Millennial small business owners are committed to their businesses for the long term and are more willing to take calculated financial risks and incur debt in order to grow their businesses, according to a new Wells Fargo study of millennial small business owners. The study, conducted by research firm GfK, identified similarities and differences today between millennial small business owners and small business owners of earlier generations and how they are potentially impacting the business landscape.
In a committed relationship with their business
In an online survey of approximately 1,000 U.S. small business owners, conducted March 24 to April 13, 2016, majorities of both millennial small business owners and older small business owners say they started their businesses to control their future and be their own boss, wanting greater flexibility in where, when and how they work. Millennial small business owners place more value on feeling passionate about their work, with 59 percent reporting passion as a motivation for starting their business, compared with 51 percent of older small business owners. Another reason for starting a business – wanting a challenge and growth – ranks higher among older small business owners (55 percent of older small business owners vs. 43 percent of millennial small business owners).
Contrary to popular perceptions that millennials are focused on the short term and more apt to be serial entrepreneurs, the study found the generation is gearing up for the long term, seeing their business endeavors as investments in the future, with many already looking ahead to the next generations. In fact, 80 percent of millennial small business owners say they hope to grow their businesses over many years, potentially even passing it down to their children someday, in spite of most (59 percent) not yet having children. By comparison, 66 percent of older small business owners say they hope to pass down the business to their children.
Although millennials are more likely to have started their business as a hobby (18 percent vs. 7 percent for older small business owners), about 70 percent of all small business owners surveyed now work full time for their business. When it comes to how quickly they want to grow their businesses, the two groups differ: 79 percent of older small business owners say they are happy to stay a small business as long as they can create a comfortable future for themselves and their families. That percentage is smaller for millennial small business owners, where 59 percent report they are happy to stay a small business, and 41 percent are looking not only for a comfortable future, but to grow their business as big as possible.
“We found that millennial small business owners have a much longer term horizon for their businesses than many may perceive them to have,” said Lisa Stevens, Wells Fargo’s head of Small Business. “They recognize an investment in their business is an investment in their future.”
Taking on debt to invest in their future
While most small business owners surveyed say they are extremely wary of taking on debt (75 percent of millennial small business owners and 78 percent of older small business owners), many millennials believe that business debt and financial risk are necessary for the future growth of their businesses. About two-thirds of millennial small business owners say that some amount of business debt is necessary for growth, or are willing to take financial risks in order to grow their business. By comparison, roughly half of older small business owners hold these views. Additionally, millennial men are more apt to believe that business debt is needed in order to grow (72 percent among millennial men vs. 54 percent among millennial women) – and are more willing to take financial risks to grow (77 percent among millennial men vs. 55 percent among millennial women). They also expect to take on business debt in the future, with 21 percent of millennial small business owners saying they plan to take on some form of business debt in the coming year (similar to 18 percent of older small business owners).
In addition to business debt, many millennial small business owners have taken on personal debt to finance their businesses (43 percent of millennial small business owners compared to 33 percent of older small business owners). This includes carrying a balance or maxing out personal credit cards or opening a personal line of credit. Moreover, a sizable three in 10 millennial small business owners report having student debt, with these individuals owing roughly $30,000 on average.
“Our research shows millennial small business owners to be thoughtful about credit, and their attitudes toward taking on debt have likely been shaped by the Great Recession. At the same time, it is encouraging to see them investing in their businesses and looking at entrepreneurship as a way to secure their future,” said Stevens. “We want to make sure that as they grow their businesses, they have the financial resources and access to credit that can help them succeed financially.”
Outlook of millennial small business owners
Millennial small business owners are more optimistic than their older counterparts about what the next year will bring. Three out of four millennial small business owners said they expect their businesses to improve over the next 12 months, compared to half of older small business owners. Millennial small business owners are also more apt than older small business owners to believe that they will increase customers, profitability, sales, and website traffic in the coming year.
Although millennial small business owners are optimistic that their businesses will improve in the coming year, they still face challenges. Less than half of millennial small business owners feel very knowledgeable about (46 percent) or successful in managing (41 percent) their business’s finances.
Millennial small business owners are, however, on a mission to seek out knowledge that will help their businesses grow. They are more apt to look for help outside their business than their older counterparts, citing friends and family, peers and competitors, social media and other online information sites as resources for their business’s financial success.
About the research
The Wells Fargo Millennial Small Business Owner Study was conducted by research firm GfK from March 24 to April 13, 2016. In the poll, 1,005 U.S. Small Business Owners (SBOs) were surveyed. Approximately 500 interviews each were completed among Millennial (ages 19 to 35) and older (36 and above) small business owners. In order to qualify, respondents had to be in business for at least six months (but could be working on the business full- or part-time), be the business’s primary or shared financial decision maker, and own at least 50 percent of businesses that earn under $5 million in annual revenue. The poll is part of Wells Fargo’s efforts to understand and serve this important group of individuals helping to drive the U.S. economy. All results reported are from the Wells Fargo Millennial Small Business Owner Study.Related Articles: