Great operators with strong work ethics have been the key to the resiliency of small businesses over the last few years. When faced with an economic crisis that disproportionately affected them, many of these agile operators actually grew enterprises while simultaneously creating value for themselves, their teams, and communities around them. And yet they again face an uphill climb -- this “Great Resignation”, where a record high 4.5 million “quits” across multiple sectors have left the near term future of labor bleak. In our country today there are more job openings than there are jobless – and as a result it’s easy to only see downside and potential difficulty for small business owners and their stakeholders.
However, there is a silver lining in the Great Resignation that I believe indicates a great opportunity. Before the Great Resignation, there was too much risk in leaving one’s job, too few opportunities, and low access to the support and infrastructure needed by small business entrepreneurs. Today leaving one’s job is less of a risk namely because we are in a laborer’s market with unprecedented demand for workers across multiple industries which creates more opportunity to reengage after a departure or pivot in one’s career. And when one does that, to the extent another 9-5 isn’t a first choice, we see entrepreneurship as a real option. The Great Resignation is primarily driven by mid-career individuals who, given their experience and potential ambitions, are in a unique position to take on more fulfilling challenges as entrepreneurs and help build the next wave of successful small businesses.
Away from the labor market, two unique factors are seeding a favorable environment to “hang your own shingle” and buy a small business in a subsector you specialize in. For one, the demographic shifts we are seeing are powerful – baby boomers nearing retirement age are ready to sell their family-owned businesses, which is further exacerbated by operational hurdles in the last two years and the specter of capital gains tax increases.
Secondly, small businesses are changing hands at blistering speed, with closed transactions up 11% year-over-year as of 2021-end. The Small Business Administration found that in recent years, over 10,000 small businesses are sold annually and as many as 42,000 were for sale prior to the pandemic. As investors who study the small business sector daily, we only see this number increasing, creating greater opportunities for buying cash flowing, profitable small businesses at reasonable prices.
Greater Access to Capital
We at Trident believe the United States could be seeing one of the greatest creations of wealth in years that isn’t exclusive to just the 1% as one generation gets an opportunity to cash out in selling their enterprises and a new generation gets the opportunity to build their own, in turn strengthening the American economy and local communities that are often overlooked. Furthermore, this is an opportunity for operators to engage with diverse businesses and communities – during the pandemic we were reminded of the fragility of our most vulnerable communities and that wealth creation (i.e. through equity as business owners) in minority communities is paramount both as a moral case, and a business case.
But how does this actually get facilitated and how does it happen fairly—with capital being distributed to the best opportunities? At our firm, we use data and proprietary technology to find and equip great operators as a key component of our small business equity investment process, ensuring consistent and unbiased evaluation throughout. Using our technology, we sift through hundreds of small businesses investment opportunities each year that we receive from our growing network of operators and Independent Sponsors, who themselves go through over 100,000 opportunities per year to cherry-pick the best. We see a lot of white space in this market and we welcome those in a career pivot to consider applying their vast experience into being a part of acquiring and operating a business, such as we do at Trident.
The Time is Now
Calling all experienced operators of medical clinics, manufacturing plants, infrastructure vendors, and many more; the Great Opportunity is upon us, and it’s up to you, investors and the government to see this moment and seize it. There has not been in recent history as unique a moment as this. Tens of thousands of businesses are for sale, millions of qualified entrepreneurs exist, and billions of investment dollars are available to drive equitable access to the American Dream.
