness.

An OldDog project leader will call his contact at NewTricks and say “hey, can you guys do X?” The NewTricks guy, without even flinching, says “sure – we can do that.” Of course, NewTricks doesn’t do X and hasn’t done X because X is a brand new idea and nobody has done it. But they put their heads together and send their brightest folks off to figure it out. A month later NewTricks puts a prototype in OldDog’s hands.

The founders and senior execs of NewTricks are all in the 40-45 range right now and aside from a sales guy or two their employees range from about 25-45. In other words, they are in almost every way the archetypal new economy company. And they’re in great shape.

Except that a Boomer retires every 11 seconds and the senior brass at OldDog hits 65 in January. Over the next few years OldDog is going to see massive retirement, as described in my macro-succession post. Their next generation is probably not quite ready to step in, and even if they do there aren’t enough of them to fill all the seats of departing Boomers. Worse, those Xers have really different ideas about management.

What does OldDog do? Well, obviously, they have to get aggressive about recruiting external candidates. They need people who know the industry (or at least, they’re likely to think they do, and we can expect their search to begin in the widget sector). They’re going to be really interested in proven commodities and if there are people out there that they know, those folks are going to get a look.

Slowly, the large, drowsy eye of OldDog (think Sauron without all the flame) comes to rest on one of its smartest and most trusted partners – NewTricks, Inc. People at NewTricks are happy, but OldDog has vast resources. Maybe some NewTricksters want better money. Maybe they see the legacy company as a more secure alternative at a time in their lives when they’re starting to think differently than they did 10-20 years ago. And there are bound to be some who saw the big company as an obvious goal when they were young, but for reasons described in the macro-succession crisis piece they couldn’t get in the door – or if they did, they found that a phalanx of Boomers blocked their way to the top. So they entered the entrepreneurial world not because they necessarily wanted to, but because they had to. Deep down perhaps they’ve never stopped seeing OldDog as the holy grail. Perhaps it represents something as simple and obvious as security, and perhaps it represents something deeper, something like personal validation.

All of a sudden OldDog begins sucking talent – leadership, technical, sales, marketing, you name it – out of their vendor base. It’s an adjustment for OldDog, to be sure, but they can afford the best and after a transition period they’re now ready for the future. At the same time, NewTricks is in crisis. Much of the top talent is gone and now they’re the ones trying to secure the best people from a generation that’s already thin (remember, X is only about 2/3 the size of the Baby Boom – 50M to 75M). If they can find talent they have to pay more, which has predictable implications for their operations and the cost structure they have to pass along to their customers.

Or worse, they have to hand over responsibility to younger Millennials, who simply aren’t ready.

There’s no place to hide – even if NewTricks survives the onslaught, it’s going to be a hell of a battle – and like the legacies, they aren’t prepared for it. If they were, they could be doing things right now to insulate themselves a bit. And maybe some are. But this is going to be a massive upheaval across all of our economies.

Is your company thinking about it?

:xpost Black Dog Strategic:

6 comments on “How the macro-succession crisis is going to hit the entrepreneurial sector

  1. i work for one of your legacy corps………..from the inside it looks a whole lot worse. our corp is tied to the automotive out-source it or die movement. they are making life miserable for the older workers. they want us to quit, taking our high paying positions, higher insurance premiums, and 4 weeks of vacation time with us.
    And i did mean quit. no severance, outplacement service or unemployment benefits for us if they can help it. And just for the record boomers can’t retire at 65 – i’m a leading edge boomer and i have to work to 66-1/2. and it goes up every year from there to 70. so there are going to be a lot of folks hanging in there, for the full retirement s.s………and medicare – don’t forget that. Don’t get all frantic about filling all those job openings. we aren’t going anywhere #1 and #2 the jobs are being closed out as we do leave and shipped overseas…………

  2. The situation you describe is also a concern, and I’ve been hearing more and more about it lately. Lots of Boomers having to hang in because they can’t afford to retire.

    My sense, from what I’m reading, is that this phenomenon hits workers a lot harder than it does leadership (after all, you have the nice office and the big check, you CAN afford to retire).

    I think there are ways where this helps companies a little, especially in the mid- and lower management areas, but honestly I haven’t seen enough on it yet to have a really informed opinion.

    So thanks for adding your perspective. It helps.

  3. Sam,

    Some good points, and things to ponder on. In my mind the crisis will extend to all corners of the economy. As pointed out by your previous poster, the boomers can’t all afford to retire quite yet. With the hits from the bubble blow off, and the potential hit from the next bubble blow off, it could look a lot worse.

    There’s still a bubble in the markets. Stocks & real estate. As boomer cash out does come to maintain a standard of living both “Old Dog” and “New Tricks” will see selling of their debt (stock cash outs). There aren’t enough buyers for the potential selling. This will hurt both types of companies as well. Too many sellers, not enough buyers, prices must come down.

    As a “reformed” economist and member of the “X’er” technical senior management class, I keep looking for ways to protect myself in the coming swell of boomer retirements. The economy is going to take many hits, and the following generations aren’t as large or financially ready to take on all of the outflow.

    I’m thinking the fun is just starting….

  4. Isn’t it pretty to think that all us Boomer geezers will be working well into our 70′s to get to retirement because of the mess Bush has allowed companies to make of their retirement systems? Well, at least maybe we’ll be around to help you transition in Millenials and maybe help them become productive for you….

    As for Xers waiting for us to go away, I guess you can empathize with Prince Charles…. ;-)

  5. We’re performing a similar trick right here. It’s called Affirmative Action. White skilled staff are being fired and replaced by black unskilled staff. The skilled whites then start new businesses and “consult” back to their original companies to perform the work they used to do.

    Problem is, the economy is growing and there just aren’t enough skilled people around. Something like 1 million skilled people left the country over the past year since they just hate jumping through all the hoops to work. Most went to the UK or Australia (or Canada). It works in exactly the same way as your Baby Boomer retirement problem, except we’re doing this to ourselves.

  6. Rich – you toss that word “fun” around pretty casually… :)

    Actually, the “Boomers won’t retire at 65″ argument is probably both true and false. We know that a lot of Boomers will hang on longer because they can’t afford to retire – as noted by Konnie above. But my particular point here has to do with leadership – senior execs, senior directors, etc. These people are by and large not in the kind of tight financial bind you see further down the org chart, so those kinds of economic necessities won’t keep them on any longer. They might choose to stay for a number of reasons, of course, and once companies have their “oh, fuck!” moments I’m sure they’ll have a lot of money thrown at them to get them to stick around a little longer. It’s hard to say how broad this reaction might be, though. We’ll know more in a couple years.

    Jim – if Boomers are willing to stick around and work at the lower end of the spectrum on the Mill problem they’ll probably find some good opportunities. Of course, since Boomers are largely the reason the Mills have these deficits in the first place, and my guess is that a lot of the confetti-tossing programs are also Boomer ideas, I’m going to have to see significant awareness shifts before I get too optimistic.

    Gavin – trust me, we’re doing this to ourselves, too. It may look a little less official and programmatic, but it’s as systemic as if it were mandated by law.

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