Sylmar Group CEO Peter Brooks Writes on The Hidden Workforce Transition Underway

As water system owners contemplate retirement, they should also ponder the fate of their businesses and the options available for the transition of assets.

We are in the middle of the greatest transition of wealth, power, and leadership in the history of humanity. The retirement of the Baby Boomer generation is upending industries globally and the water and wastewater industry is no exception. In fact, it’s hitting our industry more than others. The water industry has a greater demographic challenge facing it than many other industries due to the nature of our regulatory history; the Clean Water Act and Safe Drinking Water Act have passed their 40-year anniversaries and the generation of water and wastewater professionals ushered into the industry by these momentous acts have reached retirement age. While there are tremendous efforts underway to support this transition for utilities from groups such as Baywork in the San Francisco Bay Area and the inclusion of water workforce funding support in the America’s Water Infrastructure Act of 2018, there is a whole other segment of this industry that often falls under the radar: the thousands of small businesses that supply, manufacture, service, and maintain our industrial, commercial, and municipal water infrastructure.

Across the U.S. economy, Boomers are expected to bequeath $10 trillion worth of assets over the next decade or two and across 12 million private businesses. These small businesses are spread throughout all industries, but many thousands provide mission-critical services to the water and wastewater industries. These services are often unsung or underappreciated until the service provider on the other end of the phone doesn’t answer.

Impacts Of The Transition
The results of this demographic shift are already rippling across the industry. The reality is that, for many water utilities or industrial water users, the local, reliable, 30-year-old company that you call to provide you treatment equipment, repair your valves and pumps, troubleshoot your SCADA, repair your distribution system, or supply you with critical consumables might not be around in a few years, leaving utility and facility managers scrambling for alternatives.

Competitive market theory says that other companies will step in to meet any customer need, but some amount of dislocation is bound to happen, and dislocation, service interruption, and operational downtime is not an option when you’re talking about delivering clean water or treating wastewater. Moreover, there’s no guarantee that the next-best firm will provide the same quality, responsive service, and, in any event, this will require utilities and industrials to rebid or even rebuild systems to adapt to new suppliers.

Succession Planning — For Your Whole Supply Chain
We’ve known about this transition for a while; the thing about demographics is that you can see them coming a few decades in advance. But knowing that it will happen and planning for the reality are two different things.

If you are a facility owner or utility manager, now is the time to start the succession planning — not just for your staff, but also for your suppliers and service providers. What happens if your biosolids hauler or GIS-system provider or coagulant supplier goes away? What is your product obsolescence strategy after the warranty on your new system expires and if the replacement parts aren’t available anymore? Who would you call if your go-to subject matter expert retires?

None of these is an insurmountable challenge in and of itself, but the compounding impact of multiple retirements internally and externally could leave facility owners and operators in a tough spot. The response still requires diligence, scenario planning, and rehearsing as much as any internal succession plan or emergency response plan would.

If you are the owner of one of these businesses, the questions are even more existential: How do you want to define your legacy? What dreams do you have for the future of the business after you retire and for the team and brand and reputation you’ve developed? How do you maintain the decades-long relationships with customers even after you leave?

There are a number of options available to water industry businesses with owners approaching retirement who lack a clear succession plan, some more desirable than others. Among them: liquidating and closing down, selling to a competitor or a large strategic, or selling to a financial investor. Each of these strategies has its drawbacks. Liquidation is unlikely to have a good outcome for anyone besides the buyer if the business is of high quality. Selling to a competitor or a large strategic in the industry gives owners little assurance of any respect for company culture, staff job security, or brand stewardship. And selling to pure financial investors may still require owners to stay on the job to meet lofty financial projections, but suddenly as an employee for the first time in decades. As an alternative, we at Sylmar Group offer a different path for great water and wastewater services businesses that we hope becomes the norm: We combine patient capital and water industry experience to cement the legacy of the founders of great water and wastewater service businesses, while providing management for the future growth of the business.

Whatever the path for the thousands of Baby Boomer small business owners in the water and wastewater industry at or approaching the challenge of the transition, now is the time to start planning and communicating this plan to customers who might be concerned about your firm’s longevity.

Demography is destiny, and we are living through the reality of this demographic fate right now. The speed of retirements of senior water and wastewater subject matter experts is only accelerating due to, among other things, COVID-19, a volatile economy, and the growing challenges of managing a modern, digital workforce. This transition shows no sign of slowing down. Our industry has faced such challenges before, but never to this extent and so suddenly. The risks of water and wastewater service dislocation, interruption, and downtime are growing, and it is the responsibility of water and wastewater utility leaders, industrial manufacturers, facility operators, and small-business owners to plan ahead and work collaboratively to make sure we don’t fall short of our duty to protect public health and the environment through the stable, reliable management of critical water resources and infrastructure.

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