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Startup

What gives young founders an edge over older entrepreneurs?

Posted by Kanika Sinha

December 8, 2021 | 3-minute read (544 words)

A young man gives a business pitch alongside a whiteboard that says “startup.”

There’s a long-running debate about who’s ultimately more successful — middle-aged founders or those who launch ventures in their 20s and 30s. A 2018 HBR report has shown that the average age of successful startup founders is 45.

While that may be the case, founders under the age of 40 run more than 40% of all new businesses, according to Stanford professor Kathryn Shaw’s new paper co-authored with Anders Sørensen of Copenhagen Business School.

Entrepreneurs in their mid-20s to early 30s learn and invest over time and are able to run new companies that are more productive than those founded by older entrepreneurs. Essentially, founders who get an early start running a business and then launch a second one are highly successful, and in many cases are even more successful than those who get started in middle age.

Decoding the outsized success of young entrepreneurs

Shaw and Sørensen reflected upon data from Denmark on company sales from 2001 to 2016 and followed more than 131,000 organizations that were a combination of sole proprietorships and limited liability corporations across industries. These firms had the following common characteristics:

Most firms had founders who have launched only one venture.
The founders, on average, were 38 years old and had 13 years of education.
75% of entrepreneurs were male.
Nearly 18% of the firms were run by serial entrepreneurs.

Their research revealed that subsequent firms tended to be more successful over time than novice or standalone ones. Also, by and large, young serial entrepreneurs’ second firms don’t fail — at least not as often as those run by novice founders. New businesses launched by novices fail, on average, in the first three and a half years of operation. In fact, on average, serial entrepreneurs’ first firms were 57% bigger on their opening day than those founded by novices.

How successful do they become?

The paper’s findings outline that young serial entrepreneurs — those in their mid-20s to early 30s — go on to achieve greater financial success as they start and lead their second businesses. Starting early, their on-the-job learning experience helps them bring in higher revenues in their subsequent venture(s) — much higher than startups founded by older entrepreneurs. Additionally, sales at younger founders’ first firms average $92,750, while their second business see a whopping 82% jump in sales averaging at $169,000.

On the other hand, even though older founders’ first firms start off higher, with sales of about $125,000, they grow to be only 20% larger than their first firms, never matching the average sales level of younger entrepreneurs’ second firms.

What factors are consistent with their outsized success?

Commensurate with the remarkable sales increase in young serial founders’ subsequent ventures are two underlying factors:

They become more inclined to register their second companies as LLCs to protect themselves from personal losses in case of failure.

Young entrepreneurs who are the most successful are portfolio founders — those who retain their first firms as they establish their second.

For small businesses, productivity of a company is often also the productivity of the founder. Therefore, just as the personal productivity of wage earners rises with age over their lifecycles, so too does the personal productivity and implied income of young entrepreneurs.

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