Boomers are aging out of the "entrepreneurship sweet spot." But their impact on the industry will stay strong.
Entrepreneurs are the lifeblood of the economy and the boom in boomer startups has been a major pumping force. But the State of Entrepreneurship 2015 report released today by the Kauffman Foundation, which specializes in studying and promoting entrepreneurship, suggests that the boomer binge just may be winding down.
Or maybe not.
Reasons for Concern
More broadly, the Kauffman report finds that the state of entrepreneurship in America (and prospects for its future) represent a case of on the one hand and on the other hand and cites “reasons for concern.”
On the one hand, notes Kauffman, entrepreneurship is thriving by some measures.
Digital entrepreneurs are feverishly creating new products and services, from social media to the shared economy. The media celebrates their achievements and investors eagerly snap up their initial public offerings. Venture capitalists and angel investors are flush with money, trolling for the next big thing; the report notes that CB Insights counted 588 companies in its Tech IPO Pipeline for this year.
On the other hand, the longer-term trend is disheartening, a tale of declining dynamism. New business creation hit a recent high in 2006, yet by 2012 the numbers were still running 27% below the previous peak. Business survival rates for new firms have been declining since the 1990s. So have the job-generating figures at new establishments.
Cloudy Magic 8 Ball
And Kauffman’s Magic 8 Ball for boomer entrepreneurship looks cloudy.
On the plus side: Its researchers say boomers have been, and will continue to be, an entrepreneurial generation. As they work longer and live longer, boomers will be entrepreneurs for longer periods. And boomer founders will be the ones to capitalize on the challenges and opportunities of their own aging generation. Said the report: “…we can expect the boomers to continue to be an important economic force for many years” and “boost American entrepreneurship.”
On the minus side, Kauffman says: Since boomers — now age 51 to 69 — have aged out of the sweet spot for entrepreneurship (around 40), they won’t start as many new companies as in recent years and the companies they start will have less economic impact. (See the chart below showing the recent decline of entrepreneurial activity for Americans age 55 to 64.) “Common sense indicates that an older population won’t start new companies at a very fast pace,” the report noted.
In addition, Kauffman said, many boomers can’t afford to start new companies, because they were hit hard by the Great Recession, and businesses started by older entrepreneurs have lower levels of employment and lower rates of employment growth.
Mixed Signals for Millennials
Kauffman also scrutinized the entrepreneurial outlook for millennials, who came of age as the IT revolution flourished, and similarly came away with a mixture of optimism and pessimism.
Since millennials (in their 20s and 30s) came of age as the IT revolution flourished, they’re well positioned to turn new technologies into entrepreneurial ventures, Kauffman said. They’re also well-educated, which equates to the creation of stronger businesses, and are on the cusp of mass entry into the peak age bracket for entrepreneurship — in fact, they’ll be the largest cohort at those ages in American history.
The report noted: “It does not seem outlandish — keeping in mind that demography is not deterministic — to expect that a giant group of people in this age group will help revitalize rates of entrepreneurship.”
But, Kauffman said, millennials are saddled with student loan debt and were also hard hit by the recession, so many can’t afford to be entrepreneurs. “There is growing worry over how entrepreneurial the Millennial generation will be,” the Kauffman report said.
Why I’m Bullish About Boomer Entrepreneurs
Personally, I’m bullish about boomer entrepreneurs, particularly in their Unretirement (the topic and title of my new book) and am making that case at a Washington, D.C. event today that Kauffman is holding to release its report. I’m also bullish about entrepreneurship in America overall.
The way I see things, as I’ll be saying:
The generation that has made a bigger mark on American history than any other will continue to do so even as they age. Boomers are reimagining the last third of life and many boomers will have the ability and the desire to continue working during the traditional retirement years. A series of broad, mutually reinforcing changes in the U.S. economy and society are turning an aging population into more of an economic asset than before. Boomers are well educated and healthier than previous generations. An information-and-services dominated economy is easing the transition to longer work lives. Toiling away on a computer in a medical clinic in the 2000s is far less demanding than working the assembly line in the 1950s.
The household economics of Unretirement are compelling. Earning even a slim part-time income allows older workers to keep saving or to push off the day they have to tap into their retirement savings. For some boomers, their encore job may be full-time, but for the majority their next act is likely to embrace the flexibility that comes from part-time jobs, contract work and temp employment. Thanks to aging boomers, the U.S. will also enjoy a striking resurgence in entrepreneurship, not in spite of an aging population but because of older boomers. They’re realizing that Unretirement offers a new opportunity to start a business, especially since age discrimination is much less of a factor.
Why I’m Optimistic About Entrepreneurship Overall
And here are two more reasons I’m optimistic about prospects for entrepreneurship in America in general.
First, Millennials have made a huge long-term investment — measured in college tuition, fees and loans — in their human capital. Those student loans will pay off with time and my guess is that a surprising number of Millennials will join the ranks of entrepreneurs, perhaps going into business with their boomer parents.
Second, immigration. America’s high-tech economy has prospered largely thanks to highly educated foreigners. A quarter of our engineering and tech firms started between 1995 and 2005 had at least one founder who was foreign-born, according to scholars Vivek Wadhwa, Annalee Saxenian, Ben Rissing, and Gary Gereffi. In Silicon Valley, the percentage of immigrant founded startups reached 52% of total new companies over the same time period.
It isn’t just highly educated foreigners who are entrepreneurs, either. Immigrants have created businessesfrom the corner grocer to the local builder that create jobs and revitalize neighborhoods throughout the country. The record waves of immigration over the past quarter century, and immigration in the future, is a key factor that should nourish entrepreneurship.
One Suggestion That Could Help
The Kauffman Foundation is asking researchers and others to explore the issues its report raised and offer recommendations. I have one: Create a universal, portable retirement plan program for all workers.
Only 42% of private sector workers age 25 to 64 have any pension coverage in their current job. The result is that more than one-third of households end up with no coverage during their working years, while others moving in and out of coverage accumulate small 401(k) balances. Retirement savings provides an additional financial cushion for those experimenting during their Unretirement years. Broadening coverage could be a huge boost for them and for American entrepreneurship.
Chris Farrell is senior economics contributor for American Public Media’s Marketplace and author of the forthcoming Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life. He writes about Unretirement twice a month, focusing on the personal finance and entrepreneurial start-up implications and the lessons people learn as they search for meaning and income. Tell him about your experiences so he can address your questions in future columns. Send your queries to him at email@example.com. His twitter address is @cfarrellecon.
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