Older entrepreneurs are more innovative
By Dr. Ewald Kibler, an Associate Professor of Entrepreneurship and Head of the Entrepreneurship Unit at Aalto University School of Business in Finland
The likelihood of becoming an entrepreneur follows an inverse ‘U’ shape over the course of a person’s life. Research suggests most innovations are created by 35-50-year-olds, and the probability of launching a new venture drops off significantly after around 45 years of age.
At the same time, much of the developed world is dealing with swiftly ageing populations. Entrepreneurship and innovation are seen as key components in ensuring national economies hold on to their competitive advantages. So, is the pool of creativity going to dry up? Will startups go extinct? In a word – no.
To shed some light on why, I joined colleagues from Bern University of Applied Sciences and Audencia Business School in conducting a study into late-career entrepreneurship. This is often advocated as a strategy for tackling the economic challenges of aging populations, by taking advantage of older business people’s wealth of experience and knowledge.
Much of the research until now has focused on why people choose to become late-career entrepreneurs, its impact on personal wealth and circumstances, and firm-level outcomes. We were specifically interested in finding out what effect being older had on a person’s chances of generating innovative ideas.
Based on our analysis of 2,900 founders of new ventures in Germany between 2008-2017, we find that late-career entrepreneurs are actually more likely to introduce market novelties. In fact, the chances of this happening rise by 30 percent for every extra 10 years of age the entrepreneur has under their belt.
Being ten years older also adds about 35,000€ (37,436 USD) in sales resulting from innovations per annum. The positive impacts of a founder’s age on creating novel products and services continue up until their retirement.
In contrast, younger entrepreneurs introduce a larger number of innovations overall, but they tend to be relatively common adaptations which improve the processes and product offering of a company. They are rarely market novelties in the same vein as the inventions of more mature founders.
The main reason for these findings is that older entrepreneurs usually benefit from managerial experience and personal wealth when starting their own firms. People who switch from paid employment to launch their own ventures later in life are also likely to hire more highly educated employees. These factors combine to alter a founder’s motivations, and improve their chance of successfully developing novel innovations that disrupt the markets.
Essentially, we find a changeover takes place as entrepreneurs age. New to the firm process innovation decreases as you grow older, whereas new to the market product innovation increases.
Our findings challenge the dominant stereotype that older founders are not very innovative. We show that it is important to distinguish between new ideas that are suited for a particular company and those that are a breath of fresh air in the market as a whole.
Aging populations in Europe, North America, Japan, and South Korea face serious economic challenges such as rising pensions expenses. These societies could benefit from opening up pathways to allow people to become entrepreneurs in the later stages of their careers. Their level of managerial experience could translate into new market innovations which preserve the dynamism of national economies. Working towards this version of the future will require governments to make pension schemes more attractive to late-stage entrepreneurs and disseminate information that dismantles stereotypes that entrepreneurship is a young person’s game.
On the other hand, many African and Middle Eastern countries have youthful populations, with the younger generations expected to swell from high birth rates over the course of this century. Our analysis indicates these young people are less likely to introduce market novelties, so these nations would be wise to implement incentives for older individuals with greater wealth and industry experience to engage in launching new ventures.
Across all societies, entrepreneurship has the potential to be seen as a natural step in someone’s career path, rather than the final stop, even for those in later life. Businesses and entrepreneurship support organisations should find ways to bring older individuals back into the fold, even if many of them have moved on to other roles.
Their experience, and its creative potential, could make them an invaluable resource as advisors, board members, or, in cases of greater personal wealth, as investors and business angels.