Entrepreneurship Is a Midlife Game (Opinion)

BY February 15, 2013|
Who is more likely to be an entrepreneur: A 25-year-old guy or his 50-year-old dad? Everyone knows it’s the kid.

After all, middle-aged people have mortgages and families to support.
They need a steady pay check. They can’t afford the uncertainty that
comes from running your own business. Young people are the ones who can afford to fail and start over.

It’s a good theory. Too bad it isn’t true.
Contrary to popular opinion and the media’s fascination with young entrepreneurs, baby boomers are more likely to run their own businesses than 20-somethings.
According to the 2011 Global Entrepreneurship Monitor U.S. Report — a
survey of a representative sample of the U.S. adult-age population —
15.4 percent of Americans aged 55-64 and 12.8 percent of Americans aged
45-54 run their own business, compared with 0.8 percent of Americans
aged 18-24 and 4.9 percent of Americans aged 25-34.
This pattern isn’t new. Dane Spangler, a researcher at the Ewing Marion Kauffman Foundation wrote in a 2009 report,
“in every single year from 1996 to 2007, Americans between the ages of
55 and 64 had a higher rate of entrepreneurial activity than those aged
Bureau of Labor Statistics data on both incorporated and
unincorporated self-employment show an even more extreme pattern. The
rate of self-employment is higher among people in their 60s than even
those in their 50s, let alone those in their 20s or 30s. In fact, the
bureau’s surveys of American workers reveal that people aged 65 to 69
are self-employed heads of corporations at four times the rate of people
aged 25 to 34.
All of the growth in self-employment over the past decade has been
among older Americans, the Small Business Administration reports in its
recently released publication Small Business Economy. From 2000 to 2011,
self-employment among people under 25 dropped 9 percent. Among those
aged 25 to 34, it fell 8 percent, and for those between 35 and 44, it
declined 24 percent. By contrast, self-employment among those aged 55 to
64 rose 54 percent, while it increased 36 percent among those over 65.
Even in high technology, where the media focus on entrepreneurs Mark
Zuckerberg, Andrew Mason, Chad Hurley and Sergey Brin — all of whom
start their companies before they were 30 — more systematic research by Vivek Wadhwa, Richard Freeman and Ben Rissing shows that entrepreneurs in high tech industries are much more likely to be over 50 than under 25.
Why are baby boomers more likely than their kids to be entrepreneurs?
Researchers have two hypotheses, the second more plausible than the
first. The first explanation is a cohort effect: Today’s young people
don’t want to run their own businesses as much as their parents did were
when they were young.
While we don’t have a lot of data on this question, what we do have
doesn’t strongly support this hypothesis. The Cooperative Institutional
Research Program at UCLA, for instance, has been rigorously surveying
incoming college freshmen at several hundred U.S. colleges and
universities in the past 40 years. CIRP research shows that the fraction
of college freshmen with the aspiration to own a business is actually
higher now than in the early 1980s, unlike the categories of “business
executive” or “accountant and actuary,” which have dropped significantly
over the past 20 years.
The more plausible explanation is an age effect. Research shows that
having savings and gaining work experience tend both to increase the
odds that people start businesses and reduce the chances that they fail
at running their own companies. Since people tend to accumulate both
experience and savings over time, it stands to reason that middle-aged
people are more likely to be entrepreneurs than 20-somethings.
If you’re a baby boomer contemplating entrepreneurship, you might be
held back the greater responsibilities you have than people in their
20s. But you also have more experience and capital. The data suggest
that greater experience and savings trumps greater responsibility in
explaining what people decide to do about entrepreneurship.