In a recent post I explored some research conducted by Stanford’s James Liang, which investigated the age of a population and the level of entrepreneurship. The basic hypothesis was that countries with a lower average age appeared to have higher levels of entrepreneurship, leading one to assume that creating a startup was a young person’s game. Liang argued that the ideal mix tended to occur when young people were given the chance to gain valuable experience early in their careers, that they could then channel into a new startup.
Research from the Kellogg School of Business muddies the water somewhat however, by suggesting things might not be so clear cut. Indeed, they believe that the best entrepreneurs aren’t young people at all, but rather those slightly longer in the tooth. They suggest that the fastest-growing tech companies on the scene had a founder whose average age was 45, with 50 year old entrepreneurs twice as likely to succeed as a 30 year old.
The authors believe this has quite profound implications, as not only do we tend to perceive younger people as better entrepreneurs, but young entrepreneurs tend to get the lion’s share of venture capital money, thus cutting off a potentially vibrant and successful seem of entrepreneurship.
Should fortune favor the young?
The authors believe that our predilection towards younger entrepreneurs has a lot of logic to it. For instance, it makes sense that, as Liang suggests, we want people with that ideal mix of business experience but without excessive amounts of it to be beholden to the ‘way things are done’. They need to be able to see new ways of doing things but have the experience to execute.
Equally, young people are more likely to have the freedom from family, financial responsibility and so on to devote themselves fully to their startup. It’s hard to be working from dawn to dusk when you have to do the school run.
This isn’t the only narrative in town however, and older people can bring a lot to a startup. Firstly, they have had a lot of experience of building things, and know the leadership required to do so. This experience of how businesses operate and the opportunities that are available can be invaluable.
The hypothesis was tested by analyzing US Census data alongside tax data to gain an insight into who are the 2.7 million company founders operating in the country between 2007 and 2014. The average age of these founders was a relatively mature 41.9 years, but this covered the whole gambit of startups, from nail salons to high tech firms.
To try and narrow the field down to the highest growth companies, the researchers focused solely on the fastest growing 0.1% of technology companies. Interestingly, among this subset, the average age of the founder was even higher, at 45.0. What’s more, among those firms who had achieved an exit, either by being bought or going to market, the average age was 46.7.
The long road to success
The reason for this is perhaps not one that should surprise us, especially given the reverence with which the startup world treat failure as an inevitable part of success. Older entrepreneurs are more likely to have had a number of attempts at creating a startup, which boosts their chances of having a successful venture as they can bring all of that experience to the table.
What’s more, the data also appears to support the notion that entrepreneurs are best when they come from within the industry they’re operating in. Those with at least three years of experience in their industry were shown to be twice as likely to have success than those without.
It’s perhaps somewhat confusing therefore, why the venture capital industry continues to overwhelmingly back younger entrepreneurs, despite apparent evidence to suggest it would be more rational to back older founders. It’s quite possible, of course, that VC firms invest as much on instinct as reason, but it’s perhaps something for society to address, both if it wants to retain the wisdom of older people as our populations age, but also if we want to create entrepreneurial societies fresh with the latest innovations.
