The 20-year-old entrepreneur: Myth or reality?
In recent years the field of entrepreneurship has received increasing attention in both research and practice (Bergmann & Sternberg, 2007). Currently policy makers around the world promote entrepreneurship and new venture creation because entrepreneurial activity contributes to economic development by introducing innovations, generating employment and increasing productivity by increased competition (Michael & Pearce, 2009; van Praag & Versloot, 2007; Minniti & Lévesque, 2010). A large body of empirical research explores the personality characteristics, motivations and objectives of the entrepreneurial individual. Researchers address questions like why entrepreneurs decide to create new ventures, what motivates them to take risks and what differentiates entrepreneurs from non-entrepreneurs.
Nonetheless, there are still several myths and misconceptions that surround the field of entrepreneurship. If we look at successful Silicon Valley entrepreneurs like Steve Jobs, Bill Gates or Mark Zuckerberg they all have one thing in common. They all were in their early twenties when they founded today’s world leading companies Apple, Microsoft and Facebook. Another example are Larry Page and Sergey Brin who launched Google at the age of 25. These individual cases reflect the widespread assumption that young entrepreneurs are especially likely to create new ventures. However, does empirical evidence support this assumption?
The goal of this essay is to evaluate whether the 20-year-old entrepreneur is a myth or reality. Therefore, findings of the research on the field of entrepreneurship considering the relationship between the entrepreneur’s age and the creation of new ventures are discussed in the following.
First, the terminology of entrepreneurship needs to be clarified. Shane and Venkataraman (2000) attempt to create a conceptual framework for the field by defining entrepreneurship as “the processes of discovery, evaluation, and exploitation” of opportunities to create future goods and services (p. 218). Their definition involves not only the question of who the entrepreneurial individual is and what he or she does, but also the study of sources of opportunities (Shane & Venkataraman, 2000). According to Casson (1982) these entrepreneurial opportunities are situations in which new goods, services, raw materials, and organizing methods can be introduced and sold at greater than their cost of production. Besides, Shane and Venkataraman (2000) state that entrepreneurship does not inevitably require the creation of a new venture because entrepreneurship can also occur within an existing organization.
Several conceptual and empirical studies have drawn attention to the relationship between age and new venture creation. A recent study based on U.S. administrative datasets conducted by Azoulay, Jones, Kim and Miranda (2018) analyzed 2.7 million people who founded companies in the US between 2007 and 2014 to investigate the relationship between age and high-growth entrepreneurship. According to the results the average age of entrepreneurs who started a new venture that went on to hire just one employee was 41,9 years. Furthermore, the study reveals that the average age of founders who created a high-growth venture including those in technology sectors or in entrepreneurial hubs is even older, at 45 years.
According to the research program European Startup Monitor (ESM, 2016) which involves the exploration of national entrepreneurial activity in all participating countries, the situation looks similar in Europe. The respondents of the ESM 2016 were, on average, 36,4 years old. With a percentage of 43,8% the majority of founders was between 25 and 34 years old. However, analysis of the age at which entrepreneurs created their first ventures indicates that founders were, on average, 29,9 years old. A venture qualified to be included in the ESM study when it was younger than 10 years and additionally features innovative technologies or business models and/ or had (strived for) significant employee and/or sales growth (German Startups Association, 2016).
Even in Germany, the age of founders is higher than might be expected. Based on the results of the Global Entrepreneurship Monitor (GEM) a study from the Institut für Arbeits- und Berufsforschung (2016) revealed that the average age of entrepreneurs in Germany is 38.6 years. Entrepreneurs were defined as individuals who are about to start a business (nascent entrepreneurs) or have already done so in the past three and a half years. Similar results were also found by the German Startup Monitor. Based on a data set of 1,550 startups with 17,647 employees and 3,763 founders the findings indicate that the average age of entrepreneurs in Germany was 35.2 years. With regard to age distribution, the majority of people who started a business was between 25 and 34 years (47,5%) or between 35 and 44 years (29,1%) old. Furthermore, only 7,2 percent of entrepreneurs were younger than 24 (Bundesverband Deutsche Startups e.V., 2018). The presented research results are summarized in Figure 1 below.
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Contrary to the popular thinking that entrepreneurs are young these results provide empirical evidence that middle-aged entrepreneurs are the most active ones in creating new ventures. However, the question arises what the effects of ageing on entrepreneurial behavior are.
According to Bergmann & Sternberg (2007) there are contrasting tendencies in the influence of age on entrepreneurial propensity. Lévesque and Minniti (2006) empirically explored the role of age in motivating entrepreneurial behavior and suggest a reversed U-shaped relationship between age and entrepreneurial propensity. According to their theoretical model, which is confirmed by a variety of empirical studies, the likelihood of engaging in entrepreneurial activities increases with age until it reaches a critical level and decreases thereafter (Lévesque & Minniti, 2011; Grilo & Irigoyen, 2006)
Findings from previous studies indicate that the willingness and intention to create a new venture decrease with age, while the opportunity to do so increases (van Praag & van Ophem, 1995). Lévesque and Minniti (2006) explain this declining willingness with the increasing opportunity cost of time with age. As individuals get older entrepreneurial willingness to invest time in activities that do not generate instant returns, such as starting a new business, decreases. In addition, the level of professional and family embeddedness increases with age, whereas the remaining working life decreases, what tends to weigh against new venture creation (Bergmann & Sternberg, 2007; Bates, 1995).
On the other hand, the opportunity for starting a new business increases with age because of higher accumulated resources, such as professional and industry experience or the amount of capital available (Henley, 2007; Kautonen, Down & Minniti, 2014). This is also shown by Minola, Criaco and Cassia (2014), who conducted a systematic literature review to analyze the differences between young and old people in entrepreneurship. The review concludes that entrepreneurial resources accumulate with age which provides advantages in perceiving and pursuing opportunities as well as in the process of new business creation. However, possessing greater resources does not necessarily imply superior proclivities, engagement, or performance in the entrepreneurial activities (Minola, Criaco, & Cassia 2014).
Lévesque & Minniti (2011) emphasize that younger individuals have less accumulated resources with which to reduce the uncertainty associated with new ventures, whereas older individuals have accumulated wealth but face high opportunity costs of entrepreneurship by having to forgo seniority wage in favor of uncertain returns.
Recent studies argue that the previous literature on the relationship between age and entrepreneurship has been inconclusive and suggest that entrepreneurial activity varies depending on individual’s preferences (Kautonen et al., 2014), whereas others focus on different age effects on various entrepreneur types to explore the age-entrepreneurship relationship (Zhang & Acs, 2018).
In conclusion, it can be stated that the imagination of the 20-year-old entrepreneur is a myth. The research findings outlined in this essay indicate that the average entrepreneur is much older than publicly believed. In order to evaluate the effects of aging on entrepreneurship considerable research findings were discussed. In sum, the results show contrasting tendencies in the age-entrepreneurship relationship which provides opportunities for future research.