Why Older Entrepreneurs Have the Edge

Wharton University | Nov 12, 2019

lightbulb entrepreneurship - Why Older Entrepreneurs Have the EdgeMark Zuckerberg and Bill Gates founded their pathbreaking companies when they were still in their teens. Steve Jobs founded Apple at 21. Their stories, which get a lot of media attention, have many believing that younger entrepreneurs are the most successful. However, research from Wharton management professor Daniel Kim shows they are exceptions to the rule, and that the average age of successful entrepreneurs is actually a lot older. The study, “Age and High-growth Entrepreneurship,” determined the most successful founders in the United States are in their 40s. Javier Miranda, principal economist at the U.S. Census Bureau; Benjamin Jones, professor at the Kellogg School of Management at Northwestern University; and Pierre Azoulay, professor at MIT’s Sloan School of Management and research associate at the National Bureau of Economic Research, co-authored the study. Kim sat down with Knowledge@Wharton to talk about why middle-aged entrepreneurs bring the benefit of experience to the founder’s table. (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

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Knowledge@Wharton: If “age ain’t nothing but a number,” as the Aaliyah song goes, why was it important to ask this research question about the average age of successful entrepreneurs?

Daniel Kim: There’s this prevailing view that entrepreneurs, especially the most successful ones, tend to be young. Paul Graham, a prominent venture investor, once quipped that when evaluating entrepreneurs, the cut-off is 32. After that age, they start to become a little skeptical. If that perspective is true, it raises a lot of questions on why experience doesn’t seem to matter for entrepreneurship like it does for other types of careers.

“There seemed to be this very consistent finding that the likelihood of entrepreneurial success rises with age.”

debunking young founder myth 1 - Why Older Entrepreneurs Have the Edge

Knowledge@Wharton: What are some of the advantages that younger people might have when trying to found a successful company? And what are some advantages you might have if you’re a little older?

Kim: There are some theories on why young people may be better entrepreneurs. Two ideas come to mind. One is that younger people might be more capable of disruptive ideas because they’re less beholden to existing paradigms or ways of doing things. As a result, they might be better positioned to come up with new, groundbreaking ideas. The second idea is that young people just have more time and energy. Because starting a venture is a really taxing journey, that might put them at an advantage.

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Knowledge@Wharton: To study this, how did you pinpoint age and separate high-growth start-ups from just any business?

Kim: To provide a systematic answer to this question, what my co-authors and I have done is leverage confidential administrative data sets from the U.S. government that allowed us to study the population of entrepreneurs in the U.S. to have real findings on this question.

Knowledge@Wharton: What were some of the most surprising findings? What was the magic number?

Kim: Among all the entrepreneurs in the U.S. between 2007 and 2014, at the time of founding, the average age was 42. The vast majority of these companies are small businesses like laundromats and restaurants that have little to no intention of growing to become a large organization. To reshift our focus on high-tech startups, which are probably the more prototypical startups we have in our minds, we looked at the high-tech industries as well as venture capital-backed and patent-owning firms. And there, the average age was slightly higher, 43. Then when we zoomed in on these entrepreneurial regions like Silicon Valley or even Boston, we found that the average age was still in the early 40s.

Knowledge@Wharton: In the paper, you gave a batting average for creating successful firms. Can you share that?

Kim: The real question here is, what about the most successful entrepreneurs? It’s possible that the extreme upper tail is where maybe perhaps the younger entrepreneurs really shine. We looked at the fastest-growing startups in the U.S., which would be the top 0.1% in terms of their employment growth over five years. In that region, the average age was actually higher at 45. When we took a different definition of success, which would be exits through an IPO or an acquisition, the average age was still in the mid-40s. So, there seemed to be this very consistent finding that the likelihood of entrepreneurial success rises with age.

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Knowledge@Wharton: Your study also found other peaks and valleys with age and entrepreneurs. Tell us about that.

Kim: I think an underlying question here is, what is driving the age effect? Because age reflects many, many things in life. We know that with age, many benefits accumulate, including your social ties — your relationship with suppliers and potential hires and co-founders — as well as financial wealth and human capital that you gain from working in different companies.

What we’ve found to be the most supportive in really explaining this link between age and entrepreneurial success was prior experience. The number of years that one spends in the same industry as the startup was predictive of that company’s future performance.

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