Based on the research of Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim and Javier Miranda
Silicon Valley’s tech workers can go to great lengths to appear youthful—from having plastic surgery and hair transplants, to lurking in the parking lots of hip tech companies to see how the young and promising dress, as chronicled a few years ago by the New Republic.
While this may seem extreme, there is clearly a bias among many in the tech sector toward the young. Take Mark Zuckerberg’s statement that “young people are just smarter,” or the $100,000 fellowships that Paypal cofounder Peter Thiel hands out each year to bright entrepreneurs—provided that they are under 23.
“There’s this idea that young people are just more likely to have more valuable ideas,” says Benjamin Jones, a professor of strategy at the Kellogg School.
But is this notion accurate?
“If you look at age and great achievement in the sciences in general, it doesn’t peak in the twenties,” he says. “It’s more middle-aged.” Even Nobel Prize winners are having their breakthrough successes later and later in life, Jones found in earlier research. Are the startups of Silicon Valley really an exception?
In a new study, Jones, along with Javier Miranda of the U.S. Census Bureau and MIT’s Pierre Azoulay and J. Daniel Kim, use an expansive dataset to tackle that question. The researchers find that, contrary to popular thinking, the best entrepreneurs tend to be middle-aged. Among the very fastest-growing new tech companies, the average founder was 45 at the time of founding. Furthermore, a given 50-year-old entrepreneur is nearly twice as likely to have a runaway success as a 30-year-old.
These findings have serious implications—not only for aspiring entrepreneurs, who might be over- or underestimating their odds of success based on their age, but for society at large. After all, if venture capitalists are reluctant to bet on older entrepreneurs, then many potentially successful startups may never get off the ground.
“If we’re not allocating dollars to the right people in entrepreneurship, we may be losing, in terms of the advances that best raise socioeconomic prosperity,” Jones says. “It’s actually a fairly high-stakes question.”
Older vs. Younger Entrepreneurs
In theory, Jones says, there are plenty of good reasons to think that younger people make better entrepreneurs, especially in technology.
“One idea is that young people are especially likely to have transformative ideas—that they’re not beholden to the current paradigm,” he explains. “When you think of Mark Zuckerberg saying, ‘Move fast and break things,’ the early Facebook mantra, it’s very much this emphasis on transformation and disruption.”
As digital natives, younger entrepreneurs may also have a better sense of how technology can meet consumer demands. Furthermore, people in their twenties are less likely to have mortgages or families that distract from their professional goals.
“They can be all-in, hour-after-hour, in a way that older people might have trouble matching, given other responsibilities,” Jones says.
But the opposite story is just as compelling: Older people have had decades to build the business, leadership, and problem-solving chops that help a startup succeed. And while they may be less tapped into certain consumer trends, especially around the habits of the young, they may know quite a bit more about other business opportunities.
“Experience can bring substantial insight about specific markets and specific technologies, in addition to skills at running things,” Jones argues.
So which narrative is correct? “I’ve wanted to ask the question for a very long time but didn’t have the data,” says Jones.
While researchers could measure the success of new companies on a large scale, they were not able to identify their founders. That changed last year, when information on company owners was made available to researchers working on internal Census projects.
“The longer you’ve been around, the better your odds.”
By combining tax-filing data, US Census information, and other federal datasets, the researchers were able to compile a list of 2.7 million company founders who hired at least one employee between 2007 and 2014.
Previous studies of entrepreneurship have had to rely on relatively small samples of founders. “But the beauty of administrative data is that it’s not a sample,” Jones says. “It’s the actual universe of data.”
“The Longer You’ve Been Around, the Better Your Odds”
Among the 2.7 million founders in their dataset, the average age of a company’s founder at the time of founding was 41.9 years.
However, that analysis included all kinds of firms, from tech companies to nail salons to restaurants. The researchers were chiefly interested in high-growth new ventures—the kinds that can transform the economy—and understanding whether the Silicon Valley mythology was true. So they limited their dataset to include only technology companies, and further winnowed that down to the fastest-growing 0.1 percent—in other words, the one company out of every 1,000 that saw its sales or number of employees increase the most in its first five years.
Among this exclusive subset, the average founder age was 45.0. “It surprised me,” Jones says. “It’s even older than I thought.”
For an alternative measure of success, the researchers also looked at firms that had successfully “exited” the market, either by getting acquired by another company or going public in an IPO. The average founder for that group was even older, at 46.7.
While these results clearly indicate that middle-aged founders dominate among the highest-growth firms, it is also true that forty-somethings are much more likely to try to start a new company than twenty-somethings.
“There are more bites at the apple from 40-year-olds,” Jones says.
To further test their results, the researchers made another calculation looking at the probability of success among those who had founded a firm. They determined what they call “batting averages”— the odds that founders of different ages make it into the top 0.1 percentile.
The data revealed that a founder who is 50 years old is 1.8 times more likely to start a top company than a 30-year-old founder, and that a 20-year-old founder has the worst chance of all.
“The longer you’ve been around, the better your odds,” Jones says.
Why Do Entrepreneurs Get Better with Age?
The results prompt another big question: What is it about middle-aged founders that accounts for their higher rate of success? Is it stronger leadership skills? Greater financial resources? A more robust network of customers and suppliers? Or something else entirely?
While the paper does not attempt to pick apart all the mechanisms behind success, it does offer an enlightening insight: founders with three or more years of experience in the same industry as their startup are twice as likely to have a one-in-1,000 fastest-growing company.
“The facts stand strongly against the idea that you want to come from outside of the industry,” Jones says.
He hopes to explore this question more deeply in future research.
Jones also wants to investigate a puzzle that the paper introduces: while older people build stronger companies, venture capitalists nonetheless invest disproportionately in firms with younger founders.
Perhaps this is because young people tend to have fewer financial resources, so venture capitalists intentionally target them, knowing that they are likely to get a better stake in the company. Or it may be evidence that venture capitalists are buying into the flawed belief that young people make better entrepreneurs.
“It could be rational for the venture capitalists, or it could be that they’re just making a big mistake,” Jones says.
He suspects that the “young founder” myth has pushed young people to take unwise risks in the past and kept older people from acting on their ideas. He hopes that the study takes a step towards dispelling that myth.
“At the individual level, you have to ask yourself ‘Do I want to be a founder now, at this point in my life?’” he says of people deciding whether or not to choose the entrepreneurship path. “I think this can be very useful information to people weighing that decision.”
Benjamin F. Jones is the Faculty Director at the Kellogg Innovation and Entrepreneurship Initiative (KIEI).
Pierre Azoulays, J. Daniel Kim & Javier Miranda are contributors to the Kellogg Insight.
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