The older, wiser entrepreneur
A new wave of baby boomer entrepreneurs likely to be unleashed by the current economic turmoil will be an important force in eventually pushing the economy onto safer ground, some experts say.
A late-September poll by the Kauffman Foundation, which promotes entrepreneurship, showed that 70% of respondents agreed that the success and health of the economy depended on the success of entrepreneurs; 80% agreed the government should encourage more entrepreneurship.
Though many people think of entrepreneurs as twentysomethings laboring in their garages on the next Silicon Valley success, the reality is that people age 35 and older have higher entrepreneurship activity rates, a separate Kauffman study found.
“People in the older age brackets are much more likely to successfully start companies than younger people,” said Tim Kane, economist at the foundation and co-author of the organization’s Growthology blog.
Older workers or professionals often “have personal savings they rely on, and they’ve actually worked in an area and know a sector -- it might be a steel factory -- where they have an idea that their company is not willing to get behind,” he said.
Consultant Joe Stevens is a good example. The Marina del Rey resident was in his mid-50s in 2003 when he lost his job as a bank executive. That job had been a lifeline when his prior position was also lost in an acquisition, he said. That was in the healthcare field, where he’d worked since he was 23.
“I was really hung out to dry,” Stevens said. “It was my age. I felt I had no other option but to start a business.”
He looked to his work experience to find a need to fill. As former chief operating officer at a firm that assembled medical equipment, he knew firsthand how a well-designed safety incentive plan could cut injuries and thus reduce pricey workers’ compensation insurance premiums.
He sold his condo to fund the first year of Bridge Consultants Inc. and struggled to convince potential clients when he had no customers who could provide references. By the end of the year, he had made $27,000.
That was in 2003. Today, Stevens said his Playa del Rey firm employs three people and he expects sales of at least $500,000 this year.
Potentially thousands of baby boomers could try to follow his lead as jobs are lost or jeopardized by the economic crisis.
“The older you are, if you are still in the workforce, the more likely you are to be an entrepreneur,” said Ed Rogoff, the academic director of Lawrence N. Field Center for Entrepreneurship and Small Business at Columbia University and a management professor who has studied older entrepreneurs.
“That is a growing trend generally, but I think what has happened in the economy lately is going to push it up considerably,” he said.
More contacts, less tolerance for risk
In addition to more money, even with lower home values and shrunken stock portfolios recently, older entrepreneurs often start off with larger networks of contacts. That’s a crucial strength and provides the beginning of a customer base, Rogoff said.
On the downside, older entrepreneurs may have less of an appetite for risk.
“If you are 26 years old and bet the farm and you lose it, you start over,” he said. “If you are 66 or even 56 and you do that, you may have suffered a financial calamity you can’t recover from.”
At the same time, today’s economic troubles will continue to put pressure on both ends of the start-up sector, Kane said. It will be hard for deals to be done to fund new companies and for companies to have successful exit strategies as the acquisition and stock markets cool, he said.
But just because a company doesn’t get funding doesn’t mean the company goes away, Kane said.
“It may not become incorporated or hire all its workers, but the founders in most cases are going to struggle on,” he said.
Stevens has advice for those who want to start a business, no matter their age.
“You do have to have an idea that’s a winner, whether it’s unique or you take somebody else’s and know you can do it better,” he said. Make sure you have enough money to commit to the new business for at least a year.
There are plenty of resources for those thinking about entrepreneurship.
The Small Business Administration, for example, launched its website for older entrepreneurs last week at www.sba.gov/50plusentrepreneur. The site repackages and links to information from the rest of the SBA site, including a self-assessment test for entrepreneur wannabes. There are also many links to outside resources.
The site offers encouragement and statistics that back the contention from the agency’s acting administrator, Sandy K. Baruah, that entrepreneurs over 50 “will drive significant new business growth in the coming years.”
Those new business owners will be part of the churn that accelerates when the economy undergoes tough times, which another Kauffman study says eventually boosts jobs and productivity.
“A recession forces a reallocation of jobs and resources, it sort of reshuffles the deck,” Kane said.
“Most of it is painful and difficult, but most of that is good and necessary. When we get things sorted out again, you do find this entrepreneurship activity has a payoff.”
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