Believe it or not, the average age of a successful startup entrepreneur is 45!
The following is based on research conducted by Pierre Azoulay, Benjamin F. Jones, J. Daniel Kim, and Javier Miranda and first published in the Harvard Business Review in 2018.
It’s widely believed that the most successful entrepreneurs are young; Bill Gates, Steve Jobs, and Mark Zuckerberg were in their early twenties when they launched what would become world-changing companies. Do these famous cases reflect a generalizable pattern? VC and media accounts seem to suggest so.
When Azoulay et al (2018) in their research analysed founders who have won TechCrunch awards over the last decade, the average age at the time of founding was just 31. They were able to debunk that myth.
Debunking the Myth of the Young Entrepreneur
The research team analyzed the age of all business founders in the U.S. in recent years by leveraging confidential administrative data sets from the U.S. Census Bureau. They found that the average age of entrepreneurs at the time they founded their companies was 42.
- But the vast majority of these new businesses are likely small businesses with no intentions to grow large (for example, dry cleaners and restaurants).
To focus on businesses that are closer in spirit to the prototypical high-tech startup, they used a variety of indicators: whether the firm was granted a patent, received VC investment, or operated in an industry that employs a high fraction of STEM workers. These averages, however, hide a large amount of variation across industries.
- In software startups, the average age is 40, and younger founders aren’t uncommon.
- However, young people are less common in other industries, such as oil and gas or biotechnology, where the average age is closer to 47.
But what about the most successful startups?
Is it possible that companies started by younger entrepreneurs are particularly successful?
- Among the top 0.1% of startups based on growth in their first five years, they found that the founders started their companies, on average, when they were 45 years old.
In part, the dominance of middle-aged founders in starting the highest-growth companies reflects the propensity of middle-aged people to start ventures.
- Middle-aged people take many more bites at the apple.
However, when you look at success rates conditional on actually starting a company, the evidence against youthful entrepreneurial success becomes even sharper.
- Among those who have started a firm, older entrepreneurs have a substantially higher success rate.
- The research evidence pointed to entrepreneurial performance rising sharply with age before peaking in the late fifties.
If you were faced with two entrepreneurs and knew nothing about them besides their age, you would do better, on average, betting on the older one.
Why might this be? Although there are many other factors that may explain the age advantage in entrepreneurship, they found that work experience plays a critical role.
Relative to founders with no relevant experience, those with at least three years of prior work experience in the same narrow industry as their startup were 85% more likely to launch a highly successful startup.
But What About Steve Jobs?
Although they looked at extraordinarily successful firms — the top 0.1% by growth as well as the rare outcome of successful acquisition or IPO — one might still wonder if even more extreme outlier firms are started by the very young. Interestingly, however, when you study notable outliers such as Bill Gates, Steve Jobs, Jeff Bezos, or Sergey Brin and Larry Page, the growth rates of their businesses in terms of market capitalization peaked when these founders were middle-aged.
- Steve Jobs and Apple introduced the company’s most profitable innovation, the iPhone, when Jobs was 52.
- Jeff Bezos and Amazon have moved far beyond selling books online, and Amazon’s future market cap growth rate was highest when Bezos was 45.
Why Do VC Investors Tend to Bet on Young Founders?
In light of this evidence, why do some VCs persist in betting on young founders? The researchers cannot definitively answer this question with the data at their disposal, but they believed that two mechanisms could be at play.
Many VCs may operate under a mistaken belief that youth is the elixir of successful entrepreneurship — in other words, VCs are simply wrong.
Though it is tempting to see age bias as the leading explanation for the divergence between the researcher’s findings and investor behaviour, there is a more benign possibility: VCs are not simply looking to identify the firms with the highest growth potential.
Rather, they may seek investments that will yield the highest returns, and it is possible that young founders are more financially constrained than more experienced ones, leading them to cede upside to investors at a lower price.
- In other words, younger entrepreneurs may be a better “deal” for investors than more experienced founders.
So, this research has presented some great insight into startup entrepreneurs, which is contrary to what we have been led to believe. The research highlights the importance of age, experience, and the wisdom associated with that.
Of course, there will always be anomalies associated with that such as the likes of Jobs, Gates, Bezos, and other young entrepreneurs. But, remember, these are anomalies and do not represent the norm. However, these people also peaked in their careers in their mid-forties and early fifties.
So, if you are thinking you are too old to start a business, think again. Your work experience and wisdom may actually make a difference to the outcome, and entrepreneurs typically don’t peak till their mid-fifties. So what is stopping you?
By Guy Wilson