Today I shared the findings of a recent study I read on the IG page, published by the NBER from authors Pierre Azoulay, Benjamin Jones, Dan Kim and Javier Miranda. The Jones and Azoulay hail from MIT, Kim from Northwestern and Miranda from the Census Bureau.
The findings of these researchers fly in the face of the popular media narrative of young tech entrepreneurs creating most of the disruptive and innovative companies out there. What they actually find is that the firms within the high tech sector, those backed by a venture capital (or VC) firm, or those that have patents attributed to them, have a median founder age in the early 40’s across those 3 categories.
This is not the only criteria they used. Based on the data sets they gathered they were also able to look at factors such as how many employees a firm had, sales growth as well as exit by acquisition or IPO. Using these criteria, they were able to distinguish those who had created high growth, “game changing” startups from those people who say, just started a dry cleaning firm with little ambition to grow further.
In this post, I want to talk a little more about why the media may have helped produce this perception as well as why middle aged and even older entrepreneurs might be more successful to expand upon and add my own color to the findings of the researchers.
The Young Turks
The authors point to an idea called Planck’s Principal as to why many perceive the young as having an advantage when creating a start up: younger people are less beholden to existing paradigms of thought. In reality, there is a bit of truth to this idea based on my own personal observations.
Having worked at a few large organizations, I definitely notice they ways some of the older workers sank into their comfort zones in their roles. Even asking them a question precipitated a ramble as to how a particular rule or procedure came to be and why it should never be violated. Then there was the “established ways of doing things” that may not have been explicit but had some precedence within the firm as to how something could be accomplished. The people with this knowledge were usually in their mid to late 40’s or older, and were very inflexible when it came to doing things a new way or approaching a problem in a new and unique way.
Young workers were free from the burden of history, past mistakes and rationale behind procedures, they were free to focus on the task at hand and the end goal. This is an amazingly freeing feeling or an absolutely terrifying one depending on whose viewpoint you take. It could shift an organization in a new and more profitable direction or it could sink it through lack of foresight.
Planck’s Principal though is not likely what journalists and bloggers are reading though before they publish their “Best Entrepreneurs” lists or “Up and Coming” tech stars lineup. I have a feeling there is a bit of an emotional aspect to the focus on young entrepreneurs: envy.
There was a time when, to make a successful multinational, you had to slave away for years through multiple hardships and setbacks to achieve a globally dominant company. Just think of companies like IBM, General Motors and Wal-Mart. Those companies took decades to build into market leaders, the owners or the leaders became rich after many decades of “sweat equity” that made them seemingly deserving of their wealth.
Tech entrepreneurs are a different lot though. Computers and the internet allow entrepreneurs to achieve scale on par with Wal-Mart or General Motors as long as they have good product or service and have the right team behind them to implement it at breakneck speed. This produces billionaires in a matter of years versus a matter of decades. In essence there has been a paradigm shift in terms of becoming a billionaire not just what you produce. The focus now is on adding value, the scale can come more cheaply than before, this can propel the right ideas to a grand scale in a timeframe which would have been impossible 30 or 40 years ago.
I can’t help but think that seeing this, readers and the public in general respond more vocally to those who achieve great wealth at a young age, similar to how sports stars garner attention when they land big ticket contracts. Writers and journalists likely catch onto this envy or awe from the general public in terms of being so rich so young and give them more to feed on. So the cycle continues.
The narrative doesn’t always reflect reality though, and there are a lot of reasons as to why those in their early 40’s May have the best of both worlds when it comes to experience versus changing things.
Why The Middle Aged are More Successful
Although Planck’s Principal has some weight, there are huge pitfalls that a young entrepreneur can run into that essentially stack the deck against them: managing people, running afoul of regulation and lack of financial connections. Middle aged entrepreneurs have the advantage of experience in these realms as well as having the energy and the vision to still try to change things. After that middle aged period, the success rate tends to drop off and end up back at the rate seen in the early 20’s. There could be many reasons for this but one could be that the older entrepreneurs just don’t have the vision or the energy to try and change things anymore, they become the co-workers I described above, explaining the history or hemmed in by the pitfalls of years of experience.
Source: nber.org
Managing People – To me this is one of the most important features of experience. Managing people is really hard, that’s why they teach courses on it. A successful young entrepreneur will have to deal with many older colleagues that have many more years of experience in their field and will have to manage their sense of superiority working for a younger founder.
An older entrepreneur doesn’t necessarily have to worry about this. Years in an industry garners confidence and credibility. You have had the chance to see good and bad leaders and have had time to decide upon the type of leader you would like to be. You likely have experience working with older colleagues and managing their needs and wants in the workplace. You also are young enough to have a good sense of what those that are younger also want and need out of their role and their careers. This experience is invaluable when it comes to pushing a larger organization forward as opposed to a smaller one you can micromanage. One of the hardest things to do as an entrepreneur is to let go of some day to day details so you can focus on the big picture.
Credibility– Similar to skills in terms of managing people, credibility is key and middle aged entrepreneurs enjoy the best of both worlds again here. They are both young enough not to be perceived as staid and old as well as old enough to be respected and have a track record in their industry or sector. This is key when attracting talent for building the business as well as attracting financing. Everyone focuses on the high paid roles such as technology officer or coding but there are also roles in support, operations and finance that require building a solid team with experience.
Many people with experience managing these parts of the business will be middle aged or older themselves so having credibility with them is key. That doesn’t have to be because of your age but if you have made those connections over the years across your career, your experience and reliability you have shown comes into play and works to your advantage in both hiring and influencing these types of colleagues.
Financial Capital – Many successful (and especially tech) companies follow a similar mode now: grow at all costs until you achieve scale, then turn massive profits. No company will be able to achieve massive scale without a ton of financing.
When I talk about financial capital, I don’t mean that a middle aged entrepreneur will necessarily have the money themselves or even know the right people who have money, but they may be more comfortable when it comes to talking about money and presenting for those who work in the financial world. Financiers and especially VC scouts are accustomed to seeing fast growing companies and approaching them with a healthy dose of skepticism. You don’t want your first financial presentation to be in front of a firm that may determine whether you will see an IPO one day or not.
Those who have been in an industry for a while have usually come across the money people or had to deal with those close to them at some point. This helps to take their perspective and highlight what may be important to them as opposed to just trying to give the view from where the founder or CEO sits. This perspective and experience is crucial when trying to convince investors to come on board. The financial part is another key tool in addition to manpower and culture which can propel a company into the stratosphere.
Conclusion
Even if you are past your early 40’s, what is inspiring in the study is that it affirms that experience is vital to success in many firms. A person who starts a firm at 50 is 1.8 times more likely to see their firm become a rare, highly successful one that a 30 year old who starts a company. If you are still thinking of turning that great idea into reality, it’s never too late.
The information provided by www.cashchronicles.com is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs. www.cashchronicles.com does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any tax or investment decision without first consulting his or her own financial advisor or accountant and conducting his or her own research and due diligence. To the maximum extent permitted by law, www.cashchronicles.com disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.