Three Ways Millennial Business Owners Differ from Your Traditional Business Customers
Analyst's Journal - February 5th, 2014
By Joel Mueller
The face of your business customers can be expected to change, and it may be sooner than you think. According to Barlow Research's trending four-quarter small business data ($100K-<$10MM), the average age of small business owners has increased (from an average age of 56 in 2008 to 59 in 2013) and over a quarter of small businesses are planning to change ownership within the next five years. Given these trends, a new generation of business owners is getting more attention: millennials. However, the fundamental problem with serving the millennial business is that so many financial institutions and bankers simply do not understand them and how they differ from traditional business customers.
Unlike the baby boomer generation, there does not appear to be a defined date-of-birth-range for the millennial generation; however, most literature suggests that the oldest millennials were born in the early 1980s and the youngest were born in the early 2000s. According to the U.S. Census, the millennial generation makes up approximately 32% of the U.S. adult population. This is approximately the same as the baby boomer generation (31%). However, given immigration trends and the fact that not all millennials are adults yet, this generation will continue to grow.
Barlow Research data finds that the typical small business owner started their business when they were around the age of 35 – the same age as the oldest millennials today. This has many asking, “How do financial institutions serve firms with millennial owners?” As shown in the graph below, very few small business and middle market companies ($10MM-<$500MM) currently have millennial owners. To gather information on the financial behaviors of millennial business owners, we must turn to the segment with the newest businesses: the small office/home office (SOHO) segment, where 9% of firms have millennial owners.
Three Important Things to Know about Millennial Business Owners (in the SOHO Market)
Barlow Research recently hosted a Webcast panel-discussion on the millennial generation entitled “Banking the New Face of Business: Millennials, Boomers and Dynamos.” Our panel included three very knowledgeable panelists: Himmat Randhawa from Digital Insight, and John Yarley and Alfred Chin from Visa. Through the course of the panel discussion on millennials, we learned three important things about this generation.
1. Instant Gratification Is Expected
Himmat Randhawa from Digital Insight believes that a challenge that financial institutions have with understanding the millennial generation has to do with their usage of technology and their channel preferences. “The vast majority of millennials are tech-savvy and think about the online channel as their primary channel with very little interaction with the offline channels. Millennials want anytime, anywhere access to information and don’t have an expectation to do that in-person.” Barlow Research data supports Himmat’s point: a higher percentage of millennial businesses used technology-based, self-service channels such as mobile banking, ATMs and online banking.
2. Many Are Looking for Solutions
According to Barlow Research’s SOHO Opportunity Study, nearly half of millennials agreed strongly that they are always looking to make undesirable tasks/responsibilities more efficient or easy to handle. Only 38% of the baby boomer generation shared the same sentiment. More than three out of four millennial business owners were also in a development, growth or attempting growth stage of business. Generally, businesses in growth stages tend to use more product/service offerings.
3. Checkbooks May No Longer Be Necessary
Credit and debit cards are important to the millennial generation, while paper checks appear to be a less preferred method of payment. The graph below compares payment preference and usage between millennials to baby boomers. The payment methods used most often (x-axis) and the methods most preferred (y-axis) were much different between the two groups. Baby boomers had highest usage of/preference for checks while millennials had the highest usage of/preference for credit and debit cards. The dashed lines depict the space differential between millennials and baby boomers among each payment method – the longer the line, the larger the difference in usage and preference for that payment method. These lines demonstrate that the biggest difference between millennials and baby boomers was really in usage of/preference for checks and debit cards.
It’s clear that the millennial generation will become increasingly more important in the coming years and financial institutions will have to learn to adapt to their preferences and expectations. Since these business owners are proficient with technology and have many financial and payment behaviors that differ from traditional business owners, it may be important to re-evaluate channel strategies and be prepared to optimize for the millennial business owner.
To learn more about the SOHO Opportunity Study or millennial research at Barlow Research, contact Joel Mueller email@example.com or (763) 253-1806.