September 20, 2014

Should We Worry About Older Entrepreneurs?

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In an earlier column , I explained that older people start businesses at a much higher rate than younger ones. As I wrote there, “the incorporated self-employment rate is 4 times higher among those aged 65 to 69 than among those aged 25 to 34-and a whopping 25 times higher than among those aged 20 to 24.”

This pattern worries some observers, who believe it reflects a lack of job opportunities for older Americans. For instance, writing in the True Slant, Anne Field argues that many older entrepreneurs today are being driven to start businesses because they have lost their jobs and cannot get new ones.

ENTREPRENEURSHIP AMONG SENIORS NOT DRIVEN BY JOB LOSS
It is doubtless true that in today’s economic environment, some entrepreneurs of all ages have chosen to start businesses because they were laid off and couldn’t find new jobs. However, the data don’t indicate that the high level of entrepreneurial activity among those over 55 can be attributed primarily to recent high levels of job loss. As Dane Stangler explained in a report he wrote for the Ewing Marion Kauffman Foundation, “In every single year from 1996 to 2007, Americans between the ages of 55 and 64 had a higher rate of entrepreneurial activity than those aged 20-34.” That is, boom or bust – and we have seen several of each since the mid-1990s – older Americans are more likely to run their own businesses than younger ones.

OLDER ENTREPRENEURS ARE BETTER ENTREPRENEURS
Field also worries that entrepreneurship might not be right for older Americans because these folks have spent too much time in the corporate world.

She needn’t worry. The data actually suggest the opposite. Entrepreneurship might be right for older Americans because they have spent a lot of time in the corporate world.

As I have written elsewhere, there is little evidence that businesses founded by entrepreneurs over the age of 55 perform any worse than those founded by younger entrepreneurs. On the contrary, several studies show founders with more work experience have businesses with higher sales and profitability and greater odds of survival. Specifically, more years of management experience the founders of new businesses have, the better their start-ups perform. Finally, more years working in the industry in which the new business was founded – something older entrepreneurs are likely to have more of – is associated with better new company performance.

In many ways, this pattern shouldn’t be surprising. The skills that successful entrepreneurs need – selling, hiring and managing people, decision making, and managing financials among others – are skills that all companies demand and that people often learn over the course of their careers.

RISKING RETIREMENT SAVINGS
Writing in American Express Open, Anita Campbell worries that the greater tendency of those over 55 to start businesses is a problem because older entrepreneurs risk losing their retirement savings at an age when they might not be able to start over.

This is a valid concern. Starting a business is risky. Many entrepreneurs fail and most of the rewards are reaped by only a small portion of those who start companies.

But the risks entrepreneurs face are present for business founders of all ages. If anything, the risks for older entrepreneurs are smaller than those for younger entrepreneurs because the older ones are better at running their own businesses.

Thus, any concern we might have about older entrepreneurs starting businesses shouldn’t be related to their skill at entrepreneurship. Rather it should be similar to our worries about older Americans’ investments in growth company stocks instead of government bonds. As people age and their time horizon shortens, they need to make more conservative investments. Unfortunately, starting a company isn’t a conservative investment.

THE BEST AGE FOR STARTING A COMPANY?
The data suggest that there is a “best age” for starting a business. Because people get better at running businesses as they age, but the adverse effects of failure also rise, there must be a sweet spot when starting a business best balances the benefits of experience and the risk of being unable to recoup lost retirement savings.

I turn the question back to those worried about older entrepreneurs taking on too much risk by starting businesses and ask: what’s the “best age” for starting a company?

14 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

14 Reactions

  1. I think we can worry less about older entrepreneurs because they are more experienced and have more access to capital. I think the shift to entrepreneurship is more a result of decreased trust in big corporations and the government’s retirement system. People are taking control of their own destiny and I think it’s a positive.

  2. Ha! I think we should worry if they’re NOT starting businesses. Yes, there is risk associated with using retirement savings. I’m hoping most are not doing that, or taking a small portion at most, or some other calculated risk.

    But I support and laud any reasonable entrepreneur! Like Robert Brady says in one of the comments, taking control of your own destiny is a positive.

  3. I have several older friends and relatives who’ve joined the entrepreneurial ranks due to evolving or cyclical markets that have created lack of opportunities in their life career field. However, I do not see this as negative at all.

    Older entrepreneurs typically have less distractions with familial obligations (the kids are grown), more resources, experience, and understanding what they are looking for in a career. With 60 being the new 40, these people are not looking for a pension but a way to be productive for another decade or two. Those I know have observed people like me enjoying their work and success and decided it is time in their lives to enjoy the same. This is the essential heart of free markets and the promise of the American Dream!

  4. Worry about older entrepreneurs? I don’t think so! The #1 reason small businesses fail is lack of experience. Older workers have experience: in life, in business, in recovering from the unexpected, in changing directions, in managing people and competing interests … the list goes on. All of these are skills of an entrepreneur. Entrepreneurs need to think about their experience and their passions [http://ventureneer.com/webinars] if they want to be among the 50 percent of start-ups that succeed.

    Other consideration is that Baby Boomers don’t want to be idle or non-productive. Many of them regard retirement as a new beginning rather than an end, a time to do something exciting, new, and challenging rather than a time to watch the world go by. This phenomenon has lead to new enterprises [http://ventureneer.com/vblog/affordable-high-quality-professionals-available-non-profits-if-you-know-where-look] based on the experience and energy – yes, I said energy – of the Boomers.

  5. Thanks a lot for the info, Scott.

    No surprises for me. I’ve been able to help a lot of people find great franchise businesses to invest in, and become their own bosses.

    80% of them are over 49 years old.

    Most are men.

    Most have pretty good net worth’s.

    Most of them are sick of the corporate shuffle, and like the idea of a system to work. Not everyone succeeds, because as you said, investing in a business of one’s own is risky.

    The Franchise King

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