Wednesday, April 21, 2010

The Age of Entrepreneurship

By Akira Hirai

Entrepreneurship. The word conjures images of twenty-something graduate students hacking code in a Silicon Valley dorm room, fueled by a steady supply of Red Bull and Ramen. Starting a tech company requires youthful vigor, endurance, freedom from obligations like mortgages, imagination, and an intimate understanding of what’s trendy and hip. Right?

To be sure, a number of well-known tech titans started more-or-less this way: Facebook, Google, Microsoft, Yahoo, and Hewlett-Packard, to name a few.

However, a paper published a while back by the Ewing Marion Kauffman Foundation – the group devoted to fostering entrepreneurship around the world – suggests that the age distribution among company founders is much broader than we might have imagined.

The article summarized several findings that I personally found surprising:

  • Technology company founders born in the U.S. had an average age of 39 when they started their companies.
  • There are twice as many over-50 technology company founders as there are under-25 technology company founders.
  • Among a sample of companies started in 2004, two-thirds of founders were in the 35-54 age bracket.
  • The 55-64 age bracket exhibited the highest rate of entrepreneurial activity every year from 1996 to 2008, while the 20-34 bracket actually had the lowest rate. In fact, the rate of entrepreneurship was one third higher in the former group than in the latter.

This last point is illustrated by the chart below. The vertical axis measures the “percentage of individuals... who do not own a business in the first survey month that start a business in the following month with fifteen or more hours worked per week.” So, for example, in 2008, about 0.26% of people in the 20-34 age range started businesses each month, compared to 0.36% of those in the 55-64 age range:

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Source: Ewing Marion Kauffman Foundation’s 2008 Kauffman Index of Entrepreneurial Activity

Perhaps this can be explained in part because middle-aged entrepreneurs have several real or perceived advantages over their more youthful counterparts:

  • More hands-on business, technical, and people experience;
  • More past failures to learn from;
  • Larger personal networks;
  • More personal financial resources; and
  • More likely to be taken seriously by potential investors and business partners.

So why is this important?

First of all, we all know that the age distribution in the U.S. is inching higher. Baby boomers – those born between 1946 and 1964 – are now 46 to 64 years old. These are the ages with the highest rates of company formation – the entrepreneurial sweet spot.

Second, it’s widely believed that entrepreneurship is the force that drives economic growth, prosperity, job creation, and innovation. In recent decades, most net job creation can be attributed to firms that have been around for five years or less.

If you connect these dots, it becomes clear that middle-aged entrepreneurs will play a central role in leading us out of our recession and restoring normal levels of employment. The Kauffman article concludes that “we may be about to enter a highly entrepreneurial period.”

If you’re middle-aged but have been reluctant to take the entrepreneurial plunge simply because you think you’re too old, think again. As it turns out, you’re exactly the right age to be starting a business!

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Today's guest blog is by Akira Hirai, the founder of Cayenne Consulting. He has a diverse background as a Tier I management consultant, investment banker, technologist, and Silicon Valley entrepreneur. His passion today is to help entrepreneurs get their act together before they talk to investors, with a team of advisors and affiliates around the country. He blogs regularly at http://www.caycon.com/blog, and you can contact him directly through his website.


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7 comments:

  1. Thankyou Marty - this story gives me hope for my future and my start up businesses www.selfhope.co.uk, www.tigoloco.com and www.mindseyewebs.co.uk. All of which I have just started and am trying to get noticed.

    I am 42 so in the best age bracket, was a manager of companies for 20 years and therefore have some potential, judging from this. Your advice on getting prospective partners has helped me immensely.

    Your blog continues to be a source of information, learning, coaching, guidance and above all inspiration for me in terms of keeping me from despairing during these difficult early startup times! Thankyou

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