20-Somethings in Hoodies: Debunking Stereotypes of Entrepreneurs

Stereotype: You Have to Be Young

One of the most pervasive stereotypes about the startup world is that it’s the domain of the young. Bill Gates, Steve Jobs, and Mark Zuckerberg brought us the image of a young and isolated genius working from their laptop.

This stereotype has perniciously reinforced itself, with Peter Theil, co-founder of PayPal, starting a fellowship program specifically targeted for entrepreneurs aged 23 and younger who have dropped out of school. Vinod Khosla, cofounder of Sun Microsystems and a prominent venture capitalist, has stated he thinks that people under 35 are the ones who make change happen, while people over 45 “basically die in terms of new ideas.”

Like most stereotypes, it sounds correct on the surface. The younger someone is, the less distracted they are by non-work responsibilities like family. A young mind is sharp and according to Planck’s Principle, is less trapped by the existing paradigms of the world’s institutions. These things should mean that the young are more likely than the old to succeed in the world of startups. It all sounds correct, but it isn’t.

According to a 2018 study by the National Bureau of Economic Research (NBER), successful startup founders are much more likely to be middle-aged than young. By looking at census data, the study was able to pinpoint the mean age of a founder of a successful (i.e., one out of 1,000) startup was 45 years old. So what’s really going on here?

The truth is that youth comes with more disadvantages than advantages in the world of startups. Younger entrepreneurs may have out-of-the-box ideas, but they have much less experience in running a business and managing the myriad departments (operations, marketing, sales, finance, HR, regulations, and strategy) that go with it. Good ideas in high-tech areas require deep, fundamental knowledge of evolving subjects that one can’t simply intuit. On the other hand, older entrepreneurs have greater access to different types of capital: financial capital, human capital, and social capital.

But the stereotype is continuing to perpetuate itself. In a study that looked at TechCrunch award winners, the entrepreneurs listed as ones to watch in major magazines and startups backed by top venture firms had relatively younger founders. In fact, the average age of award winners was 29; the average age of those on media lists was 31; and the average age of venture-backed startups was in the mid-thirties. The reason for this is simple: these lists and awards are highly subjective.

The census data paints a clearer picture. Going off of a large sample, a 50-year-old startup founder is almost two times more likely to achieve upper-tail growth than a 30-year-old founder. Founders in their early twenties have the least likelihood of successfully exiting or creating a firm that registers as one out of 1,000 in terms of growth.

The stereotype tells us that experience isn’t nearly as important as youthful ideas. But the NBER study tells us the opposite. By including employment histories in their research, the conductors of the NBER study found that prior experience in the same field as one’s startup raises success rates up to 125 percent. This experience doesn’t even have to be in the same specific industry to show a benefit: the closer one’s prior experience is to the field of the startup, the greater the success rate.

Startups are a risky business: up to 90 percent of them fail. At the same time, venture firms are ready to spend $120 billion in 2019. Who is that money going to, and why? Especially in the startup world, investors would be wise to look at the data before making a decision.

Stereotype: You Need a Business Plan

When the truth is that older, more experienced founders are more likely to have success, it may seem counterintuitive that having a solid business plan is not a necessary ingredient. It turns out that business plans are precisely that: plans. And plans don’t necessarily correspond to reality.

In a study by Harvard Business Review of hundreds of successful entrepreneurs (i.e. those who exited through an IPO or a sale to another firm), close to 70 percent of those surveyed did not start with a business plan. An earlier study in the International Journal of Entrepreneurial Finance confirms the sentiment: an analysis of over 100 new businesses found no correlation between starting with a solid business plan and finding success.

Anthony Tjan, bestselling author and CEO of venture capital firm Cue Ball, found through his research that adaptability, team composition, and individual vision were all more important than an ironclad business plan. Most important, however, is a well-defined market segment or niche, as the number one reason startups fail is that they produce products that nobody wants.

Stereotype: You Have to Be Male

Yes, startups are still a male-dominated field: women hold less than 30 percent of the tech jobs at the world’s most successful startups. But perpetuating the idea that it should be male-dominated is extremely detrimental. This stereotype can create a vicious circle where it’s forgotten that a woman invented the concept of software—but it’s glorified that a guy in a hoodie created a digital yearbook.

Only 2.2 percent of the $130 billion raised for startups in 2018 went to teams with female founders. Meanwhile, 76 percent of total VC funds went to teams that were entirely male. Women received $2.88 billion across 482 teams, a notable increase from 2017’s $1.9 billion in a dollar perspective but still stalled at 2.2 percent of the total pie.

The reality, however, is changing faster than the money is changing hands. Women are founding startups more than ever before. According to nonprofit Women Who Tech, there’s been a 68 percent increase in women launching businesses in the US over the last 20 years, a rate of growth that’s twice that of businesses owned by men. Concurrently, the likelihood of startups with women executives to receive venture capital funding has tripled over a similar timeframe. If women business owners in America formed their own country, they’d have a GDP that ranked fifth highest on the planet.

The truth is that women-led startups are an attractive investment. When venture-backed, they have a 35 percent higher ROI than their male-run counterparts, and generate 12 percent higher revenue. Women entrepreneurs create 20 percent more revenue with 50 percent less money invested. There are over 10 million US businesses owned by women, the highest rate of female founders of any developed country. These numbers are doubly impressive when considering the numerous hurdles women face in startup sphere. But, with time and savvy investment, those hurdles will be reduced.