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Why Older Entrepreneurs Are Better

Zuckerberg-Einstein-1800
At what stage in life does genius peak? The answers may surprise you. Source: Facebook, Getty

The ideal entrepreneur, as we’ve been taught by Silicon Valley, is a peach-fuzzed wunderkind. Young, hungry and brilliant — like Mark Zuckerberg, who founded Facebook at 19, or Sergey Brin and Larry Page, who were both 23 when they set up Google. With middle age comes not just gray hair and a paunch, but outdated skills, calcified habits and an aversion to risk.

If all that’s true, then the world has little to look forward to. Life expectancy is rapidly rising, as is the average age. Much-reduced birthrates across much of the world mean that fewer young people are entering the labor force, leaving us with an aging pool of workers and potential entrepreneurs. By 2020, one-fourth of America’s workforce will be 55 or older; in fast-aging Germany and Japan, that proportion is higher still. Couple these numbers with the breathless pace of technological change, and it’s easy to see a world where aging economies suffer from a dearth of creativity and innovation.

Luckily, it turns out that many of our preconceptions about aging — and its relationship to skills and learning, to entrepreneurship and workplace productivity — couldn’t be more wrong. At least that’s what a growing body of research has found.

Take the idea of the youthful entrepreneur. According to a still unpublished study by U.S. economists Pierre Azoulay, Ben Jones, Daniel Kim and Javier Miranda, the average age at which an entrepreneur founds a start-up in Silicon Valley is a cliché-busting 41.6, long past the age where anyone works in their dorm room or garage. That means that for every 19-year-old Zuckerberg, there could be someone in their 60s founding a technology company. The same study discovered that the founders of the most successful tech firms (as measured by stock-market IPOs) were even older when they started their companies: a grayish 45. In fact, the researchers found that the probability of “extreme success” peaked at 45 to 59. In other words, the likes of Brin, Page and Zuckerberg were successful despite their youth, not because of it. “Extremely talented people may be talented enough to succeed when young, yet still peak in middle age,” says Azoulay, an economist at MIT’s Sloan School of Management in Cambridge, Massachusetts.

When you think about it, these numbers make a lot of sense. Many successful entrepreneurs have had accomplished careers, but simply got tired of working for someone else. Their success rate goes up with experience, the researchers say, because older founders have built powerful professional networks, have gained intimate knowledge of their customers’ needs and often have access to financial resources or backers. And if older entrepreneurs don’t get noticed as much, there is a reason for that, too. Their companies generally don’t develop hot mobile apps or social networks, but tend to focus on other sectors such as biotech, energy or robotics. They also tend to develop products and services for other companies, which don’t grab our attention like consumer products do, but do the bulk of the work in powering innovation and growth. When venture capitalists bias their investments towards whiz-kid entrepreneurs, as many of them do, they arguably affect the direction of innovation. “We wanted flying cars; instead we got 140 characters,“ says Silicon Valley financier Peter Thiel.

Thiel may yet get his flying cars. Entrepreneurship has been rising fastest in the 55–64 age group, according to the Kauffman Foundation’s 2016 Start-Up Activity Index. Americans younger than 35, on the other hand, start companies at the lowest rate, by far. Since late-in-life founders are more likely to be successful, a rising entrepreneurship rate among older Americans is good news for the U.S. economy.

But isn’t it true that the young burst with the creativity and radical ideas that are behind so much technological change? Again, not so fast. It turns out there are two types of creativity. According to University of Chicago economist David Galenson, who studied artistic and scientific creativity, there are “young geniuses” who achieve their breakthroughs at an early age — think Pablo Picasso, who turned the art world upside down as a young artist by inventing cubism, or Albert Einstein, who developed the theory of relativity in his 20s. Then there are “old masters” whose work coalesces after a lifetime of probing and experimentation — think Charles Darwin or Paul Cézanne, both of whom created their most famous works in their 40s and 50s. Galenson looked at artists and scientists, but his observations seem to apply in business and technology, too. For every Zuckerberg there is a Steve Jobs, who was 41 when he returned to Apple to create the products that turned the struggling maker of computers into the most successful tech company in history.

So if entrepreneurs don’t lose their drive with age, what about regular workers? Here, too, a growing body of research — and actual experience at major companies — shows that employees don’t necessarily get less productive or less creative with age. Automaker Daimler studied which workers were making the most mistakes in the factory. And indeed, it turned out that older workers were making more mistakes, suggesting that they might be less attentive. But it was the younger workers who made the more costly ones. They lacked the experience to avoid high-impact mistakes. Another study found that older workers created substantially more value for the company with their suggestions for continuous improvement. As a result of the study, the company phased out its early-retirement program. Depending on the sector, older workers also tended to have lower absenteeism and turnover rates.

If workers do get less productive with age, the researchers tell us, poor management is often to blame. Many companies put their young, digital-native hires on the most innovative projects and offer them the most useful training, while keeping older employees in established routines working with existing systems. That’s been changing, especially in countries such as Germany, where younger cohorts are shrinking and companies increasingly struggle to fill job openings. BMW, which a decade ago began implementing a wide range of policies to retain older workers and make sure they stay productive, uses mixed-age teams to boost the productivity of the entire workforce. That sort of collaboration lets older workers update their technology skills while the young learn the ropes faster, so both benefit. Siemens uses a similar cross-mentoring system.

Figuring out how to make better use of older workers, instead of pushing them out of the workforce, is smart social policy, too. Delaying retirement means more income-generating taxpayers and fewer seniors drawing pensions. Countries such as Finland have abolished a fixed retirement age so that workers themselves choose how to transition to working less or not at all. With welfare systems under strain, expect more countries to follow suit.

That leaves one more myth to bust, that of a flood of sickly seniors. Luckily, we aren’t just living longer lives, but longer healthier lives as well. In fact, our healthy, active years are growing faster than our total years, thanks to improved health care and less physically strenuous work. The implications are clear: People can and will work longer than the current retirement age, first set at 65 when Otto von Bismarck invented the modern welfare state more than a century ago. That places an even greater premium on continuing education and training so we can stay productive and flexible as we transition to new jobs and careers at an ever later age.

Attitudes change slowly, so these stereotypes are likely to stay with us for a while. Economic reality, however, will force both workers and companies to rethink. Coasting into obsolescence will be a luxury no one can afford.

 

Stefan Theil is the executive editor of Handelsblatt Global Magazine. To contact the author: s.theil@vhb.de

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