Coming of age: Watching young entrepreneurs become successful
GAICIL Insights
The archetypal successful founder is a seasoned executive in middle age.1 Other research has shown that most successful entrepreneurs started firms in their mid-40s. Yet founders under the age of 35 run 42% of all new firms. Coming of age: Watching young entrepreneurs become successful, by Kathryn Shaw and Anders Sørensen, follows those young founders and asks how successful they become and what accompanies their success.
The Danish data deliver a growth story. Using newly available data on firm sales from 2001 to 2016, the authors find that young founders who become serial entrepreneurs see their sales revenues nearly double between their first and second firms. Two factors travel with that jump. Young founders grow more inclined to register new firms as limited liability corporations, which protect them from personal losses if a firm fails. And the most successful young founders are portfolio founders, who keep their first firms open when they launch their second.
The conceptual punchline is that for small firms, the productivity of the firm is often the productivity of the founder. Just as wage earners' personal productivity rises with age over their lifecycles, so does the personal productivity and implied income of young entrepreneurs. Entrepreneurship is a career with a learning curve. The first firm is tuition.
Seen that way, the mid-40s success story and the under-35 founder statistic stop contradicting each other. The successful middle-aged founder may be the graduate of an earlier apprenticeship spent running smaller firms.
Artificial intelligence could shorten the apprenticeship. AI tools lower the cost of starting and running a firm: marketing, bookkeeping and software development that once required staff or expensive advisers increasingly come with AI assistance. Lower costs let young people start firms earlier. The Danish evidence suggests early starts pay off because founders learn and invest over time, and their second firms perform much better than their first. If AI makes the first venture cheaper, it makes the education cheaper too.
Limited liability is the quiet hero of the story. Young founders shift toward LLCs as they gain experience, signaling that protection from personal loss supports further attempts. Legal structures that cap the downside of failure keep people experimenting. In an economy where AI rewrites business models fast, the freedom to try, fail and try again is a strategic asset. Simple, inexpensive incorporation and manageable personal costs of failure help founders climb the learning curve.
Portfolio founders add another twist. Keeping the first firm open while launching the second lets founders diversify, reuse capabilities and learn across ventures. AI may lower the managerial burden of running several small firms at once, making portfolio entrepreneurship easier. If so, the pattern documented here could become more common and more productive: a generation of founders running small constellations of firms, each one teaching lessons to the next.
Opportunity is part of the story. Young people often lack capital, networks and experience. The finding that their productivity rises substantially with repeated entrepreneurship suggests early support has lasting returns. Access to finance, mentorship and low-cost tools, including AI tools, may help young founders reach the point where their second and later firms succeed. Support for a first venture is, in effect, an investment in a second, better one.
The data behind the paper deserve applause. Tracking founders across firms and years requires linked records on individuals and firms over long periods. Such data reveal whether entrepreneurship is a path to rising productivity and income, and which institutional features, such as legal forms, support that path. Few countries have this capacity, and those that build it will see the AI-era transformation of business formation more clearly.
At bottom, entrepreneurial success is built over time. Young founders who start small and learn can go on to run more successful, more productive firms. As AI lowers barriers to entry, more young people will get the chance to begin that journey. Institutions that protect founders from catastrophic losses and make repeated entry easy will decide how many of them come of age as successful entrepreneurs.
Introduction
The primary goal of this paper is to show that a young entrepreneur, or one who first opens a firm in his or her mid-20s to early 30s, can learn and invest over time to run new, more successful firms with higher productivity and sales. It has been shown by other researchers that most entrepreneurs who are successful started firms in their mid-40s, but what about those founders who are under the age of 35 and are running 42% of all new firms? How successful do they become, and what factors are consistent with their success? Using newly available data from Denmark on firm sales from 2001 to 2016, this paper shows that young founders who become serial entrepreneurs see their sales revenues nearly double between their first and second firms. Commensurate with this sales increase are two underlying factors: (1) young founders become more inclined to register new firms as limited liability corporations (LLCs), which protects them from personal losses if the firm fails; and (2), young founders who are the most successful are portfolio founders, or those who keep their first firms open when they found their second firm. Furthermore, for small firms, the productivity of the firm is often also the productivity of the founder, so just as the personal productivity of wage earners rises with age over their lifecycles, so too does the personal productivity and implied income of young entrepreneurs.
Takeaway
The primary goal of this paper is to show that a young entrepreneur, or one who first opens a firm in his or her mid-20s to early 30s, can learn and invest over time to run new, more successful firms with higher productivity and sales. It has been shown by other researchers that most entrepreneurs who are successful started firms in their mid-40s, but what about those founders who are under the age of 35 and are running 42% of all new firms? How successful do they become, and what factors are consistent with their success? Using newly available data from Denmark on firm sales from 2001 to 2016, this paper shows that young founders who become serial entrepreneurs see their sales revenues nearly double between their first and second firms. Commensurate with this sales increase are two underlying factors: (1) young founders become more inclined to register new firms as limited liability corporations (LLCs), which protects them from personal losses if the firm fails; and (2), young founders who are the most successful are portfolio founders, or those who keep their first firms open when they found their second firm. Furthermore, for small firms, the productivity of the firm is often also the productivity of the founder, so just as the personal productivity of wage earners rises with age over their lifecycles, so too does the personal productivity and implied income of young entrepreneurs.1
Notes
- Kathryn Shaw & Anders Sørensen, Coming of age: Watching young entrepreneurs become successful, 77 Lab. Econ. 102033 (2022), https://doi.org/10.1016/j.labeco.2021.102033. Takeaway source: 10. Conclusion, reproduced from the openly licensed version (CC BY-NC-ND 4.0; accepted author manuscript, CBS Research Portal). ↩
Cite as: Kathryn Shaw & Anders Sørensen, Coming of age: Watching young entrepreneurs become successful, 77 Lab. Econ. 102033 (2022), https://doi.org/10.1016/j.labeco.2021.102033
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