Tools
Search

So You Wanna Change The World: Why 20-Something Led Startups Rule

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…

Related Video

Dim lights Embed Embed this video on your site

comments 

 
0 # Rob Kischuk 2010-08-27 06:42
Interesting thoughts, Dave, but you mention "you just created social gaming".

It's interesting that Mark Pincus, founded Zynga, the undisputed king of social gaming, when he was 40 years old. Maybe old dogs can learn new tricks?
Reply | Reply with quote | Quote
 
 
0 # GFRRTDEFF 2010-08-27 07:07
Yeah, Pincus is a total outlier and I've been reading up on his background. Most guys who go Wharton, HBS and Bain end up staying in finance and don't end up running startups... There have been some interesting 30-somethings too like Jeff Bezos.

I absolutely believe in old dogs with new tricks – and not just because I'm one :-)
Reply | Reply with quote | Quote
 
 
0 # pfreet 2010-08-27 11:45
I wonder if it is not just age, but the college experience that is key for young entrepreneurs? Bill Gates started Microsoft at Harvard. Michael Dell at UT. Sergei and Larry at Stanford. Chris Klaus in a dorm room at Ga Tech.
Reply | Reply with quote | Quote
 
 
0 # GFRRTDEFF 2010-08-28 03:31
Actually, Vivek's research shows these kids tend to really excel in high school. By the time they get to college, they seem to slow down academically -- potentially because the entrepreneur fires are burning, and they're closer than ever to starting something. I'll ask Chris Klaus about his specific experience next time we talk. I would agree an enabling environment could be the final push one needed.
Reply | Reply with quote | Quote
 
 
+1 # Heath Wilkes 2010-08-27 12:32
The premise is interesting: older, repeat entrepreneurs are more likely to create a successful company, but younger, new ones are more likely to create a game-changing one. I'll call this the 'millions vs billions' debate. During our pre-story talks, the analogy of an actor was used. The promise of Zuck-like fame (TechCrunch as entrepreneurial porn) has created a butt-load of starving waiters. These hard-headed idealists are convinced their idea is the best idea ever, and are often resistant to safer, more proven advice. The fail rate among this 20-something group is statistically depressing.

Yet, the funny thing is this "blind squirrel mentality" has historically led to the creation of the Google(s), Apple(s) and Facebook(s) of the world. Crazy-smart can be a beautiful thing. So given this dilemma, should investors play the lottery or the more proven stock market?

I happen to agree with Conway/Wilson philosophy that all entrepreneurs need to be funded. This spray, sponsor-like approach will uncover more of those rare game-changers, while the great majority will get smarter with each fail. It's really about investing in the right people over the long-haul (fails create successes), while knowing a few more billion dollar lottery tickets will turn-up in the mix. To end back on the actor analogy, a young George Clooney failed miserably on the 'Facts of Life', yet he ended-up okay in his late 30s/40s.
Reply | Reply with quote | Quote
 
 
0 # Rachel Orston 2010-08-27 13:54
Dave - I lover reading your blogs and this one is especially engaging. To build on Heath's comment, I think you do have to consider the fact that not all of these 20-somethings are going to hit it out of the ballpark. Only a few of them are going to be the Zuck's of the world. Many of these seed-stage start-ups may become base-hits and nothing more. The concern I have is that Atlanta investors aren't so forgiving to first-timers who strike out and want a chance at the plate again. (definitely harder the older you get) At least in the minors there are stage-gates: Rookie, Double-A, etc. The key is this: How to keep young talent "in the game" long enough so we don't lose them prematurely.
Reply | Reply with quote | Quote
 
 
0 # GFRRTDEFF 2010-08-28 03:47
Rachel: You're exactly correct that the current breed of investors don't want to hear anything about failure, which is only going to be a hindrance for them in the future. Guys like Ron Conway, Dave McClure and Brad Feld are ushering in an era that will expose many more startups to the seed funding process. The strong majority will never make it, but a few will. And those have the best chance to be the next generation's Facebook or Google. If a VC is sitting around waiting for the next $3-5M Series B deal, they might be surprised when a loose coalition of super angels band together to push a company right past the VC stage.
Reply | Reply with quote | Quote
 
 
+1 # pfreet 2010-08-27 17:12
Young entrepreneurs do create amazing things. But not do to some special insight. It is because they are willing to try really stupid/crazy things. (insert your own joke here). It is actually their lack of experience, their blind belief in what they are doing, that actually allows for an infinitesimal tiny number of them to become wildly successful. The "blind squirrels" sometimes do find a nut.

The sad thing is it only works for 1 in 10,000 that try. Which means 9,999 fail. But that is the price we pay for greatness.

There may be a great analogy in the music business. 10,000 bands start for every one that is truly successful and game-changing.

Only the young are willing (or naive enough) to try really outrageous things. Blessing all of us with that tiny number who break out with something amazing.
Reply | Reply with quote | Quote
 
 
0 # GFRRTDEFF 2010-08-28 03:56
It is absolutely freeing to not know what you don't know. That 'change the world' mentality is something I think any founder can channel. The question is can they really make the moves needed to actually pull it off? I think the number is higher than 1 in 10,000, and it's actually improving as it gets cheaper and faster to build and run the first 4-6 months of a startup.
Reply | Reply with quote | Quote
 
 
0 # Feb0zdou1 2010-08-27 22:51
It's not about age per se but if it wasn't part of your college experience, you'd better be watching the 20 years olds to build something really disruptive in the B2C space. Too, there is an advantage to being both on the cusp of discovery and single no-children unencumbered enough for the demands of startup life.

The consumer web changed exponentially since the launch of FB in '04 and Twitter in '07 and it is a Moore's Law type disruption. A 29 year-old today probably got on FB and Twitter about a year before his father, grandmother and 9 year old niece did. It just wasn't part of his college experience and now it is an add-on to his junior executive life.

When it comes to building disruptive consumer web products, you can be 30+ if 1) you are already working in a very closely related space (Biz Stone and Ev Williams) or, 2) you're the rare, highly technical outlier like Keith McGreggor, Jen Bonnett and others in Atlanta or Josh Carricico in Tampa, all builders of real time data apps 'cause they can.

I don't mean to be a cynic here. I'm just saying there's something to be said for having a 20 year old on your team because they're the ones immersed in consumer web and having the epiphanies. And, for the consumer web entrepreneur, there is a Valley advantage due to the sheer concentration of people doing the same -- but that's for another post...
Reply | Reply with quote | Quote
 

Add comment