The real problem with Romney’s entrepreneurial advice

Older people are more likely to become entrepreneurs than the college crowd Romney recently encouraged to “take a risk.”

By The Fiscal Times May 2, 2012 2:52PM
By Yuval Rosenberg The Fiscal Times

Democrats pounced again when Mitt Romney on Friday offered some entrepreneurial advice to students at a campaign stop at Otterbein University in Westerville, Ohio.

"We've always encouraged young people: Take a shot, go for it. Take a risk, get the education, borrow money if you have to from your parents, start a business," Romney told the crowd at his “guest lecture” before transitioning into the story of Jimmy John Liautaud, who started his Jimmy John’s Gourmet Sandwiches chain in 1983 with the help of a $20,000 loan from his father (in exchange for a 48 percent stake in the business). "This is kind of an American experience," said Romney.

Dems spun it as yet another example of the presumptive GOP nominee being out of touch – how many parents have a spare $20,000 lying around? “Only someone who paid for college by selling stock given to him by his CEO father would just casually assume students could go borrow $20,000 from their parents to deal with the economic challenges they face,” Joshua Dorner, a spokesman for the Center for American Progress Action Fund, told the Associated Press. And there were jabs about the $10 million Romney and his wife invested in their son Tagg’s private equity startup.

The larger issue with Romney’s suggestion may be that it doesn’t fully jibe with the real-world profile of entrepreneurs. “The common perception is that entrepreneurship is essentially something that is just for young folks,” says E.J. Reedy, a researcher with the Kauffman Foundation, which studies and promotes entrepreneurship. That perception may be fueled by the popular success stories of youngsters like Mark Zuckerberg or Bill Gates. The reality of entrepreneurship in America is quite different. “The much more typical case would be for somebody to be in their 40s, to have 10-plus years of industry experience before they’re starting a business,” Reedy says. In fact, the median age of first-time entrepreneurs is 43, according to the Kauffman Foundation. Even in the tech world, the average age of entrepreneurs is 39, which sounds almost ancient compared to college dropouts like Zuckerberg, Gates and Michael Dell.

Aspiring businesspeople between the ages of 20 and 34 still make up the largest share of entrepreneurs, primarily because of the sheer size of the population in that age group. Yet the share of young people who start a business has stayed relatively flat over the last 15 years, at just under 0.3 percent.

Just 4 percent of people ages 16  to 29 are self-employed, compared to 15 percent of people between 50 and 64 and a quarter of those over 65, according to a 2009 Pew Research Center analysis of Census data. Looking at the propensity of young people to start their own businesses, Reedy notes, “you find that the youngest age group consistently over time is the least likely to enter into entrepreneurship.”

Access to capital is obviously more of an obstacle for young entrepreneurs than older ones, but lack of work experience is also a deterrent, as economist Scott Shane of Case Western Reserve University has noted.

Those issues, on top of inexorable demographic trends, help explain why young people now account for a smaller share of new startups than in the past: Less than 30 percent of new entrepreneurs in 2011 were between the ages of 20 and 34, compared with about 35 percent in 1996. By contrast, nearly half of new entrepreneurs last year (48.6 percent) were between the ages of 45 and 64, up from 38.2 percent in 1996. Those at the higher end of that range, between 55 and 64, have grown from 14.3 percent to about 21 percent of new entrepreneurs. “An aging population and increasing rate of entrepreneurship among older ages has led to a rising share of new entrepreneurs in the age 55–64 group,” writes economist Robert Fairlie of the University of California, Santa Cruz in a Kauffman report released in March.

That means young people looking to borrow $20,000 from their parents might find that they get turned down because the grown-ups are already using the money to start a business of their own.

More from The Fiscal Times:
Yuval Rosenberg is a senior editor at The Fiscal Times. Subscribe to The Fiscal Times' free newsletter.
13Comments
May 2, 2012 5:55PM
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3rd problem is the over romanticised vision of the entrepeneur.  For every Gates of Zuckerberg there are dozens that either just get by or fail outright.  From the storefront that never seemed to grow, to the internet business that had to compete with hundreds of others doing the same thing, to all those multi level marketing setups, business ventures seldom produce mega success stories.

 

A fact easially forgotten if you're in the billionaire's club surrounded by people that not only had the capital, but the contacts to help get things going.

May 2, 2012 3:59PM
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20 grand now, is peanuts, compared to 1983. Still, try and get it.
May 2, 2012 5:04PM
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Oh, I'm almost certain Romney would lend it to you.
May 5, 2012 6:51PM
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It doesnt take a genius to buy a failing company at discount prices knowing all the time you are going to borrow money against it and then wait a year or two before fileing bankrupcy with the money stuck in a foreign bank account.
May 7, 2012 8:28AM
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Romney and is ilk bought successful companies, loaded them with debt and then laid off people who had been making a living so they could sell the company and pocket the proceeds.  You call this being an entrepreneur.  Real entrepreneurs create more jobs and grow industries.  We need more Joe  Wilson's and fewer Romneys.
May 7, 2012 11:18AM
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What the country needs is more two elevator garages for stay at home moms whose flock have fled the nest with $2 billion start up funds.

May 7, 2012 11:14AM
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Romney knows how to make money for Romney.  He has no idea how to run a government.
May 4, 2012 12:20PM
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Adjusting for an average annual inflation rate of around 2.5% that's more like $40,000 in today's terms.

 

Yes, the bad news is that's not in the petty cash drawer. But hey, if you can win just 4 friendly wagers against Mitt, then you're there...

May 9, 2012 12:19PM
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The real problem is that we dont just need entrepreneurs. Our society and our economy and our people all thrive as a collective. The problem is Romney and his ilk think you arent a success if you live a middle class life doing something productive for your community. Teachers, Fireman, Policeman, Social Workers, Nurse, etc. etc. etc. are all good honorable professions that the Romneys of this world think are simply living off the collective and only if you are wealthy have you achieved something.
May 4, 2012 4:25PM
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Motivation, perserverance and a good idea will help a lot in starting a business, but getting and managing capital are necessary.  It seems to me that about 4 out of 5 small businesses fail in the first 5 years--probably close to half in the first year or two.  Motivation and perserverance are two of the important things that are in short supply in America today (unless you include illegal immigrants).
May 3, 2012 9:12AM
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The pro-Obama liberal press, at it again!!!!
May 3, 2012 8:43PM
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So then if a person has lived the American dream and has done well for themselves or even VERY well for themselves then their children are therefore  born with silver spoons and unworthy of public office and cannot possibly understand the middle income people in America. Is this what you libs are saying????  Then I suppose when the Obama children are grown, you libs will be saying the same thing correct?? Oh yes and I heard this all the time about John, Bobby, Robert, Ted and John Jr. Caroline etc. and the Rockefeller children right ???  When John Kerry was running with a net worth near or more than Romneys (Heinz fortune).. You lefties are so predictable and your double standards are sickening.

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