The Myth of the Washed-Up, Middle-Age Entrepreneur
Steve Jobs, Bill Gates, and Mark Zuckerberg were in their early 20s; Sergei Brin and Larry Page were 25; and Jeff Bezos was just 30 when they founded their world leading high-tech companies. Their companies are truly in a class by themselves, even having their own, somewhat frightful acronym - FAMGA. Their founders’ ages are not only evidence that young people can be highly successful entrepreneurs, but it’s led to the belief that they’re uniquely capable of coming up with big, transformational ideas.
“Young people are just smarter,” Zuckerberg told the audience of a 2007 VC conference, adding that successful start-ups should only employ young people with technical expertise. In 2010, PayPal’s co-founder Peter Thiel created the Thiel Fellowships, a program that provides $100,000 over two years to would-be entrepreneurs 23 and under so they can drop out of school to work on their ideas. “The stereotype of an entrepreneur is a college drop-out,” said a recent Economist article.
“Silicon Valley has become one of the most ageist places in America,” noted a 2014 New Republic article on The Brutal Ageism of Tech, where years of experience are considered obsolete. “People under 35 are the people who make change happen,” said VC Vinod Khosla at a 2011 conference. “People over 45 basically die in terms of new ideas” because they “keep falling back on old habits.” Entrepreneur and VC Paul Graham said in a 2013 interview that investors tend to be biased against older founders. “The cutoff in investors’ heads is 32… after 32, they start to be a little skeptical.”
These various statements remind me of the 1960s counterculture saying don’t trust anyone over 30. But, are they justified? Are young entrepreneurs more likely to produce high-growth firms? Can middle-age founders in their 40s be successful?
Age and High-Growth Entrepreneurship, - a recent working paper by economists Pierre Azoulay, Benjamin Jones, J. Daniel Kim and Javier Miranda - aimed to answer these questions. They systematically analyzed a number of relevant data sets, including administrative data from the U.S. Census Bureau’s Longitudinal Business Database and Schedule K-1 business owners data from the IRS. In addition, they integrated data from a variety of other sources, such as patent data from the USPTO and third party VC data bases.
2.7 million companies were started in the US between 2007 and 2014, of which the vast majority were small businesses of all kinds, - e.g., restaurants, dry cleaners, retail shops, - with no growth ambitions. To identify the subset of growth-oriented startups, the authors looked for firms with certain characteristics: being in a high tech sector, receiving VC backing or owning a patent. In addition, they looked at the actual performance of the firm - e.g., employment, revenue, IPO, acquisition - 3 years, 5 years and 7 years after being founded. Their analysis yielded around 350,000 potential high-growth firms. They also examined firms at the higher end of growth performance, - top 10%, top 5%, top 1% and top 0.1% of growth.
Let me briefly summarize the paper’s key findings.
- Most successful entrepreneurs are middle-aged, not young.
- The mean age across all 2.7 million founders is 41.9.
- The mean age of high-tech founders is 43.2, and of VC-backed founders is 41.9.
- For the more successful startups, those at the upper tail of employment growth, the mean founder age is 41.8.
- For the top 10%, top 5%, top 1% and top .1% (1 in 1000) of upper tail growth the mean founder ages are 41.6%, 42.1%, 43.7%, and 45.0% respectively.
- The mean founder age of startups with a successful exit, - through IPO or acquisition, - is 46.7.
Furthermore, the relationship between a founder’s age and the probability of a successful exit increases monotonically until about age 60. Founders in their early 20s have the lowest likelihood of achieve a successful exit, and a founder at age 50 is almost twice as likely to achieve a successful exit than one at age 30.
“We find that age indeed predicts success, and sharply, but in the opposite way that many observers and investors propose,” notes the paper. “The highest success rates in entrepreneurship come from founders in middle age and beyond.” Why is that?
One can argue that younger entrepreneurs are cognitively sharper, less distracted by family and other responsibilities, less beholden to existing paradigms and thus more open to transformative ideas. On the other hand, many resources accumulate with age, including access to human, social and financial capital. Older entrepreneurs are likely to have more experience in managing development, finance marketing, sales, HR and other operations.
“The view that young people produce the highest-growth companies is in part a rejection of the role of experience: either because experience is not especially valuable or because it reduces the capacity for novel, transformative ideas.” To test this thesis, the paper examined the impact of the founder’s prior work experience, and whether it makes a difference if the founder comes from within or outside the startup’s specific industry. It found that prior industry experience in the startup’s sector predicts a much higher probability of success, and the closer the industry match, the greater the success rate.
“Mechanisms by which young people are proposed to have advantages (such as energy or originality) may still be operating, but if so they appear to be overwhelmed by other forces. Popular perceptions that celebrate youth as a key characteristic for creating high-growth firms appear largely misplaced. To the extent that venture capital targets younger founders, early-stage finance appears biased against the founders with the highest likelihood of successful exits or top 1 in 1,000 growth outcomes.”
Given these results, what accounts for the cases of extreme entrepreneurial success that prominently feature very young founders like Steve Jobs, Bill Gates, and Mark Zuckerberg. If young age was the key reason for their success, you would expect these great entrepreneurs to become less good as they get older. But, as we all know, this is far from the case. Steve Jobs greatest innovation, the iPhone, was ahead of him; Microsoft continued to grow by leaps and bounds under Bill Gates’ leadership; Jeff Bezos has taken Amazon way beyond selling books and CDs; and Google has become an AI powerhouse under Brin and Page. Further analysis showed that the forward 5-year multiples of their stock price tended to rise as they got older, with the peak coming at 48 for Jobs, 39 for Gates, 45 for Bezos, and 36 for Brin and Page.
“From this perspective, one may reconcile the existence of great young entrepreneurs with the advantages of middle age by noting that extremely talented people are also extremely talented when they are young. That is, there are individual fixed effects that allow some people to succeed at very young ages, even when people (including these young successes) get better with age. Thus there is no fundamental tension between the existence of great young entrepreneurs and a general tendency for founders to reach their peak entrepreneurial potential in middle age.”