When the word innovation comes to mind, we likely think of a disruptive product or service being developed in Silicon Valley. Start-ups are exciting and certainly have their place in the ecosystem, but we shouldn’t lose sight of the progress that has been made in established small businesses. Instead of building value through start-ups, should we be looking at profitable small businesses to inspire innovation?

There are several strategies small businesses use to compete with larger corporations. One of them is customising solutions to customers’ requirements to outperform on productivity and profitability. Examples of great small business innovation are abundant. One such example is Smokeshield’s fog security device which emits a powerful fog that takes away all visibility within seconds, and has been protecting Australian retailers from theft for 20 years. According to the Australian Small Business and Family Enterprise Ombudsman, small businesses make up 84% of all innovating businesses in Australia.

A 2004 CPA Survey identified that 30% of small business owners are over the age of 50 and this percentage will continue to increase over the coming years alongside Australia’s aging population. 40% of business owners intend to leave their business in the next five years. As these business owners look towards retirement, the market will be flooded with businesses for sale, and supply will far exceed demand. Furthermore, small businesses generating more than $1 million in profit, face the conundrum of being too big for individuals to afford, and too small for private equity to consider. These factors are expected to cause 30% of these business owners to have difficulty finding a buyer. Only those businesses which are properly prepared for sale will be sold. This can be a time-consuming exercise and involves preparing accounts, identifying key staff, making oneself redundant, looking for upside, listing plant and equipment and gathering paperwork.

The most popular exit strategy outside of advertising the business for sale, is keeping the business in the family. If a buyer is unable to be identified and the children are not willing to take over the reins, these owners may be faced with having to put their business to rest when they can no longer manage it. This is not only a disappointing outcome for the staff and the owner who spent years building the business, but also for the Australian economy because of the progress already made within, and the prosperous years that could have laid ahead.

In Verne Harnish’s book, Scaling Up, he observes that only 4% of all companies ever exceed $1 million in revenue. Instead of spending so much time recreating the wheel, perhaps we should be shifting our attention to the progress that has already been made in small businesses. The ‘great wealth transfer’ is underway, and with it comes a staggering $3.5 trillion transfer in wealth to younger generations, including thousands of small businesses. This monumental shift presents an excellent opportunity to invest in small businesses and support their growth into successful enterprises. By utilising existing small business infrastructure as a launching pad for innovation, and implementing the right strategy, expertise, and support network, these investments are poised for exceptional returns.