What Should Millennials in Small Business Ownership Look for in Their Lenders?
There's a new wave of entrepreneurs itching to take on the challenge of small business ownership, and they belong to a generation that many regard as uninterested in embracing the challenges of running a business — despite the fact that some of them include the founders of Facebook, Instagram, Tumblr, Spotify and countless other startups.
Several studies show, including one by America's Small Business Development Centers(SBDC), that millennials (defined as those born between 1977 and 1995) are well-inclined to start a business and shatter the misconceptions about their generation's unwillingness to work hard. The study by the SBDC — completed in partnership with The Center for Generational Kinetics — showed that more than any other generation, millennials are more likely to currently work at a small business. Further, close to half surveyed said they hope to start a business of their own by 2020.
What does a millennial small-business owner seeking a financial partner need to look out for? In a competitive business landscape, among a generation that closely aligns power and influence with wealth created from hard work, what is it about them and their peers that makes them unique?
The Millennial Mindset
To start, why is small business ownership a path that millennials appear drawn to pursuing? To answer that question, we need only think back to the state of the economy between 2007 and 2009. For many millennials who grew up during the Great Recession, the collapse of the global economy created searing images of their parents being laid off from seemingly stable jobs and the endless struggle to make ends meet.
A recent study entitled "The Why of Wealth," conducted by Boston Private — a wealth management, trust and private banking firm — uncovered findings that provide a window into the millennial generation's approach to life and business.
According to the survey — which involved 300 high net worth millennials, Generation Xers and baby boomers, with $1 million to $20 million in investable assets — while 68 percent of Generation Xers and 69 percent of boomers view wealth as a means of achieving peace of mind, only 53 percent of the millennial generation felt the same way.
While previous generations defined success in narrow terms, millennials view business ownership as a means of accomplishing more than personal wealth. For many, it's a vehicle for social change, personal growth and a source of deep and meaningful relationships. So for partners in private banking and wealth management, their approach should reflect as such; they should understand the real "why" behind their client's business so down the road, shared values are aligned.
For David Donahue, a vice president with Boston Private, "Character is a big part of the lending process. We're lending out a lot of money to someone, and we're immediately asked to figure out, from a character perspective, 'Is this someone we want to do business with?'"
Business owners should ask themselves the same question.
Testing and Perfecting a Business Idea
Given the emergence of the "side-hustle," which involves crafting a business idea in addition to an individual's primary source of income, the means to try out an idea before committing full time is widely within reach for budding entrepreneurs. Millennials' willingness to take on the work needed to investigate the feasibility of a business idea, often in obscurity, contradicts some perceptions of them as self-absorbed and unwilling to put forth the effort needed to build a business.
To make their dreams of business ownership a reality, millennials often turn to technology to help realize their vision. Whether they choose to use it to facilitate their business or decide to dream up an entirely new technology-based product or service, growing up with the internet has provided millennials with a significant advantage over prior generations of entrepreneurs.
Meeting a financial partner where they are is important. Whereas emails and phone calls used to suffice, younger business owners view texting as a far more efficient way of doing things. By not using texting as a means of primary communication, lenders can show their age and inability to relate to this generation of entrepreneurs. Nobody wants to call up a financial partner's office and have his or her secretary and be put on hold while they could be doing better things.
"The younger business owners I work with, we text back and forth for any type of communications," said Donahue, a 29-year-old himself. He added, "I know it's not a technical revolution at this point. But it really makes a big difference, I've noticed."
Desire to Make a Difference
There's another factor at play contributing to the increase in the number of small businesses run by millennials — building and running a company requires a tremendous passion for the work at hand.
In fact, it's the passion for their ideas that sets millennials apart from previous generations. The Why of Wealth survey found that millennials feel more responsible for others as they pursue their wealth. In fact, 60 percent of millennial business owners cited "responsibility" as the primary feeling triggered by wealth, versus "satisfaction" for boomers and Gen Xers. Thirty eight percent of those millennials feel responsible for not only their businesses, but also their community and society at large.
Millennials reject the idea that working for a living means they must set aside their interests in favor of a steady paycheck. Rather, they view the creation of a business as within their grasp and not something they need to compromise. Consequently, starting a small business allows millennials to pursue their passions while earning a living, which for some means making an impact on social issues such as homelessness, poverty and human rights.
Each generation will hold different values and approaches as they embark on the challenge that is small business ownership. Likewise, a financial partner's understanding of their clients should go beyond just the numbers of any organization.
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