Silver Age Startups

By Jonathan Ortmans

Are older entrepreneurs more likely to start businesses than recent college graduates?

The answer seems to be yes, at least for financially stable and healthy seniors.

They have an own source of early stage capital (their pensions and savings), greater schedule flexibility, a wider professional network and a wealth of industry experience that grants them vital knowledge of areas ripe for innovation.

The 2015 Kauffman Index says it loud and clear: we are seeing an increasing rate of new entrepreneurs among individuals aged 55-64. This group now makes up a quarter of all new entrepreneurs (25.8 percent) in the 2015 Index, compared to its 14.8 percent share of new entrepreneurs in the 1997 Index. Moreover, older entrepreneurs continue to have the highest share of opportunity entrepreneurship in the 2015 Index.

Several policymakers are waking up to a new era for senior entrepreneurs and have begun to explore ways to incentivize their economic contributions through new business creation.

Look across the pond to Britain, for example. According to recent estimates by Clifton Asset Management and pensionledfunding.com, entrepreneurs aged 55 and over in the UK are set to cash in an estimated £400m of their pensions in order to fuel the growth of their start-up businesses. A recent policy change might have something to do with this. The UK government introduced unprecedented pension freedoms on April 6, 2015, enabling seniors to opt to take 25% of their pension pot as a tax-free lump sum. While it is too soon to determine causality, this might be one new example of how a financial innovation can support the changing demography of entrepreneurship.

In the United States, Dane Stangler, vice president for Research and Policy at the Kauffman Foundation, brought up the issue of baby boomer entrepreneurs to Congress last year through a testimony before the U.S. Senate Special Committee on Aging & the Senate Committee on Small Business and Entrepreneurship.

“For senior entrepreneurship, flexible labor markets are especially important,” said Stangler, explaining that a flexible labor market lowers barriers to moving easily between self-employment, wage-and-salary employment, and entrepreneurship. “This may be especially important for senior entrepreneurship as research has shown that senior entrepreneurs are much more likely to start a business if moving from a job.”  

The OECD has issued recommendations on this subject in its 2012 Policy Brief on Senior Entrepreneurship, including:

• Create a positive awareness of the benefits of entrepreneurship for older people.
• Support relevant business networks for older entrepreneurs and provide training to fill knowledge gaps on entrepreneurship skills for those who have spent their working life as employees.
• Ensure access to financing schemes, recognizing the sub-groups of older entrepreneurs (e.g. those starting a business while unemployed, those with high incomes).
• Highlight the possibility of acquisition as a means into entrepreneurship for an older person as it may be quicker, and less risky.
• Encourage older people to play a role in the entrepreneurship ecosystem by becoming business angels or by mentoring younger entrepreneurs.
• Ensure that tax and social security systems do not contain disincentives to entrepreneurship for older people, including investment in other businesses.

Measuring impact and influencing factors

Beyond startup rates for retired adults, of course the important question is whether seniors are more likely to scale successful businesses than their younger peers along with which factors influence their performance.

In terms of business survival rates, enterprises founded by seniors tend to have more staying power. According to a study by a British charity called The Prince’s Initiative for Mature Enterprise (PRIME), 70% of businesses started by people in their 50s survived for at least five years, compared to only 28% of businesses started by those aged under 50.

We know that the 'peak age' for starting a company is in the mid to late 30s or early 40s with cofounders often much older.

Source: www.kauffman.org/blogs