What is the great wealth transfer, and how will it impact your small businesses? The “Unprecedented Wealth Transfer” refers to a huge transfer of money from the Baby Boomer and Silent Generations to Gen X, Millennials, and Gen Z. It will happen in the next 20 years. Cerulli Associates reports that “an aging client base… is expected to transfer more than $84 trillion to the next generation by 2045” Wow. 

This great wealth transfer holds immense importance for small business owners and entrepreneurs. As these new customers with different values come into money, they’ll change how we do business. Add in the digital world and our ever-changing economy, and there’s a lot to think about. We’ll explore why this wealth transfer is happening, how it might affect your business, and what broader changes we might witness. It will end with several actionable points to guide you and your small business to new heights.

• Understanding the Great Wealth Transfer
• Impact and Challenges for Small Businesses
• Financial and Economic Implications
• Workforce and Talent Considerations
• Opportunities for Small Businesses
• Preparing Your Small Business for the Wealth Transfer
• Best Practices for Small Businesses

What you’ll learn about the Great Wealth Transfer

• The Great Wealth Transfer is a massive intergenerational transfer of wealth, estimated at over $84 trillion by 2045, from Baby Boomers to Gen X, Millennials, and Gen Z.
• This transfer will significantly impact small businesses, as younger generations with different values and preferences become the primary consumer base.
• Small businesses need to adapt by understanding the changing consumer demographics, shifting market demands, and leveraging technology, personalization, sustainability, and social responsibility to stay relevant and capitalize on new opportunities.
• Seeking professional guidance, such as financial advisors and estate planning experts, can help small businesses navigate the complexities of the Great Wealth Transfer.

Understanding the Great Wealth Transfer

Key Drivers of Wealth Transfer

Several main causes drive the wealth transfer. These are the economy, a changing population, and politics.

Historical Context and Comparisons

Wealth transfers have happened before but never on this scale. Today’s trends are influenced by technology and globalization, making them inherently different from past shifts.

Past Generational Wealth Shifts

Looking at past wealth shifts helps us understand, in part, the current one. After World War II, wealth moved from the Silent Generation to the Baby Boomers. This transfer boosted the economy as Boomers spent money on homes, cars, and other goods. Something similar could happen with the present transfer. However, today’s wealth transfer is much larger and more complex. 

Technology and Globalization

Technology and globalization are key differences between past and present wealth transfers. In the past, wealth was more local. Today, people can invest and spend money anywhere in the world. Technology allows for faster and easier financial transactions. It also means businesses need to be tech-savvy to stay competitive. 

Current Statistics and Projections for the Wealth Transfer

Current statistics show the magnitude of this transfer. KPMG says that, “over the next 25 years it is estimated that nearly $70 trillion will transfer to the next generation (Next Gen) of wealthy families. By comparison, the UK GDP in 2021 was a mere £3.3 trillion.” We would add that the U.S. GDP was only 27.36 trillion in 2023. A few examples of sectors that will likely be impacted by this massive wave of wealth are real estate, financial services, and consumer goods.

Real Estate

Real estate will see radical changes. As Baby Boomers pass away, their homes will go to their heirs. This will increase the number of homes on the market. Younger generations might sell these homes, creating opportunities for real estate agents and related businesses. Small businesses in real estate need to be ready for this increase in supply.

Financial Services

Financial services will also undergo development. Younger generations will need help managing their new wealth. They might seek financial advisors, investment services, and other financial products. KPMG writes that, “they are less traditional, and likely to have differing views to their elders on issues such as tax, trusts and offshore investments. They are much more informed investors owing to the abundance of information online, leading to greater engagement in the investment decision-making process. They are more open to investing in digital assets such as non-fungible tokens (NFTs) and cryptocurrencies, and with more focus on private equity and VC investments”. Small Business owners in the financial services space should work to understand these different values and preferences of the younger generations so they can adapt as needed.

Consumer Goods

Likewise, consumer goods will likely be affected by the change in generations. Younger generations (Gen X, Millennials, Gen Z) tend to prefer sustainable and tech-driven products. Economic, Social, and Governance Factors (ESG Factors) influence them more, as “a large percentage of them support climate solutions and social equality” We will discuss this in greater detail below.

How the Wealth Transfer Impacts Small Businesses

Changing Consumer Demographics and Behaviors

As mentioned above, the unprecedented wealth transfer will change the composition of the consumer population and thus their behaviors. These younger generations will reshape market demand. To stay relevant, small businesses must understand these variations.

Younger Generations and Altered Market Demand

Younger generations think differently about money. Products and services that were popular with Baby Boomers simply might not appeal to them. One key difference is that younger people tend to prefer experiences over material items. For example, they might spend on travel, dining, and entertainment over furniture or art. They care about sustainability and social responsibility. A product or business that emphasizes the impact it has on societal issues or its history of sustainability could be more appealing to them. Small businesses should consider these values when creating products and marketing campaigns. 

Shifts in Market Demand and Opportunities

Furthermore, markets will adjust as younger consumers gain wealth. Cerulli Associates writes that, “a new wave of younger, more diverse investors is demanding more seamless technology, personalized services, and sustainable investment solutions” (10). Catering to their wants can create new income streams for small businesses.

Technology

In addition to their sustainability preferences, younger consumers love tech-driven products and services. They tend to have “greater preference for digital channels and interactions, though they want human interactions for difficult decisions” (5). Small businesses can leverage technology to improve their offerings. For instance, adding smart features to products, using apps for better customer service, and offering online shopping can enhance customer experience.

Personalized Experiences

Furthermore, younger generations want personalized experiences. They appreciate businesses that cater to their individual needs and preferences. Small businesses can use data and technology to offer personalized services. For example, personalized marketing, customized products, and tailored customer service can set a business apart from the competition.

Sustainability

Simply put, younger people prefer products that are good for the world. “Some 75% of wealthy millennials consider environmental, social, and governance (ESG) elements to be an important factor in their investment decisions”. Small businesses can tap into this market by offering eco-friendly products and services. For example, using recycled or biodegradable materials, reducing waste, and supporting green initiatives can attract these customers.

Potential Challenges for Small Businesses

Opportunities come with challenges. Increased competition and changing customer expectations are a few. Adapting to technology is another. Being proactive and adaptable will be key to overcoming these challenges.

Potential for Increased Competition

As wealth transfers to younger generations, more businesses will enter the market to cater to them. This will increase competition. Small businesses need to stand out to attract customers. Monitoring the market and differentiating your business can help. Optimizing your business and knowledgeable is one way to stay ahead of the game!

Monitoring the Market

Monitoring the market helps businesses stay ahead. Small businesses should track competitors and industry trends, keep an eye on customer preferences, use technology, and be aware of economic indicators. 

Regularly review competitor websites, social media channels, and press releases to stay informed about their activities, product launches, pricing strategies, and customer feedback. Tools like SEMrush, Active Campaign, and SpyFu can provide insights into competitors’ online strategies. 

In addition, subscribing to industry publications, joining professional networks, and attending trade shows can keep you informed about technological advancements, regulatory changes, and market dynamics. 

To keep track of what customers like, use tools such as surveys, focus groups, and social media listening. Analyzing customer data from CRM systems and looking at online reviews can also provide valuable insights. According to Salesforce, 76% of customers expect companies to understand their needs and expectations. The use of AI and analytics tools such as google analytics can help you access accurate information as well.

One more tool in this toolkit is to keep an eye on the economy. Economic indicators such as GDP growth, employment rates, and consumer confidence indices are all useful in this regard. Sources like the U.S. Bureau of Economic Analysis (BEA) and the U.S. Federal Reserve offer up-to-date economic data.

Differentiating Your Business

Differentiating and optimizing your business is key to standing out. Small businesses should focus on what makes them unique. This could be a special product, excellent customer service, or a strong brand story. Combining two offerings in one store is one effective way to do this. For example, this store offers plants and coffee in the same place (https://plantsandcoffee.com/). In addition, a clothing store with effective, humorous customer service agents, unique belts, and tailored outfits stands out from one that’s more run-of-the-mill.

Changing Customer Expectations

Customer expectations are always evolving. Younger generations expect quick, efficient, and personalized service. They have grown up used to technology and want seamless experiences. Small businesses should focus on meeting these expectations. One way to do this is to invest in customer service training and technology. This can make a huge difference for your business.

Adapting to Technology

Adapting to technology is essential. Businesses that fail to embrace tech will fall behind. Small businesses should adopt the latest technology to enhance operations and customer experience. This includes a solid online presence and advanced tools for managing inventory and customers. Furthermore, integrating AI into workflows can boost the productivity of advisers and support roles. A strong grasp of this technology prepares businesses to leverage new applications as they emerge.

Financial and Economic Implications of the Wealth Transfer

Access to Capital and Investment

Each generation values different things. Investor behavior will change, influencing how small businesses get capital. Seeing these trends and preparing for shifts in investment patterns will help your business get needed funding.

Understanding Investor Behavior

Understanding investor behavior is important. Many young investors care deeply about sustainable and tech-driven solutions. They care deeply about wide issues involving society such as poverty, quality education, or ethical government. Small businesses that transparently align with these values might find it easier to get funding. Knowing what investors look for can help businesses present themselves better.

Preparing for Investment Shifts

Preparing for investment shifts means staying informed about market trends. Small businesses should keep an eye on changes in the investment landscape. This includes knowing about new funding sources and investment platforms. Being ready for these shifts can make it easier to secure capital when needed.

Changes in Lending Practices and Criteria

Lending practices and criteria are also changing. Small businesses must stay informed of these changes to navigate the financing landscape effectively.

New Lending Practices

New lending practices might include more online and peer-to-peer lending options. These platforms can offer more flexible terms compared to traditional banks. For example, with P2P lending, “the platforms’ proprietary credit evaluation algorithms can look beyond FICO scores to determine a borrower’s creditworthiness, enabling more people and businesses to get funding”. Small businesses should explore these and other new options to find the best fit for their needs.

Evolving Criteria

Evolving criteria for loans mean businesses need to be prepared. Lenders might look at different factors when deciding on loans. For example, they might focus more on a business’s online presence and customer reviews. Keeping a strong online reputation can help small businesses meet these criteria.

Workforce and Talent Considerations

Shifting Labor Market Dynamics

The labor market is changing with the rise of younger generations. To attract and keep talented people, use strategies based on the needs of today’s and tomorrow’s workforce.

Attracting Talent

Attracting talent involves offering competitive salaries, good benefits, and a positive work environment where they feel welcome. Younger workers value work-life balance and career growth opportunities. Small businesses should hire people that can co-create a workplace that meets these needs, a place of belonging. This can help attract and retain skilled employees.

Keeping Talent

Keeping talent means providing ongoing training and development. Employees want to grow and learn in their jobs. Offering training programs and opportunities for advancement can keep employees engaged and loyal. This benefits the business by building a skilled, continually learning, and motivated workforce.

Multigenerational Workforce Management

Managing a diverse workforce that spans multiple generations will be an important skill to have. Good management techniques can improve productivity and employee satisfaction.

Understanding Generational Differences

Understanding generational differences is key to good management. Each generation has its own values and work styles. For example, Baby Boomers might prefer face-to-face communication, while Millennials like digital tools such as online calls. Knowing these preferences can help managers create a better work environment.

Tailoring Management Styles

Tailoring management styles to fit different generations can improve productivity. Managers should use different approaches for each group. For example, offering flexible work hours might appeal to younger workers. Regular feedback and steady mentorship can motivate older employees. A tailored approach ensures that all employees feel valued and supported.

Skills and Training Needs

New skills need ongoing training and development. Investing in your employees’ growth can lead to a more skilled and motivated workforce.

Identifying Skills Gaps

Identifying skills gaps helps businesses provide the right training. Small businesses should assess their workforce often to see what skills are needed. This might involve surveys, interviews, or performance reviews. Knowing the gaps allows businesses to create targeted training programs to help their employees be at their best.

Offering Training Programs

Offering training programs helps employees gain new skills. This can include workshops, online courses, and on-the-job training. Small businesses should invest in training to keep their workforce up-to-date. For example, doctors often differentiate themselves from their competitors through lifelong learning and the continual gaining of certificates and licenses. This not only benefits the employees but also improves the business’s overall performance.

Opportunities for Small Businesses

Emerging Markets and Niches

Finding and using emerging markets and niches can help your business grow. For instance, the demand for eco-friendly products and services is expected to rise. Businesses that align with these trends are more likely to succeed.

Eco-Friendly Products

Eco-friendly products are in high demand. Younger generations care about the environment and prefer sustainable options. Small businesses can tap into this market by offering green products. These could include reusable paper towels (https://earthhero.com/ ), biodegradable paper plates, energy efficient vehicles, and more. Marketing these products as eco-friendly can attract conscious consumers.

Health and Wellness

Health and wellness is another growing market. Younger generations prioritize their health and well-being. They spend money on fitness, healthy foods, and wellness services. Small businesses can offer products and services that cater to this trend. For example, organic food stores, fitness centers, and wellness apps can do well in this market.

Tech and Innovation

Tech and innovation drive many new markets. Younger consumers love new and innovative products. Small businesses can succeed by offering tech-driven solutions. This could include smart home devices, wearable technology, and innovative apps. Tuning into this market can help businesses attract tech-savvy customers.

Adaptation Strategies for Products and Services

Changing your product and service offerings to meet new demands is essential. This might mean changing existing products or introducing new ones. As always, the key will be to cater to the younger generation.

Innovating Products

Innovating products is crucial. Small businesses should look at current trends and see how they can improve or change their products. For example, adding smart features to everyday items such as home appliances can make them more appealing. Listening to customer feedback and staying flexible can help businesses innovate successfully.

Introducing New Services

Introducing new services can attract younger customers. For instance, subscription services are popular among younger generations. Small businesses can offer subscriptions for products or services. This provides a steady income and keeps customers engaged. Other ideas include offering online services, home delivery, and personalized services. These require more work, but have the potential for a large payoff and increased customer base.

Customer-Centric Approach

A customer-centric approach is essential for adapting products and services. Understanding what customers want and need helps businesses provide better products and services. Small businesses should engage with their customers, gather feedback, and make changes based on that input. This approach ensures that the business stays relevant and meets customer expectations.

Leveraging Technology and Digital Platforms

Digital transformation is no longer optional. Use technology to improve customer experience, smooth your operations, and improve marketing. Tech can give your business the competitive edge it needs in the coming years. Consider our optimization services, which can put you at the forefront and optimize your business for when you’re ready to sell.

Improving Customer Experience

Improving customer experience with technology is essential. Using customer relationship management (CRM) systems, for instance, helps businesses manage interactions with customers effectively. Companies using CRM systems are able to respond to customers quicker, make data-informed decisions, and personalize their marketing to each customer. 

Additionally, chatbots are becoming an integral part of customer service. Chatbots provide instant responses, which enhances customer satisfaction by reducing wait times. Mobile apps also play a crucial role in improving customer experience. Apps provide easy access to products and services, offering seamless experience and easy purchasing options. This convenience leads to higher customer engagement and retention.

Streamlining Operations

Streamlining operations with technology can save time and money. Small businesses can use software to manage inventory, track sales, and handle finances. Automating repetitive tasks frees up time for more important activities. This can be done through IT Managed Service Providers (MSPs) or via in-house technology. This makes the business run more smoothly and efficiently.

Enhancing Marketing Efforts

Using digital tools can help your marketing efforts attract more customers. Social media platforms like Facebook, Instagram, and Twitter are great for reaching younger audiences. Email marketing, online ads, and SEO (search engine optimization) can also be effective strategies. Small businesses should create a strong online presence and use digital marketing to boost their visibility. Being locked into an old-fashioned website with limited contact information can make you very difficult to find.

Preparing Your Small Business for the Great Wealth Transfer

Strategic Planning/Positioning

Strategic planning is essential for navigating the wealth transfer. Position your business to use new chances and reduce risks. This will help you achieve long-term success.

Building Resilience and Adaptability

Building resilience means creating systems and processes that can withstand economic changes. Being adaptable means your business is willing to change and grow through testing times.

Developing Resilience

Resilience means being able to weather risks. This can include having a financial cushion, diversifying income streams, and having backup plans. Hiring a resilient workforce is also key. A business comprises people first and foremost. Resilient employees can handle challenges better and recover more quickly. The image of grass blowing in the wind comes to mind. A tough oak tree will eventually fall to a windstorm, but bendable grass will keep coming back up.

Embracing Adaptability

Embracing adaptability means being open to change. Small businesses should stay flexible and ready to adjust their strategies. This can involve trying new things, learning from mistakes, and staying updated on industry trends. This is difficult to do, and requires practice from everyone. Adaptable businesses can thrive in a changing environment.

Identifying and Targeting New Customer Segments

Targeting new customer segments means understanding their needs and wants. Good customer segmentation strategies can help you reach and engage these audiences.

Researching Customer Segments

Researching customer segments means collecting data on groups based on age, gender, ethnicity, location, and buying habits. Small businesses should use this data to create detailed profiles of their target customers. These profiles should include demographics, behaviors, motivations, pain points, and triggers for purchases. Methods to gather this data include surveys, interviews, focus groups, and analyzing data from CRM systems or social media.

Creating Targeted Marketing Campaigns

Creating targeted marketing campaigns means tailoring messages to specific customer segments. This can involve personalized ads, special promotions, and content that speaks directly to the needs of each group. Targeted campaigns can greatly improve engagement and conversion rates. McKinsey Financial Services says that, “When firms focus on a narrow target segment with the right offer, the right marketing hook, and the right seller at the right time, acquisition costs can be as low as 70 to 80 basis points”. Starting now to implement targeted marketing for upcoming wealthy customers could make a significant difference for your company.

Best Practices for Small Businesses

Being Proactive

Anticipate changes and take specific actions to prepare for them. Small businesses should stay knowledgeable about market trends and customer needs. This helps them make timely adjustments, be more resilient, and stay ahead of increasing competition amidst coming economic shifts.

Focusing on Customers

Understand and meet customers’ needs first and foremost. Your small business should directly engage with customers, gather feedback, and make improvements based on that input. A customer-centric approach builds loyalty and drives growth. In addition, younger generations appreciate feeling known and seen in this way. As noted above, valuable areas to focus on could be technology integration, ESG offerings, or personalized products and services.

Planning Strategically

Develop a clear vision and fill in the steps to achieve it. Small businesses should set long term goals with achievable ways to reach them. Leaders at each level should have their own goals for their group that align with the business’ overall goals. Regularly reviewing and updating these plans ensures they stay relevant and most effective for everyone.

The unprecedented wealth transfer presents both stumbling blocks and stepping stones for small businesses. Understand what the coming years will bring, and collect the tools you need for success. Position your business to thrive in this changing landscape. Stay active, adaptable, and informed so you can ride the wave of the upcoming wealth transfer. 

Are you ready to optimize your small-business? Schedule an appointment today. We can help you understand the unprecedented wealth transfer and achieve long-term success.