Is there a connection between an entrepreneur’s age and her degree of success? [Show Summary]
Are the best and most successful entrepreneurs’ twenty-somethings? As an entrepreneur, are you over the hill at 30, not to mention 40? Let’s find out from today’s guest, a Kellogg professor of strategy and entrepreneurship, who has actually researched the correlation, or lack thereof, between age and entrepreneurial success.
I recently stumbled across an article entitled “It’s a Disservice to Urge Young People to Become Entrepreneurs” written by Jeffrey Tucker, Editorial Director for the American Institute for Economic Research. The title reveals the point of the article, and Dr. Tucker bases his conclusion at least partially on research done by our guest today, Dr. Benjamin Jones, along with two other colleagues. Intrigued by the research, because it is both so relevant to many of our listeners and contrary to popular belief, I invited Dr. Jones to join us.
Dr. Benjamin Jones, professor of entrepreneurship and strategy at Northwester Kellogg, shares surprising advice for aspiring entrepreneurs [Show Notes]
Dr. Jones has a fascinating background. He earned his BSE in Aerospace Engineering at Princeton, his MPhil at Oxford, and his PhD in Economics at MIT. He served as a Special Assistant to Larry Summers when Summers was at the U.S. Treasury Department. In 2003 he became an Assistant Professor at Kellogg School of Management, and in 2014 he was appointed the Gordon and Llura Gund Family Professor in Entrepreneurship and Professor of Strategy at Kellogg. Along the way, there was a stint at the White House and various other appointments and publications. He has agreed to join us on AST however in connection with his recent research on Age and High-Growth Entrepreneurship. Listen in!
I’m going to get to your research in a sec, but I have to ask: How did you go from aerospace engineering to philosophy to economics to entrepreneurship? [3:30]
Like many young people I was on a voyage of discovery of what I liked and what I was good at. I was very interested in engineering, economics and technology. In particular I was interested in sciences that speak to society directly. I get a lot of joy in the application.
What made you want to research the possible connection between age and fast-growth entrepreneurship? [4:28]
There is a really strong idea in our culture and media, with venture capital firms, that suggests very young people are the source of the truly transformative ideas in society. That is very anecdotal. Separately I was skeptical because I had done research looking at Nobel Prize winners and great inventors, and they have gotten older and older over the course of the 20th century. Einstein was 26, Mark Zuckerberg was so young, but they are actually exceptions. In this century, individuals in their early 40s had Nobel Prize-winning breakthroughs. I found that much of the work was coming in middle age.
There are three things that make people think younger people are more successful. First, that young people are not yet trapped in a particular way of thinking. Second, that they are cognitively sharper, or have more mathematical skill. Third is that young people typically don’t have a lot of other responsibilities, they have lots of energy and can focus. In reality, experience and wisdom is causing the difference.
How did you go about your research? [9:00]
I have wanted to ask this question for a long time. I wrote the paper about Nobel Prize winners as part of my PhD thesis in 2003. With Nobel Prize winners I did it by hand, but with entrepreneurship you want to look systematically. I had a fortuitous connection with people at the U.S. Census Bureau. For social scientists that is the telescope of economics. It is an opportunity to look at all the data. The Census Bureau has info on every established business, number of employees and sales. Only recently has it been possible to connect back into demographic info. With a team including Javier Miranda at the Census Bureau, Danny Kim, a former PhD student and now professor at Wharton, as well as Pierre Azoulay at MIT, we were able to answer this question that had been in our minds for quite some time.
Did you discover anything else besides the correlation between age and entrepreneurship? [11:02]
We aimed it squarely at the age question, but tried to find other relevant information. While I was skeptical the most successful entrepreneurs would be in their 20s, I thought it was going to be mid-30s so the fact it was 45 was surprising. One of the reasons it is 45 on average is that most people who try to start companies are in fact in middle age. In terms of those individuals with the highest growth companies, I like to use a baseball metaphor – they have many more at bats. So let’s try to control for that. Take everyone by age who tried to start a company, and what was your probability of a homerun given that you tried. It is not about peaking at 45, it is really a linear percentage of success, which says that people are getting better at this. There aren’t many 59-year-olds who start companies, but when they do, they do quite well. There is definitely a correlation with people who started businesses prior. For this data we can’t identify with much info about prior years, so we can’t see how many times individuals who are now successful started a business and how they did previously beyond just a few years back. We do see work histories of all these founders and census codes up every sector of the economy. What we do see is that if you start a company in exactly the same narrow industry code, your success rate goes up by 2.5 times.
What is your favorite piece of advice for college students (or older adults) who have a great idea for a business? [18:53]
My first question would be “Why do you think it is a great idea?”And then I’d want to hear what the problem is. Why is it a problem? How have they confirmed it is a problem, which is the key ingredient, and how do they plan to solve it? Then it is a question of capabilities. Do you have the capabilities to execute on the problem? If the answer is no, you have to find collaborators and a team with the requisite knowledge. There are a lot of 20-something people with great ideas, but with a limited skill set, and they need to decide if they should wait or collaborate, fill in skill gaps, and build an effective organization to take the idea forward.
What if a 25-year-old has a great idea for a business, but knows that the opportunity will be gone if they wait until they’re 40 or 45? Or feel that they are now unencumbered by children and family so that they are better positioned for the risks of starting a business? What would you say to them? [21:21]
People should be careful not to think that just because they have an idea, they are the only one. People tend to race at the same idea. There were plenty of social media companies, but Facebook ultimately won. There were a lot of companies doing search, and then Google eventually had the right algorithm. How do you outexecute the competition? With deep tech there is patenting, which is one way, but you have to do some soul-searching: “This is a good idea but I won’t win,” or, “I am going to execute it well through collaboration.” If you ask others for support, you may hear people tell you it’s not a good idea. You need to take the negative advice carefully. “I won’t buy that” is not a killer if you hear it from one person, but you do need to find at least some people who think it’s a great idea to move forward with it.
What qualities (other than maturity) contribute to creating successful entrepreneurs? [23:47]
Grit, first and foremost. I have yet to meet a successful entrepreneur who said it was easy. Every company is a struggle. You have good days but definitely bad days as well, wondering why you are doing this. You have to be able to work through failure and have the toughness and ability to bounce back from a setback. Support networks are very important, too. Mentors, family, and friends can give you support and advice as you work through the tough stuff.
Some people, among them Andy Kessler in the WSJ, argue that the MBA isn’t worth it. Others say that one is better off acquiring business skills less expensively and investing $200K on an entrepreneurial venture and learning from the experience, whether success or failure, rather than on MBA tuition. How would you respond to that argument? [25:31]
If you think the idea is really going to work, you feel confident in your abilities, and it won’t last in the marketplace for long, maybe go for it. If you think you are going to fail at something and that is a better life lesson, so be it, but an MBA gives you the equivalent of 10 years of experience in a lot less time. You will fill in your gaps, get out of your silo, and learn a lot about successes and failures that you don’t have to experience yourself. You also can build networks that will be valuable to you.
The return on professional education in the U.S. has never been higher historically. There is a reason a lot of skills are developed through these programs. You have a huge wage boost. It’s not the same answer for everybody – failure is a good teacher, but an MBA is a great teacher as well.
What do you think of the “Fail fast and fail often” mantra? [27:47]
Fine, but don’t fail exclusively.
Seriously, though, failing fast is a good idea. If you are not finding a customer, pivot. If you can’t find anything narrow in the space, shut down and redeploy. Knowing how and when to abandon is important. It’s another form of psychological toughness. Deploy grit in a better direction. With self-reflection and honesty, allow yourself to move on to a new venture.
What would you have liked me to ask you? [30:07]
Another aspect is the broader social stakes. It is very clear that social returns of innovation are often much greater than private returns for the individual. Economists think that failure to innovate enough is the main market failure in the economy. We want to encourage this activity to help people make innovative choices in the right place and in the right direction to help society in total.
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