My post earlier this week on age and entrepreneurship stirred up some great conversations. It wasn’t a 45-comment barnburner, but I found myself deep in debate with the TechDrawl crew and Paul Freet from the ATDC. The discussion picked up right where my post left off: Who builds a better tech startup? Is it a 20-something dreamer who doesn’t yet know they can’t change the world, or is it a late-30s grinder who’s done it all before on someone else’s dime but has the guts to step out solo? Vivek Wadhwa’s data shows most are of the older variety and I believe they can be very successful. This post focuses squarely on the other end of the spectrum. So let’s look at the background and the specific dynamics of both scenarios, and then I’ll make my case for the clear winner.
So Paul stopped in fresh off a meeting with a 20-something entrepreneur, and was commenting on how laser focused he was on his idea. My question went something like: “Laser focused as in good, or laser focused as in augered down so deep they could never pivot even if the skies parted and required it to be so?” (At least I remembered me dropping a witty analogy, although that’s probably optimistic.) We agreed it can be a fine line, but there’s a definite propensity for young folks to stick harder to an idea longer than an older co-founder. So therein lies the question: When is focus your best asset, and at what exact moment does it become your worst enemy? For the sake of this argument (and because I believe it to be mostly true), my position is the younger entrepreneur will see their focus become an enemy more often than an older entrepreneur. By the same token, that last 45 days of stick-to-it-ness could easily be the difference between onboarding that first strategic customer or closing an angel round.
Let’s consider the question of sheer numbers. I think it’s fair to say that more 20-something minds have been opened to the possibility of entrepreneurship as a career, which naturally creates more young-run startups. (While the net number increases, both Paul and I believe the success average is likely lower for younger entrepreneurs.) And then there’s the advent of seed incubators who invest less than $25,000 in 2-3 person teams to stress test a back-of-the-napkin idea in hopes it’s something huge. This also skews clearly toward the younger generation given that a $2,500/month salary is statistically more feasible if you can get a student loan deferment as opposed to having two kids in daycare. This entire ecosystem is the farm team equivalent of the system that’s worked for Major League Baseball for years. Sign a kid early, give them increasing responsibility while paying them proverbial peanuts, move them up to next level when they achieve, and hope you can produce the next Tom Glavine equivalent in the startup world. When the brightest mentors and investors run this process, there’s complete freedom for the entrepreneurs to dream big and know they can execute on their plan. It’s this scenario that I believe will absolutely create the next Google or PayPal.
What the incubator system is not likely to create is a profitable business in much more than four out of ten times according the guy who’s done it more than anyone on this planet: Ron Conway. Much more often, an older entrepreneur will create a business sporting sexier cash flow and nearer-term profitability. This reduced risk view certainly draws a different type of investor, which is probably most well represented by someone like Charlie Paparelli in Atlanta. Some of the reasons for success include: industry-specific customer relationships that convince early buyers to sign on quickly; a better-honed view of budgeting and finance; access to a strong set of advisors as peers; better presentation skills; ability to ‘connect’ with investors; and just good old ‘experience cycles’ running a business.
The reason each of these age groups start tech companies is also a critical differentiator. According to Vivek’s research at Duke University, almost 75% of those surveyed said building wealth was important, very important, or extremely important – all from a study where the average entrepreneur age is 40. So clearly the older co-founder has a strong financial incentive. While cash is always good, I’d contend younger entrepreneurs are just as likely to want personal notoriety. Call it the celebrity culture; call it the new status symbol to be a startup CEO; call TechCrunch the new porn for startups; call it whatever you want. The reality is the movie ‘Social Network’ is coming out next month, and I can just imagine movie theater parking lots and coffee shops being lit-up with kids talking tech startups. It’s the digital equivalent to my analog experience of beating the hell out of my friends every time we saw a Rocky movie in the 80s.
So who do I think makes better startups? I think it’s pretty clear: while an older entrepreneur can often build a solid business, it’s pretty rare for them to take a true crack at changing paradigms. This is the near-exclusive domain of the young gun. And this type of tectonic shift is what powers the technology industry, allows us reprove Moore’s Law, and builds massive wealth for its founders. I’m not talking setting-up a nice retirement at 50, I’m talking you’re worth $50M and have become a super-angel investor. Some would call the smaller versions ‘lifestyle businesses’, but I think that’s an over-simplification. There’s a real difference in your exit multiplier (or valuation) if your company makes a critical business process 17.3% more efficient versus you just invented social gaming. But an exit is an exit by any measure.
It all comes down to your subjective decision on the meaning of the word ‘better’ when applied to startups. For me, ‘better’ means more relevant to the history of the tech industry. ‘Better’ means pushing boundaries, redefining user’s expectations and creating things few ever dreamed of – and virtually no one has executed. For me, ‘better’ doesn’t mean reduced risk for an investor to recoup a 3-5x multiplier. ‘Better’ doesn’t mean starting a lifestyle business that can be passed down to your children. Not to say family businesses are bad, but I believe history has shown – and will continue to show – that the 20-something minds truly change the tech world. The list is indisputable: Jobs, Woz, Gates, Allen, Brin, Page, Zuckerberg, Mason, Fanning, Musk, Omidyar, etc.
And if today’s generation is any example, their stories look to make great movies…