Age and high-growth entrepreneurship

Many observers, and many investors, believe that young people are especially likely to produce the most successful new firms. Integrating administrative data on firms, workers, and owners, we study start-ups systematically in the United States and find that successful entrepreneurs are middle-aged, not young. The mean age at founding for the 1-in-1,000 fastest growing new ventures is 45.0. The findings are similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits. Prior experience in the specific industry predicts much greater rates of entrepreneurial success. These findings strongly reject common hypotheses that emphasize youth as a key trait of successful entrepreneurs.

That is from a newly published AER paper by Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda.

Comments

Okay, but how many of these "start-ups" are less like Apple Computer in 1975 and more like successful lawyers starting their own firms to do the same thing they did the year before?

“ The findings are similar when considering high-technology sectors, entrepreneurial hubs, and successful firm exits.”

I am sure that part of the clash with intuition of these findings is due to media exposure of the young entrepreneurs. Middle-aged white dude leaving Microsoft to create a new company won’t get much press attention.

Read their previous paper (https://www.nber.org/papers/w24489):

"Identifying High-Growth Startups. We are especially interested in examining growth-oriented startups. We take two approaches. The first approach considers technology-orientation, which can suggest the potential for high growth. The second approach considers the actual outcome for the
firm, based on the 3, 5, or 7 year time window after founding. We exclude from our analysis sole proprietors and businesses without employees."

These aren't new findings. From 2018:

"Research: The Average Age of a Successful Startup Founder Is 45"

https://hbr.org/2018/07/research-the-average-age-of-a-successful-startup-founder-is-45

Isn't this part of my view that innovation occurs at the margin: the young entrepreneur has a new idea, a potential blockbuster idea, but like all new ideas, acceptance likely won't come overnight, if at all. On the other hand an accepted idea/innovation can always be improved, innovations at the margin both differentiating and improving the idea, the marginal innovations most likely recognized and developed by entrepreneurs already familiar with the original idea/innovation. Americans like blockbusters, including in baseball, where the emphasis is almost always on soaring home runs rather than the walks and singles that produce wins. One cannot help but notice how this blog defines "innovation" as a new idea, a potential blockbuster, rather than a marginal improvement of a past idea/innovation, even though the blog is titled "marginal revolution".

"Innovation" isn't about ideas either. Was Google the first search engine? Did Apple invent the smartphone? Did Facebook create the first social network? An emphatic NO to all of them. They popularized their ideas the most out of everybody and got outsized rewards for doing so. That's what "innovation" means here. Can anyone name the actual people who invented the search engine, smartphone, or social network? I can't either. So much for actual innovators and actual innovations.

The "innovation" at Google and Facebook wasn't the search engine or the social media, it was data collection and data mining and doing it ahead of the competition and reaching such scale so as to dominate digital advertising. The "innovation" at Apple wasn't the smart phone but the closed universe of Apple products combined with features that induced users of i-phones and other Apple products to overlook the closed universe. One might argue that such "innovations" were sinister, but shareholders of Google, Facebook, and Apple would beg to disagree. Innovation, it's what generates profits not products.

@rayward - "Americans like blockbusters, including in baseball, where the emphasis is almost always on soaring home runs rather than the walks and singles that produce wins" - point taken counselor, though, pace the Washington Nationals, what produces wins these Moneyball days is actually home runs (and baseball traditionalists are looking into ways of cutting down on the longball via rule changes)

Bonus trivia: I started my own firm in my mid-40s. I have since folded it, since the problem in having an office that's your laptop and being outside the USA is seen by many clients as having too much fun and resented --seriously--even though when I was stateside I hardly ever saw my client except online. It's OK, I am in the 1% (inheritance) so I am worth more than nearly any of my old bosses except the billionaires I've had the pleasure of working with.

Please remind us one more time that you're in the 1%. I almost forgot.

If there is resentment on my clients' part that my office is in my laptop and I often use it at the beach, it doesn't show up in my paycheck. I am in the 3% (income) and 7% (assets). Not complaining. So what if I can't buy that airplane.

Were people really under the impression that only young people can create startups? I am dubious of this 'many observers' claim. My observation is that founders love to brag about their collective decades of experience in the field, probably because investors respond effectively to this.

There is a cult of youth in Silicon Valley, exemplified e.g. by Thiel fellowships. A modern day Dulce et decorum est

Yes, also the cult of the wunderkind.

I think “many observers” = journalists, whereas to people with experience with new companies, 45 sounds pretty on the nose. And it makes sense. By 45 you are knowledgeable and comfortable in your field, stable enough In your personal life to take risks, ready and competent enough to be the boss and manage your own venture. Most importantly, you have enough experience to perceive a real B2B need, a way processes in an industry can be improved, etc. Young entrepreneurs on the other hand start companies that sell straight to consumers, because that’s the experience and vision of a young person. They think big and when they succeed they make a splash, but aside from the rare true savants they don’t really understand how the world works at all and when they succeed they are lucky. Media are not savvy enough to pick up on B2B innovation, so that plus cult of youth / rock star worship means journos are interested in the young outliers, not the people who are generally creating most of the successful new businesses.

Makes total sense. The typical story is that someone works in a field for an extended period of time for a corporation, makes business contacts, acquires knowledge, and identifies opportunities, then ventures out and founds a company with co-workers. These entrepreneurs are older. The Silicone Valley youth entrepreneurship culture is not common.

Venture Capitalists segment this impact by business type. For Business-to-Consumer (B2C) firms, youth matters. These firms are hits driven. Think Facebook, Snapchat, Twitch.

For B2B, the risk is in execution and fundraising. Think Zoom, Salesforce, Veeva. In B2B, age is a big advantage.

Not segmenting by business type makes these results not helpful.

Suburbanization and Innovation: Many studies find a strong correlation between suburbanization and innovation. One explanation is that suburbanization increases competition, and competition increases innovation. This would seem the opposite of conventional wisdom (that urban centers are incubators of innovation) and the current trend toward greater urbanization. Of course, millennials prefer the urban lifestyle. Does that explain the paucity of innovation? Does it explain the findings in this study (innovation is concentrated among the middle-aged, who are more likely to reside in the burbs)? Does it suggest that cities should build transit so the innovators can move to the suburbs where they can innovate? On that latter question, one explanation for the absence of productivity growth in the U.K. is the absence of transit to facilitate the growth of the suburbs where the innovations that increase productivity occur.

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