In a post entitled Entrepreneurs: Old and Young, I cited an article by Stefan Theil in which he claimed that “older entrepreneurs have higher success rates when they start companies” than their younger counterparts [“The Golden Age of Innovation,” Newsweek, 20 August 2010]. Theil explains that older entrepreneurs “have accumulated expertise in their technological fields, have deep knowledge of their customers’ needs, and have years of developing a network of supporters (often including financial backers).” In an interview with Theil, Duke University scholar Vivek Wadhwa claimed, “Older entrepreneurs are just able to build companies that are more advanced in their technology and more sophisticated in the way they deal with customers.” Theil continued:
“According to data from the Kauffman Foundation, the highest rate of entrepreneurship in America has shifted to the 55–64 age group, with people over 55 almost twice as likely to found successful companies than those between 20 and 34. And while the entrepreneurship rate has gone up since 1996 in most other age brackets as well, it has actually declined among Americans under 35. That’s good news for one very simple reason: baby boomers are now in their prime, startup-founding years, which will unleash what Kauffman researcher Dane Stangler expects to be an entrepreneurship boom. Since new companies create the vast majority of jobs, the positive impact on a post-recession economy could be great.”
In another article, Emily Maltby asks, “Why do older generations start businesses?” [“Boomer Start-Ups – Out of Need or Ennui?” Wall Street Journal, 22 March 2011] Maltby writes that this question came to her while reading an article by Robert Powell entitled Working in Retirement: Questions, Questions, Questions [The Wall Street Journal, 21 March 2011]. She continues:
“The article, a Q&A with Michael Kitces, director of research at Pinnacle Advisory Group Inc., and Elaine Floyd, director of retirement and life planning at Horsesmouth LLC, discussed entrepreneurship options for folks in their golden years. Floyd expects entrepreneurship to be ‘huge’ among baby boomers. ‘The possibilities are endless for self-employment,’ she says. Kitces adds that some become consultants in their industry, but that he’s also ‘seen folks that turned hobbies they always enjoyed into small businesses that they have fun with.'”
Such a large number of baby boomers are becoming entrepreneurs that The Wall Street Journal has started a new SmartMoney column called Second Chances, that reports on “over-50, first-time entrepreneurs.” Maltby reports, “Research shows that older generations are already turning to entrepreneurship at a fast pace.” At this point, her original “why” question remains unanswered and that is the topic to which she next turns.
“What’s the source of this start-up activity – especially among the 65-and-older group that Floyd and Kitces are talking about? Sour economic conditions may play a part, says Dane Stangler, director of research at Kauffman. ‘After the recession, you may not have the wealth cushion you once did,’ he says. Some 23% of ‘mature workers’ – those over 55 – who were laid off and couldn’t find another job considered starting a business, according to a 2009 survey from CareerBuilder.com. The survey notes that it’s this cohort that may turn to entrepreneurship, simply out of necessity.”
Although older workers have great experience, they often have mixed results when looking for employment. According to one article, “finding a job is more difficult for older workers, and the hunt itself is different than it was years ago.” [“Retirement means back-to-work time for many seniors,” by Jere Downs, Courier-Journal, 14 March 2011]. Since they face dim job prospects as they near retirement, it is no wonder that many baby boomers are opting to control their future by working for themselves. As Maltby points out, however, not all baby boomers turn to entrepreneurism out of necessity. She explains:
“There’s another trend at work, according to Stangler: We’re living longer and we’re living healthier. At the retirement age of 65, people may have another 20 years of healthy living left, he says. ‘You might get bored out of your mind going to the golf course,’ he says. ‘People like to be active, and what we consider work is what they see to be meaningful expression.'”
Angus Loten agrees with Stangler that boomers may prefer work to golf [“Retired? Forget Golf, Buy a Franchise,” The Wall Street Journal, 21 March 2011] He writes:
“There are baby boomers that drop out of a corporate-world job to launch their dream venture — start-ups they’ve been working over mentally for years and finally get up the nerve and the capital to strike out on their own. Then there are others like Steve Gartner, 60, the subject of the second installment in an ongoing series of profiles of baby-boomer entrepreneurs posted this week by SmartMoney. After retiring a few years ago, Gartner did some renovation work around his home and took up golf. But he started getting bored with post-career life. A former logistics, distribution and warehouse executive for corporate giants like PETCO, he stumbled upon a second career as a franchisee after discovering there wasn’t a Great Clips hair salon within one hundred miles of his new Tennessee home. After researching the chain – including calls to other franchisees, number crunching and eventually training sessions at Great Clips University – Gartner found himself opening a line of credit in early 2009 to buy a hair salon in a nearby mall.”
Loten reports that Gartner surprised himself by venturing into the hair salon business, but he achieved success. According to Loten, “the couple has already opened a second outlet and is planning a third.” For many boomers, the thought of taking out a large loan so near to retirement age could be daunting. But natural entrepreneurs have a penchant for taking risks. Loten continues:
“For 50-plus ‘accidental entrepreneurs’ like Gartner, opening a franchise has advantages over a launching a startup from scratch, according to AARP. Though it requires long hours and isn’t without risk, a franchise has the benefit of built-in branding and business strategies from a corporate overseer – offering what’s sometimes called a ‘business in a box,’ the perfect fit for many late-life business owners.”
Franchising isn’t for everyone, however. The financial obligations associated with franchising can be significant. If, out of desire or necessity, you are a baby boomer thinking about becoming an entrepreneur, how do begin? Michael Kitces, director of research at Pinnacle Advisory Group Inc., who was interviewed by Robert Powell in the article cited at the beginning of this post has some recommendations.
“If we’re looking at the average situation, we’re talking about 25% of total income for people over age 65 is earned income. If we sit down and have a conversation that says, what kind of work would you do if you could do anything you want and you only have to earn 25% of what you’re earning today, a very different set of jobs and possibilities suddenly opens up. A lot of people start having really creative, positive ideas about the different things they could be doing in retirement. … In some situations, we’ve sent folks in their 60s to a career counselor. For more folks, though, the conversation just gets back to what is it that you’re good at. Just spend the time thinking, well, what are you good at, what do you like doing, how might you do that? Is there a place for that in your current job or with your current firm? … We’ve seen people go back and become writers. We’ve seen lots of people go back and teach. We’ve seen folks that become consultants back to their industry, either to their firm or to their industry at large. We’ve seen people go completely different directions altogether.”
I like that approach because it helps enlarge the perspective for potential entrepreneurs. Clearly, not every baby boomer entrepreneur is equipped to found a start-up company in hopes of making millions or has enough collateral that they can buy a franchise. Many more are of them are equipped to find a business they enjoy and are good at that doesn’t require raising burdensome capital. One thing to remember is that you don’t necessarily have to find something that replaces the entire amount of your pre-retirement salary. If you have the luxury, find something that you will enjoy doing as you extend your working life. For many people, that is the most important factor in selecting a course to follow.