Small business succession
The impending "silver tsunami" is a slow crisis that Canada and other Organization for Economic Cooperation and Development (OECD) are struggling to manage. With the Baby Boomer generation reaching retirement age, there are an estimated 700,000 Canadian business owners who will be looking to exit within the next ten years and yet very few (an estimated 8%) have a formal succession plan according to the CFIB. Even for an otherwise profitable business, a mismanaged succession can lead to closure or failure, leaving workers out of jobs, communities without access to vital goods and services, and the business owners themselves without the retirement savings they had expected.
Many organizations have a strong interest in solving this challenge:
- Financial institutions have staff dedicated to helping business owner clients prepare for succession and retirement
- Private companies offer business listing, matching, and sales services for business owners and potential purchasers locally, nationally, and internationally
- Non-profit organizations, industry associations, and quasi-public services that support small business owners are sounding alarm bells and raising awareness of the need for succession planning in their communities
- Governments at all scales invest in enterprise replacement strategies that encourage new business creation through incentive programs, tax breaks, and entrepreneurship support programs
- Social financiers like credit unions, community economic development funds, and foundations are looking for socially impactful businesses to invest in
However, these strategies are operating in isolation and achieving limited success. Because of this, many otherwise viable small businesses across Canada are at a high risk of failure, risking the legacies that business owners have often spent a lifetime building. By bringing together these players around solving this common challenge, we can change this narrative.
Why a Social Innovation Lab?
The Legacy Leadership Lab (L3) will bring these people together to provide a research-supported structure to help them develop their own solutions. We will use the Waterloo Institute for Social Innovation and Resilience (WISIR)’s Social Innovation Lab process, supported by an innovative research team housed at the University of Waterloo, to identify and actively support changing the underlying systems that have contributed to this challenge in the first place.
In so doing, the L3 will support participants in creating brand new products and services that they can use on, with or for their own clients. This "co-design" process means that the solutions are created and tested by the people who are most active in the succession system. Working together through the L3, participants will quickly design and test small-scale versions of their ideas and receive the support to evaluate and refine them so that we can ultimately build a healthier pipeline of small business successions.
Investable social purpose conversions
Having a small group try to tackle the entire succession challenge would be like trying to boil the ocean with a tea kettle. Instead, L3 will focus on a very specific strategy – social purpose conversions. This is an approach that has existed in some form for centuries around the world and has been gaining traction here in Canada.
Small businesses are often vital parts of their communities, and their closures can be devastating. The community not only loses jobs and what the business sells, they also lose the social connections that the business supported. L3 will tap into and leverage those social connections to support a new generation of social purpose business owners. Not every small business will be the right fit for a social purpose conversion. Those that are will benefit from the exiting owner’s legacy, newly revitalized and embedded with a larger community’s vision.
As part of the Government of Canada's Investment Readiness Program, L3’s key objective is to create a pipeline of investible social purpose organizations through social purpose conversions. This will feed into Canada’s Social Finance Fund, which will provide $755 million in investments matched 2-to-1 by the private sector to invest in social purpose organizations over the next decade. L3 will support the creation of investible social purpose conversions by bringing together:
- Exiting business owners experiencing first-hand the barriers to a healthy succession
- Investors in conventional enterprises at risk of closure due to owner exit
- Funds focused on investing in social enterprises
- Communities facing the demise of an essential local business
- Small business associations and small business servicing companies whose members or clients struggle with succession challenges
The L3 is simply a first step toward having more social purpose conversions in Canada. By building an ecosystem to support social purpose conversions we anticipate:
- more investment-ready social purpose investment opportunities
- higher survival rates for small businesses after the exit of their original owners
- more exiting and retiring small business owners passing on the important legacies they began
- new opportunities for the next generation of social entrepreneurs to build their own legacies from the exiting owner’s past successes
- more diverse business communities including new socially-oriented business models
- a new willingness from Canada’s small business infrastructure to support social purpose organizations
L3 is currently seeking the right participants to attend and contribute to one or all of its workshop series.
L3 is also currently seeking sponsorship and grant funding to make sure the workshops are accessible and affordable to people and organizations for which travel expenses are a barrier.
To find out how you can participate in or contribute to L3, please email Meg Ronson at mronson@uwaterloo.ca.