Older entrepreneurs' success secret
Startups aren't just for the young. Entrepreneurs in their 40s, 50s and beyond are starting businesses, but the ones most likely to stay in business are older.
Even before the Great Recession, older entrepreneurs led the way in new business formations. The trend has continued in recent years, although the rate of new-business formation dipped in 2011 after being flat in 2010.
"The United States might be on the cusp of an entrepreneurship boom -- not in spite of an aging population but because of it," the Ewing Marion Kauffman Foundation said in a 2009 report that remains its most recent detailed look at aging and entrepreneurship. Kauffman backs major entrepreneurship research, including annual reports on new business formations and an ongoing look at the experiences of 5,000 businesses begun in 2004.
"Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurship activity belongs to the 55-64 age group," the 2009 report said. That was not the case in 2010 or 2011.
The annual Kauffman Index of Entrepreneurial Activity reported earlier this year that the top spot for new-business formation in 2011 went to people in the 45-to-54-year-old age bracket and that people ages 35 to 44 were the most likely to start a new business in 2010. The differences are slight, however, and the pace of new business formation is generally higher among older people in the United States.
Kauffman also looked in 2010 at how startups have fared over time. It found that "firms surviving through 2008 were much more likely than firms that exited over the period to have primary owners older than age 45." Of the 5,000 startups included when the study began in 2004, 48% were started by people 45 or older, but 64% of the surviving companies were headed by entrepreneurs in that age group. That's more than would be expected, even adjusting for the fact that all 2004 business owners were older in 2008. "Previous industry experience and startup experience had less impact on firm survival prospects than owner age did."
In hindsight, it turns out the recession spurred new-business formation. In a "necessity is the mother of invention" scenario, it appears that many people who lost jobs started their own businesses. This trend has been less pronounced in the past two years.
"Although the entrepreneurship rate declined in 2011, it remained more than 5% higher than before the recession started," Kauffman reported earlier this year. Further, immigrants were more than twice as likely to start a new business last year as native-born Americans, continuing a trend. Geographically, the odds of starting a new business are highest in the West and lowest in the Midwest. The most entrepreneurial states, Kauffman found, were Arizona, Texas, California, Colorado and Alaska. States at the bottom of the new-business formation scale were West Virginia, Pennsylvania, Hawaii, Illinois, Indiana and Virginia.
Dennis Ceru is an adjunct professor at Babson College in Wellesley, Mass., where he teaches entrepreneurship and consults with many family businesses, entrepreneurs, and angel investors who finance startups. "People are living longer, they're living healthier, and they're living more energetic" lives, he says. It's hardly surprising that so many want to begin new businesses.
The most successful path for entrepreneurs of any age, he notes, is to pursue ventures that build upon their prior experiences and skills. "Usually, we say that entrepreneurs who stay close to their experience base often show greater success in their ventures." But for older entrepreneurs, he emphasizes, the definition of success can be very broad.
"There are what we call 'necessity' entrepreneurs," Ceru says. These are older people who pursue new businesses mostly because they have unmet financial needs. "But there also are a significant number of what we call 'opportunity' entrepreneurs," he explains. "These are people who feel compelled, who feel the desire to make something happen." Money may not be inconsequential to them, but it's not their prime motivator.
Making a difference and enabling other people to succeed -- what Ceru calls generativity -- are important components of success, as is the notion that the person is continuing to make productive contributions through his or her efforts. "Think of it as preserving and passing on a legacy," he says, "and enabling others to use the tools and find better tools."
Ceru is also not surprised that older people are active entrepreneurs. They have the experience, he notes, and also tend to have more financial resources than younger entrepreneurs. There are many tales of younger business successes in which the entrepreneurs didn't have the experience to know where the barriers to success would be, and overcame obstacles they didn't know existed when they began. Older entrepreneurs, by contrast, often have extensive business connections that help them anticipate and bypass such barriers rather than frontally assaulting them. The result in both cases is success, but the route to achieving it is quite different.
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