From the September 1999 issue of Entrepreneur

From California to the New York island, from the redwood forest to the Gulf Stream waters, this land will change between now and 2005. More specifically, the consumers driving the American economic engine will change--in some cases, drastically.

To measure these changes, we looked at demographic trends as projected by the U.S. Census Bureau and state demographers for the five most populous states: California, Texas, New York, Florida and Illinois. What we found, first of all, is that there are going to be a lot more consumers in the next millennium. The Census Bureau projects the U.S. population will grow from 272 million in 1999 to 286 million in 2005.

Those consumers are generally going to be older, as the still-dominant baby boom continues to move into middle age. Today, 35.5 is the estimated median age of Americans. By 2005, the median age will be more than a year older, at 36.6.

The 40- to 44-year-old group will become the largest, with 22.4 million, surpassing the 35- to 39-year-old population; 45- to 49-year-olds will become the next-largest group. In another age shift, 20- to 24-year-olds will also grow to outnumber 35 to 39-year-olds, the demographic currently bloated by the youngest of the Baby Boomers.

The United States is also becoming more racially diverse, as minorities become majorities in some locales, and the influence of ethnic groups everywhere grows. Non-Latino whites now make up 72.1 percent of Americans, but by 2005 they'll comprise only 69.9 percent of the total. Latinos of all races will grow from 11.2 percent to 12.6 percent of the population. Excluding Latinos, African Americans will experience minimal growth, from 12.2 percent to 12.4, and the American Indian population will rise slightly from 0.7 to 0.8 percent. The numbers of non-Latino Asian Americans and Pacific Islanders, meanwhile, will explode by nearly 2.35 million, growing from 3.8 percent to 4.4 percent of the total population.

These will be nationwide changes that will affect every entrepreneur who does business nationally (for instance, via the Internet). How you're affected by the differences between consumers now and in 2005, however, will primarily depend on where you do business. Entrepreneurs who are operating in states like New York and Illinois, which are experiencing slow growth, will be in a much different situation from what entrepreneurs will face in the fast-growing and dynamic markets to be found in California, Texas and Florida.

California, Here We Come

Five years into the new millennium, California will still be the most populous state, with at least 34.4 million people--one in 10 Americans--residing there. That's a 5.9 percent increase from the Census Bureau's 1999 projections. Despite its mass, however, even the Golden State will see significant changes in the makeup of its consumers.

Post-millennial consumers in California will be older and more diverse than their 20th century forebears, according to Stephen Levy, director of the Center for Continuing Study of the California Economy, a private economic research organization in Palo Alto. Of the two main themes, diversity is the dominant one. "Between now and 2005," says Levy, "California will become a minority-majority state." That means the residents of European ancestry who currently make up 51.8 percent of the state's population will be outnumbered by a combination of Latino, Asian American and, to a lesser extent, African American consumers, he says.

"Almost all the population growth in California is going to be Latino and Asian," says Levy. All told, he estimates there will be 12 million Latinos and 5 million Asian Americans in California by 2005.

Although diversity is a theme that will be prevalent throughout the United States, when it comes to age, California bucks the trend. Because the bulk of its growth will be generated by natural increase--an excess of births over deaths--as opposed to immigration, California won't get old as fast as the rest of the nation. Californians' average age by 2005 will be in the low- to mid-30s, two or three years younger than the national average, says Levy.

Even sizable demographic changes may not add up to a huge difference for entrepreneurs, however. One reason is that small companies tend to be niche players, affected only by the trends that directly impact their specialty markets.

David Morgan, president of Foghorn Press, a publisher of outdoor-recreation guides in Santa Rosa, isn't planning to alter his business practices to appeal to burgeoning ethnic consumers--as long as his core market of middle-class outdoor enthusiasts avoids radical change. For Morgan, continued growth in the overall population overrides other concerns. "Our biggest customer is the middle class of California," says Morgan, 36. "If that increases, it can't hurt."

The age issue is another matter. On the one hand, Morgan sees younger consumers as more likely to engage in outdoor recreational activities. On the other hand, the increasing importance of a new generation has him a little nervous. "It's a mixed blessing, because [young people are] into all these unconventional things," he notes. "It'll keep us on our toes."

Deep In The Heart Of Texas

Texas hasn't been the biggest state in terms of land area since Alaska earned statehood in 1959, and although it passed New York in the 1990s to become the second most populous state, it isn't likely to ever catch up to California as the population leader. But with projections from the Census Bureau of 21.5 million residents in 2005, a figure that's 6.8 percent higher than the bureau's 2000 projections, Texas is growing and changing with an alacrity that belies its bulk.

Texas' population growth will be characterized by a balanced combination of natural increase and immigration as the state's strong economy attracts new residents and its younger-than-average population generates a relatively high number of births.

"Increasingly in the next century, Texas' model consumer is likely to be a younger adult of minority heritage," says Steve Murdock, chief demographer at the Texas State Data Center at Texas A&M University in College Station. Texas will become a minority-majority state in about 2008, says Murdock, thanks largely to rapid growth in the Latino population.

Penny McConnell's customer base isn't waiting for the 21st century before it diversifies. McConnell, the 47-year-old owner of Penny's Pastries specialty bakery in Austin, says that tying her products to holidays, always an important strategy, is becoming increasingly complex as the variety of ethnic customs her customers observe broadens.

"We get calls now for everything from Kwanza cookies to [pastries for] the Chinese New Year," McConnell says. "When we started five years ago, we weren't making any cookies that celebrated anything in the Jewish religion. Now we do, and it's in a big way."

Another, more surprising trend is one that doesn't show up in Census Bureau surveys. McConnell says the healthy eating trend may have run its course in Texas. "I used to get more calls about nutrition and ingredients," she says. "But that doesn't seem to come up as often anymore."

New York Settles Down

Change, not growth, will be the story when it comes to Empire State consumers. New York's population is expected to grow only about half a percentage point, to about 18.2 million people, in the first five years of the new century. Emigration is the reason, as more people leave than arrive, while natural increase will only barely maintain the state's overall population.

But behind the stagnant population numbers is a vibrant swirl of change. Like the rest of the nation, New York is seeing growth in the number of middle-aged consumers, notes Warren Brown, senior research associate at the Cornell Institute for Social and Economic Research at Cornell University in Ithaca, but the rates for older teens and those in their early 20s are also rapidly growing.

New York is also seeing the same natural increases in Latino and Asian American populations as other states. What makes New York stand out is that, counterbalancing the residents leaving for other states, large numbers of people are immigrating to the state from foreign countries. "Historically, that's been New York's role," notes Brown, "to serve as a port of entry and then spread people to the other parts of the country."

The product of these disparate forces is compelling opportunity. "Merge those two together, and you get a picture that says minorities--Latino, Asian and black--and older teens are very rapidly growing markets," says Brown. "Marketers who figure out how to [make their goods] the products of choice for these populations should see tremendous growth."

For entrepreneur Stephen Viscusi, host of a radio show on careers and president of The Viscusi Group Inc., a New York City search firm that specializes in furniture salespeople, it's not so much a change in age as a change in attitude that he expects will affect the customers in his market. When he looks to the future, the biggest difference he sees is an extension in people's working lives.

"People are not retiring," says the 35-year-old Viscusi. "The word `retirement' seems to be disappearing from people's vocabulary, at least the way our parents or grandparents understood it."

Viscusi says a combination of poor financial preparation and concern about losing the fulfillment of work are driving the trend toward postponing retirement. In any case, it's good news for him, as it means an enduring supply of both workers and listeners as the new century progresses. "To me," he says, "it's a very significant trend."

Florida Gets Young

Significant changes await entrepreneurs in Florida. As a projected 2000-to-2005 growth rate of 6.9 percent brings the state's population to 16.3 million, Florida will be the fastest-growing of the five most populous states. And as well as being more densely populated, the Sunshine State will also be more diversely populated than it is now. Its residents will be less concentrated in traditional metropolitan areas and perhaps not as old as you may think.

Florida is unusual in two ways. First, it has a low rate of natural increase--approaching zero or even less in some counties. Second, it's experiencing an influx of young immigrants from other states that's stronger than many people realize. "One of the common misconceptions about Florida is that only retirees come here," says June Nogle, research demographer at the University of Florida in Gainesville. "Migration fuels a lot of the growth in Florida; it's the core reason we're growing. But retirees aren't the majority of the migrants that Florida attracts. We've been getting lots of young people and lots of families. That's slowed the climb of Florida's median age."

Most of the minority growth in Florida will, as elsewhere, be among the Latino population. But to Nogle, more interesting than ethnic diversification are the changes in the way the population will be distributed throughout the state. Increasingly, Floridians will opt to live outside Miami and other large metropolitan areas, choosing the more sparsely settled regions of the Panhandle and Central and Northern Florida.

One major question for Florida is whether baby boomers will select it as their retirement home as so many of their parents have. "We look at the numbers and see places like Colorado growing very fast and wonder whether these are going to be the new [retirement] places for baby boomers," Nogle says.

The changes expected in the Florida of the new millennium don't overly concern entrepreneur Rick Martis. The president and co-founder with vice president Frank Heinze of nutritional supplement retailer Physical Addictions in Indialantic notes that while Florida may be getting older, many of its retired residents are acting younger.

"Older people are trying to maintain healthier lifestyles to prolong their lives," says Martis, 45. "Not too many years ago, they didn't have nutritional breakdowns on labels of any food products. Now everybody reads them."

Martis plans no changes in marketing or his product mix to address the coming changes, and he believes the right business concept will see him through any amount of aging, migration or demographic shift. "[In Florida,] health and nutrition aren't going to be fads like Beanie Babies," he predicts. "They're here to stay and will grow through all ages, genders and races."

Illinois Matures

In the heartland of America, events tend to unfold at a slower speed than on the coasts, and that seems especially true for population growth. By 2005, Illinois will have only 2 percent more residents than in 2000, with a population just under 12.4 million. And while diversity will also be a theme in the Prairie State, it won't be anywhere near the minority-majority scenario seen in some others.

Illinois will get its growth from a mix of international migration and natural increase, according to Roy C. Treadway, a demographer at Illinois State University in Normal. When it comes to domestic migration, more people will leave Illinois for other states than will move there, Treadway says.

International migration is adding to Illinois' populations of Asian and Latino residents, while the African American population holds steady in the state. The bulk of the growth of all ethnic groups will occur in and around Chicago, especially in the counties on the edge of its metropolis. In contrast, natural increase won't make up for natural loss in many rural counties, which will actually shrink in population. In these downstate areas--such as Peoria--the population will increasingly be made up of older residents of European ancestry, in sharp contrast to the diversity in Chicago.

So businesses in Illinois face two worlds, Treadway says. If they're in Chicago, they'll see a fast-changing scenario with growth and quick shifts in age and ethnicity. Elsewhere, it's a slow-growth or no-growth future that's becoming increasingly homogeneous.

Older consumers aren't bad news for Michael Stopka, the 38-year-old president and owner of Design Toscano Inc., a catalog-based retailer of historical European reproductions in Arlington Heights. "As the baby boomers get older, they're starting to travel more," he reasons. "They're going to Europe and they're starting to decorate their homes more like Europeans do."

To Stopka, that means selling more of his company's fountains, statues and garden ornaments to affluent and sophisticated baby boomers. It's already happening, and it's a trend he doesn't see stopping. "We've sold 40 suits of armor," reports Stopka, whose company employs 85 people. "And we've sold 17 English phone booths at $7,000 a shot."

Stopka also sees opportunities in marketing to gay and newly spiritual consumers, as well as aging baby boomers turning away from, say, rock-climbing to gardening. He's not sure, though, how he'll reach out to growing ethnic groups and some other prized consumers of the new millennium.

But for Stopka and other entrepreneurs, no matter where they're located, the key seems to be to continue selling to the baby boomers, who helped their businesses succeed in the late 20th century. This, Stopka is confident, will be enough to provide him with plenty of business well into the new millennium. "All [industries]," he says, "are driven by that population bulge."

Contact Sources

Center for Continuing Study of the California, (650) 321-8550, slevy@ccsce.com

Cornell Institute for Social and Economic Research,wab4@cornell.edu, http://www.ciser.cornell.edu

Design Toscano, 17 E. Campbell, Arlington Heights, IL 60005, http://www.designtoscano.com

Foghorn Press Inc., fax: (707) 521-3361, foghorn@well.com

Penny's Pastries, (512) 302-3663, pennysforu@aol.com

Physical Addictions, (800) 848-2599, http://www.vital99.com

Texas A&M University Texas State Data Center, (409) 845-5115, http://txsdc.tamu.edu

The Viscusi Group Inc.,http://www.viscusigroup.com

University of Florida Bureau of Economic and Business Research, (352) 392-0171, Junen@ufl.edu

University of Illinois Census and Data User Services, (309) 438-5946, cadus@illstu.edu