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?

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