The EntreWorks blog has been recently focused on the ongoing great ownership transition, driven by baby boomer business owners retiring and (hopefully) transitioning their business to new and younger owners. I’m concerned about this transition, because it has the potential to help anchor business opportunity and wealth in local communities.  But the transition matters for many other reasons as well—including our ability to maintain a robust and effective national defense posture.

That’s the focus of a new report from my long-ago colleagues at Business Executives for National Security (BENS).  A recent BENS analysis examines how defense manufacturers are dealing with the ownership transition.  The short answer is “not very effectively,” generating a quiet succession crisis.

The BENS analysis focuses on machine shops and smaller subcontractors, who still maintain a central role in US defense production.  At present, the US is home to around 16,600 machine shops (defense and commercial) who collectively support up to $50 billion in annual spending. The firms remain small, with 98 percent supporting annual sales below $10 million. The managers of these firms are rapidly aging, with an average CEO age of 60 and an average worker age of 55.

These firms are in the midst of a transition, yet few investors are lining up to capitalize on this opportunity. These investments are risky and often too small to attract major investors;  How can the market gaps be addressed?  The report authors recommend a host of measures.  Step one is to enhance visibility about these opportunities, through partners like SBA and the Manufacturing Extension Partnership (MEP) program who regularly work with small manufacturers.  In addition, new funding mechanisms, such as DoD’s new Office of Strategic Capital, could also be deployed to support critical transition investments.  We need tools and resources to identify critical at-risk firms and invest to maintain capabilities that keep the companies in business.

These recommendations make good sense, but will also require continued focus on protecting and enhancing the US’s fraying “manufacturing commons.”  Cuts to programs like the MEP make little sense in this environment, where early warning tools and deep understanding of defense manufacturing matters.  Getting this defense transition right is important, not only for national security but for local economic prosperity as well.

I recently learned of some interesting small business research work being led by Laura Freschi, Tim Ogden, and Jonathan Mordoch of New York University’s Financial Access Initiative.  They studied how small business owners are faring in a host of countries (Colombia, Ethiopia, Indonesia, Kenya, and Nigeria) using a unique technique of small firm diaries and regular weekly visits to assess what it’s really like to be an entrepreneur in these challenging times.  The study also focused on more established businesses, which they refer to as “stability entrepreneurs,” as opposed to microenterprises or fast-growing gazelle businesses.

Their report contains lots of fascinating insights.  Not surprisingly, these business owners face great uncertainty and volatility, operating in often seasonal businesses with little to no trained support or assistance. Faced with these constraints, small business owners pursue strategies that help cope with uncertainty and manage risks.  These firms emphasize stability, and are often reluctant to hire new workers, raise new capital, or make major investments without assurances of a quick and tangible ROI.  Managing volatility is Job 1.

While the term “stability entrepreneur” may be new(ish), these types of businesses are common in most of our communities—abroad and here in the US. Yet, our programs and services are often poorly designed for this market segment where stability may be more important than growth—at least in the short term.  Let’s consider a few examples.  Many firms fear hiring new full-time employees, yet would benefit from part-time or gig worker support.  Yet, most economic development programs focus on supporting full-time employment. Similarly, many small business finance programs are focused on supporting revenue and job growth, yet these firms might benefit from short-time loans cash infusions that reduce market volatility.   The authors are not calling for the end of traditional incentives and small business support programs, but they are advocating for efforts that recognize the everyday uncertainties facing small business owners.