In the pre-digital age, startups (eg new companies) were primarily launched by seasoned entrepreneurs with solid business experience under their belts and established professional connections. Many already owned successful businesses and sought to expand their empires. Experience and savoir-faire inspired trust among the business community, and seasoned professionals had little trouble finding investors to back their budding ventures.
With the advent of the Internet came a boom of startups created by young founders that changed the business landscape for many investors. Venture capitalists not only opened up their wallets to young entrepreneurs in their 20s, but many began to believe that young startups had greater potential for spectacular success over businesses launched by older and more experienced entrepreneurs.
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Some investors even believed that if an entrepreneur had not created something extraordinary before age 30, they had missed their window of opportunity and had low potential for success. But with time comes maturity, and the landscape of startup funding has evolved for both investors and entrepreneurs.
Is Youth a Prerequisite for Success?
Feeding into the idea that youthful founders held the greatest potential were the phenomenal success stories of popular entrepreneurs:
- Mark Zuckerberg created Facebook at age 19 while studying at Harvard
- Steve Jobs started Apple Computers in his parents’ home at the age of 21
- David Karp launched Tumblr at age 20
- Vitalik Buterin published his white paper on Ethereum at the age of 19
Those are just a few success stories whose fame is rivaled by other young startups of the early 2000s, including Amazon (Jeff Bezos), Google (Larry Page and Sergey Brin), Airbnb (Brian Chesky, Nathan Blecharczyk, Joe Gebbia) and a host of other innovators.
Yet despite irrefutable evidence that these brilliant young founders were able to create something extraordinary at a young age, it does not follow that youth is a key prerequisite for launching a successful startup.
When considered in context, Apple, Facebook and other successful platforms emerged in the early days of digital technology, when younger people dominated the industry by default. Now, two decades later, the industry has matured, and so have its brightest minds.
Likewise, investors who cashed in on early tech innovators have also aged. With scads of money to invest, many have shifted their interests away from seed-stage startups that demand closer oversight and constant nurturing, and have set their sights on later-stage investments that offer greater stability and more predictable markers for growth.
Today, venture capitalists are playing for higher stakes, with whopping sums of money hanging in the balance. According to PitchBook NVCA Venture Monitor Q3 2019, 47% of venture capital funding rounds in 2018 were in amounts of $100 million or more, compared to only 13% in 2013. Even more telling is that 16% of the 2018 venture funding market was made up of investments exceeding $1 billion.
While some of that money trickled down to seed-stage and early-stage startups, the lion’s share went to later-stage businesses that had already gained some traction, mostly run by more mature and accomplished entrepreneurs.
The Evolution of Digital Technology
Online platforms like Facebook and Tumblr cut their teeth in the early days of digital technology, providing entertainment platforms for young end-users. Today, technology has evolved in ways that could not have been foreseen in the early 2000s, with applications that reach far beyond social networking.
The introduction of artificial intelligence into production processes, the automation of accounting and tax assessment, the advent of blockchain and cryptocurrency and the implementation of sophisticated B2B solutions all demand experienced leaders with an in-depth knowledge of how business works -- insights a younger founder simply does not possess.
Although Steve Jobs began working on Apple products at age 21, Apple’s most lucrative product, iPhone, was only introduced 30 years later, when Jobs was 52. It took decades of experiments, failures, trials and errors to develop the product that made Apple one of the world’s tech giants, and Jobs took plenty of punches in the interim.
The same can be said of Bill Gates, Larry Page, Jeff Bezos and Sergey Brin. According to HBR research, all these entrepreneurs began building their careers at a young age, but their ventures did not peak until their founders reached middle age.
More telling are the success stories of Liu Chuanzhi (Lenovo), Gordon Moore (Intel), Amancio Ortega (Zara), Masaru Ibuka (Sony), Hugo Boss (Hugo Boss), Reid Hoffman (LinkedIn), Namihei Odaira (Hitachi), J C. Jacobsen (Carlsberg), and William Procter (Procter & Gamble) and countless others, all of whom launched their ventures between the ages of 35 to 40, according to research conducted by journalist Anna Vital.
Even the most talented entrepreneurs have to pay their dues, enduring failures and overcoming obstacles before finding the perfect formula for success. Inspiration can occur at any age, but experience takes time to acquire. A mix of genuine talent, inspired thinking, hard work and acquired wisdom are the key ingredients for business success, and age has never been a defining factor.
The Staggering Failure Rate of Startups
With so much buzz about startups and the allure of massive success generated by successful ventures, it is eye-opening to learn that 92% of startups fail within the first three years of their inception. Much can be learned from the failures of others, and hard data gives us some insight into the most common causes of failure. CB Insights analyzed 101 failed startups to identify the key reasons for their collapse.
Here are the top five:
- Lack of market demand is responsible for the failure of 42% of the startups analyzed. Many startups begin with a product that solves an interesting problem, but does not fill a market need. The most successful startups identify a gap in the marketplace and find a way to fill it. Starbucks is a prime example of a company that recognized the need for a casual yet upscale meeting place where people could get a cup of coffee and a pastry without having to order an entire meal. If a product does not satisfy a need, it is unlikely to become popular enough to succeed in the long run.
- Running out of resources accounted for 29% of failures. Even with a generous sum of venture capital funding, startups can easily burn through their money faster than they are able to make progress on their product. Bad decision making, inexperience and poor money management skills are common factors that eat away at resources.
- Launching with the wrong founding team is responsible for 23% of all startup failures. With huge amounts of money at their disposal, many teams lack adequate diversity in their skill sets to responsibly allocate funds and manage resources. A founding team should have the right mix of talent to launch an MVP on its own, without having to outsource.
- Excessive competition accounts for 19% of startup failures. Multiple startups often emerge at the same time with a unique spin on an existing concept, hoping to outpace their competitors. The rideshare sector is a good example of a well-saturated market that is hard for startups to penetrate. A too-saturated market means certain death for at least some of the companies vying for the same pool of customers.
- Finding the right price point is a challenge for any startup, and being unable to do so accounts for 18% of startup failures. The trick is to price your product high enough to turn a profit, but low enough to compete in the market. If the cost of running your company is greater than the revenues from your product, your business cannot survive.
The above-mentioned causes of startup failures are only the top five of 20 identified from the research. It is worth mentioning that most failures are due to more than one isolated cause. But having a great concept without the business acumen to make it succeed is a recipe for defeat.
The Average US Startup Founder is Middle Aged
Contrary to urban legend, successful entrepreneurship is a long game, and the proverbial wunderkind startup founder who scores billions before age 30 is the exception, not the rule. A recent review of more than 2.5 million US business founders since the 1970s by MIT researchers concluded that the average startup founder is middle-aged at the outset, with an average age of 42. Moreover, the research revealed that younger founders were at a disadvantage compared to their more mature counterparts who had reached middle age and beyond.
When breaking the data down by niche, the research team found that the average age for software development entrepreneurs was 40, indicating that founders in the tech industry tend to be slightly younger. However, in more established arenas like energy production and manufacturing, the average founder is 47.
Keeping in mind such factors as employment growth, sales growth, and successful startup sales through IPOs, the researchers selected the top 0.1% of the most prosperous and authoritative companies and found the average age of their founders to be 45 at the launch of their ventures.
This data debunks the myth of the successful young entrepreneur and indicates that a seasoned business professional is much more likely to launch a successful startup. In addition to creative genius, extensive experience and business acumen help mature founders make wiser decisions, weather setbacks and hold their own in competitive markets.
Going for the Long Game
Younger people are often fearless when it comes to trying new things and making mistakes, which gives them an advantage when it comes to risk-taking that sometimes pays off. But taking risks without considering the potential fallout can lead to massive losses that cannot be recouped.
Mature entrepreneurs take a more measured approach, weighing risks against resources, and doing the research before making major decisions. Even though many young people launch promising startups, they often lack a long-term strategy, have few useful contacts and have no in-depth understanding of the business landscape, increasing their risk of failure.
Of course, mature entrepreneurs face many obstacles that do not impede younger people. Paul Graham, a co-founder of Y Combinator, notes that, “There are fairly high walls between most of the paths people take through life, and the older you get, the higher the walls become.” Older business founders may be less resilient and more restricted by the well-worn path they have walked since their 20s. Being deeply entrenched in their roles, it may be more difficult to rebrand themselves in ways that resonate with today’s market.
Nevertheless, statistics show that:
- Entrepreneurs with three years of niche experience are 85% more likely to establish an effective startup than founders with zero niche experience.
- A 50-year-old entrepreneur is almost twice as likely to launch a successful venture compared to a 30-year-old.
- Entrepreneurs in their 20s have the lowest chances of starting a company with long-term success.
Reading books, attending conferences and even getting a business degree is not enough to launch a successful startup. Successful business owners overcome countless hardships on their way to the top. The road to success is paved with failures, disappointments and challenges that give birth to insight and personal growth.
Success is the culmination of a process that takes time, patience and perseverance. Most business owners do not realize their peak potential until their late 50s, bringing to the table an extensive entrepreneurial background and a rich portfolio of successful projects.
Changes in the Venture Capital Funding Landscape
In the late 90s, launching a startup was an expensive venture, and even the most brilliant concepts needed substantial backing if their founders hoped to gain a market share. That all changed in the early 2000s, with the advent of open source and horizontal computing, and the emergence of cloud computing. Those innovative technologies lowered the cost of launching a startup by 90 percent, meaning businesses that would have cost $5 million to launch in the 1990s were now able to get off the ground with as little as $500 thousand.
During the same time, investors were on the prowl for savvy tech innovators whose ideas were likely to score big returns. Many venture capitalists were themselves in their 30s and 40s, and willing to venture a few hundred thousand on young energetic tech entrepreneurs with fresh ideas. But as those investments began to pay off, VC firms with fattened wallets became more reluctant to place their bets on young entrepreneurs with seed-stage and early-stage projects. Why nurture a dozen seed-stage startups at $500 thousand a pop when you can invest the same $6 million in a single late-stage venture with an already proven track record?
According to CB Insights’ Venture Capital Funding Report 2018, venture capital funding has reached an all-time high, with $99.5 billion invested in the United States in 2018, up 30% from the previous year. Yet despite dizzying amounts of investment capital up for grabs, the money was distributed over only 5536 deals, at an average of almost $18 million per deal. Over the same time period, investments in seed-stage and early-stage startups shrunk by half, from 10% of investments in 2017 to only 5% in 2018. Clearly, venture capitalists are going after bigger fish with more market traction and less risk of failure.
With millions or even billions of dollars to spend, venture capitalists who are now in their 50s are more likely to put their money in more stable ventures with lower risks and higher prospects for success. And that often means that older, more seasoned entrepreneurs with business street cred are more likely to get funding for their ventures.
Will Investors Continue to Fund Young Startups?
There is no shortcut to gaining the knowledge and experience necessary to run a large company. Yet some venture capitalists continue to invest in young inexperienced entrepreneurs, seeing youth as a gushing fountain of talent and inspiration. And to some extent, they have a point. Many of the most accomplished minds in history did their most iconic work in their 20s and 30s. But youth alone does not guarantee brilliance, and today’s investors may require more tangible evidence of viability before wagering large sums of cash on a fledgling startup.
Some unscrupulous investors may seek to take advantage of young entrepreneurs, tapping into their genius while exploiting their inexperience. But there are far more documented cases where startups were given large sums of money without ever delivering a viable product, cheating investors out of massive amounts of capital.
That is not to imply that young entrepreneurs are less trustworthy than their more mature counterparts. The business world is full of crooks of all ages. But with no tangible evidence of business acumen or work ethic, it makes sense for investors to seek out more experienced and reliable partners.
There is still plenty of venture capital on the table for young startups with brilliant ideas. But young entrepreneurs will have to do their homework and have their ducks in a row if they want to woo investors.
Inspiration at Any Age
The idea that young startup founders have an advantage over older entrepreneurs and are more likely to succeed is a myth. The phenomenal success of a few well-known young entrepreneurs is inspiring, but their success is the exception, not the rule. Maturity and experience are assets in any business venture, and only time and effort can produce them.
People of any age can create brilliant projects, and modern technology makes it easier than ever to get them off the ground. If you have a worthy business idea that you feel passionate about, it is worth pitching it to investors. After all, if you never try, you have already failed.