The Grey Economy

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Research report: August 2009

The grey economy

How third age entrepreneursare contributing to growth

Ron Botham and Andrew Graves


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Executive summary

The population is getting older, with manymore people aged 50 and over. Their economic

contribution is also increasing. More people areworking beyond statutory retirement age. Andmore o them are running their own businesses.At the same time, particularly during a timeo recession, the government has a stronginterest in encouraging more people to becomesel-employed or set up their own company.Particularly where such companies creatework or others, they can make a valuablecontribution to the recovery.

Whilst previous research suggests that

entrepreneurship is a young persons game,this report shows that people over 50 have asignicant role to play in growing businesses,particularly when a business is ounded by agroup o entrepreneurs combining youth andexperience.

This report outlines the contribution o highgrowth third age (entrepreneurs aged over50) those that have seen their businessesgrow to more than 25 people in a relativelyshort space o time.

Research on such third age entrepreneursis limited. What research exists ocuses onthose pushed into setting up small businesses.Little is known about those who voluntarilyset up innovative rms that create signicantemployment. This research aims to start to llthis gap.

More specically, this study looked at thenumber o such innovative start-ups and thesectors in which they are located. We examinedthe motivation o their ounders and how

they dier rom younger entrepreneurs andounders o smaller new starts. We consideredany advantages third age entrepreneurs have

in becoming signicant employers quickly. Andwe looked at the barriers they ace and how

they might be overcome.

Our research involved a combination o aLiterature review, analysis o company recordsand a telephone survey.

Dening high growth

Our survey ocuses on companies oundedbetween 2001 and 2005. We dene high

growth start-ups as those companies ormedbetween 2001 and 2005 that had 25 or moreemployees in 2008. The 351,300 independentlimited companies ounded in the UK between2001 and 2005 and still in business in 2008had over 1.5 million employees by 2008. Butjust 3,000 had 25 or more employees, o which870 included ounders aged 50 or over.

The new starts had 487,400 ounding directors,a quarter o them aged 50 or over asubstantially greater proportion than might beexpected.

A majority o ounders 56 per cent set upthe business as part o a team o two or more.Teams accounted or 37 per cent o all newstarts. Teams seem particularly important inour high growth companies 54 per cent othem are set up by a team. The most successulteams were also those which combinedounders o dierent age groups, bringingtogether the complementary assets o relativeyouth and the experience o third age.


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In which sectors are third age newrms?

Older ounders dont dier greatly rom theiryounger colleagues in the types o businessesthey establish. However, they are more likelyto create business services rms and less likely

to start construction rms. Their presence assole ounders is also disproportionately lower inretailing.

Amongst the high growth companies, third ageounders are overrepresented in manuacturing.Perhaps surprisingly, their presence in hightech and the creative industries is broadly inline with the average.

Who are the third age company

ounders?

Perhaps unsurprisingly, the probability oparticipating in starting a new company beginsto decline during third age. However, it doesnot decline substantially until age 60. Around55 per cent o third age ounders are 50-55,though just 5 per cent are over 60.

Most o those setting up high growthcompanies are white British men. Just over50 per cent have a university degree. Aside

rom management buyouts, two thirds havepreviously set up another company earlierin their lie. In other words, relatively ew othe more successul entrepreneurs are new toenterprise later in lie.

Innovation and third age rms

The ounders o 45 per cent o new starts saythat the new company was based on some ormo innovation, typically involving a new productor service or a signicant adaptation o anexisting one.

Third age ounders generally are less likely thanothers to participate in innovative new starts.Compared to 49 per cent o companies set upby younger ounders, just 30 per cent o thirdage ounders say their business was based onan innovation.

High growth companies are the mostinnovative. Third age high growth

entrepreneurs are just as likely to be innovativeas younger high growth ounders. This is

perhaps not surprising given that innovationincreases the probability o growth.

Motivations

A comparison o older and younger highgrowth ounders ound ew substantivedierences. Overall they have similar motives,attitudes to risk and time horizons. The mostobvious dierences were:

Just over 30 per cent o third age ounderswere substantially motivated by theopportunity to work beyond the ocialretirement age. This was clearly not amotivation or younger ounders.

Third age ounders were less driven by the

desire to be their own boss (although it wasstill an important actor) and more by thechallenge and to give something back tosociety.

Third age ounders were substantiallymore driven by the desire to exploit aspecic business opportunity (including amanagement buyout).

The third age ounders have substantiallymore work experience in all types o

organisation, especially as managers in alarge company.

Few older high growth ounders had alreadyretired, were unemployed or pushed byredundancy. However, the prospect oredundancy can create a specic business ormarket opportunity, so it is not so easy todistinguish between those who elt drawnto setting up a business and those who eltpushed into it.

Whats holding potential growth back?

By comparing all the rms that quickly wenton to employ signicant numbers and thosethat didnt, we shed some light on the actorsconstraining growth.

Founders attitudes to nancial risk weresimilar. However, in setting up the business,high growth ounders elt they were takingon a greater personal nancial risk. They were

also marginally more willing to wait or a returnrom their investment. Even so, only 42 per


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cent o older high growth ounders say theytook a substantial personal nancial risk.

As well as being substantially more likely to setup a new business based on at least one ormo innovation, high growth ounders were morewilling to exploit a specic business or market

gap opportunity than other ounders. Theyalso had a greater desire to give somethingback to society and were more excited bythe challenge. Those older ounders whoseemployment growth had been limited sueredmarginally poorer health when the businesswas set up.

Does age make a dierence?

There are no great dierences in management

style based on age, nor is there muchdierence in the extent and nature oprotecting intellectual property.

However, rather more systematic and clear-cut dierences can be seen when we comparethe managerial style and goals o those olderounders who achieved substantial employmentgrowth and those who didnt.

Compared to 58 per cent o high growthounders, just 30 per cent o other ounders

say the business introduced some orm oinnovation at start-up.

More o the high employment companieshave introduced urther product innovationssince start-up.

Compared to 85 per cent o the high growthounders, just 70 per cent o the others weretrying to achieve growth when we surveyedthem.

The ounders o high growth companiesare much more willing to delegate andless committed to conorming to acceptedbusiness practices.

They also put in marginally more time andeort, though most ounders say theyrequently sacrice leisure or work.

A higher proportion o high growthcompanies use mechanisms such as patents,trademarks and copyright, though only aminority do so.

Methodology

Our methodology involved ve substantive,interdependent components:

An extensive Literature Review and analysiso the new rms captured in the Small

Business Service Small Firms Survey.

Analysis o the 381,000 new independentlimited companies registered between 2001and 2005 still operating in 2008 on theTBR Economics Database. Following a datacleaning exercise, this gave a UK total o351,300 such companies.

From this database, identication o the ageo ounding directors o all those companieswith 25 or more employees in 2008 and asample o 11,500 smaller new starts.

A telephone survey o new start oundersconsisting o 84 third age high growth, 90younger high growth and 147 ounders onon-high growth new starts.

A series o telephone and internet-basedcase studies o third age start-ups.

Throughout third age high growth oundersand their companies are compared withyounger ounders (both high and low growth)

and low growth older ounders.

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Acknowledgements

This report was written by Proessor Ron Botham rom the Training and Employment Research Unit(TERU) at the University o Glasgow and Andrew Graves rom Trends Business Research Ltd (TBR).

The authors would like to thank all those who gave up their valuable time to contribute to this

study. This applies particularly to those who responded to the survey and those business ounders,some o whom are named in Appendix D and some o whom requested anonymity, who were willingto act as case studies. Without these inputs there would have been no study. We would also liketo thank those who participated in a NESTA seminar or their contribution to the identication othe policy implications o the research. Finally, we would like to thank NESTA or unding the studyand in particular Theresa Crowley, ormerly o NESTA and now at the National Audit Oce, or herhelpul comments on a rst drat o the report.

NESTA is the National Endowment or Science, Technology and the Arts.

Our aim is to transorm the UKs capacity or innovation. We invest inearly-stage companies, inorm innovation policy and encourage a culturethat helps innovation to fourish.


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Contents

The grey economy

How third age entrepreneurs are contributing to growth

Part 1: Introduction 7

Part 2: Their number and economic contribution 10

Part 3: Founders and the start-up process 18

Part 4: The new start growth process 27

Part 5: Discussion 36

Appendix A: Project methodology 43

Appendix B: Literature review 47

Appendix C: Small business service small rms survey 66

Appendix D: Case studies 72


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Part 1: Introduction

Policy context

This study is about older people who becomeinnovative and successul entrepreneurs.The emergence o more so-called third ageentrepreneurs is a sign o demographic shits as a greater proportion o the population isaged over 50 and inter-generational change.

Government is seeking to promote these trendsurther through its strategies to make the UKan Innovation Nation and the best place inthe world to set up and grow a business. Whilethe innovation strategy makes only passing

mention o entrepreneurship, new businessesare an important source o radical innovationswhich large, more established businesseshave neither the sel-interest nor capability tointroduce.

Through the enterprise strategy, thegovernment has increased its emphasis onolder entrepreneurs. With an increasingproportion o the population aged over 50,a rising population dependency ratio (ewerworking people supporting more non-workers) and problems with pensions, theentrepreneurial potential o the third agepopulation has taken on a new urgency. Thistrend is exacerbated by the current economicdownturn where a growing number o olderindividuals could be made redundant bringinga premature move into economic inactivity andearly retirement.

Research background

Historically, innovation and entrepreneurship,especially in the high tech and creativeindustries, have been seen as the preserve

o youth. The limited research on third ageentrepreneurs ocuses on those pushed

by unemployment and redundancy intosel-employment and the creation o smallbusinesses. There has been little researchon innovative third age ounders, those whoachieve rapid growth or those who positivelychoose to take the risk o setting up inbusiness. This research aims to ll this gap.

The 1980s and early 1990s literature arguedthat entrepreneurship was a young mansgame and that third age entrepreneurs wererare. More recent research suggests that the

proportion o older entrepreneurs has increasedto 15-20 per cent with most aged 50-55years. It is assumed that third age ounders areunderrepresented in sectors such as high techor the creative industries.

Much o the literature revolves around theinverted U relationship between businessormation and ounders age. The probabilityo setting up a business, and o its survivaland growth, initially increases with age beoredeclining ater the entrepreneurial prime aged 30-45 as individuals enter their thirdage. It is oten assumed this relationshiprefects the biological eects o ageing older people are believed to have less energy,be less ambitious and motivated and perhapsless creative and intellectually active.

On the other hand, the absence o economicincentives may provide an alternativeexplanation. Older people are argued tobe more risk averse and have shorter timehorizons they want more rapid returns thanmay be available rom orming a business.

Fewer older people seem to want to set uptheir own business (in part because many havedone so earlier in lie), or believe they have


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the necessary skills to do so. Whether suchattitudes develop over an individuals lietimeor whether they are due to intergenerationaleects is not clear.

The literature suggests that there may besystematic and substantial dierences between

businesses set up by older and youngerounders. For example, third age businessesachieve less growth, are more likely to beliestyle businesses and less likely to require along-term perspective. Given that older peoplemay be less technologically savvy or creative,they are also less likely to be innovative.On the other hand, older ounders haveexperience, exposure to business opportunitiesand increasing access to resources. While theseadvantages are useul up to a point, theydecline once the individual ormally retires andleaves the labour market.

Research questions

In this context, this study aims to address theollowing questions:

What evidence is there o innovative andhigh growth third age business start-ups andwhat economic contribution do they make?

In which sectors do older entrepreneurschoose to set up their businesses?

What motivates third age entrepreneursand, in particular, what are their positivemotivating actors? How do these dier romyounger ounders?

What advantages do older entrepreneurshave compared with younger businessounders?

What are the barriers to third age businessormation and how do these dier romthose acing younger entrepreneurs?

How can innovative and high growththird age business ormation be urtherencouraged and supported?

At the outset o the research, third age wasdened as individuals aged 50 and over. Wealso use the term older to reer to this agegroup.

Methodology

Throughout the study, new starts are denedas all new limited companies set up between2001 and 2005 and still operating in 2008.Those moving into sel-employment areexcluded. High growth new businesses are

dened as those with 25 or more employeesin 2008. There is no agreed denition o ahigh growth new start. The OECD high growthdenition, a 20 per cent average growth overthree years is inappropriate or new rms.Twenty per cent o nothing at start-up isnothing. However, companies growing toemploy 25 or over in their rst ew years o liehave, compared to the average new company,achieved substantial growth.

To address the comparative element o thestudy, and to identiy constraints and barriers

more eectively, throughout the analysis highgrowth third age new starts are compared withhigh growth new starts set up by youngerounders and low growth new starts set up byboth age groups.

The research methodology has ve substantiveinterdependent components. A moredetailed description o each, along with themethodological limitations, is presented inAppendix A. However, each component can bebriefy described as ollows:

Literature Review and analysis o the BISSmall Firms Survey. These were used tohelp design this study and complement itsempirical ndings. The outputs (presented inAppendices B and C) are important inputs tothe Policy Discussion.

Analysis o the TBR Economics Database.Following a data cleaning process to removethe large new starts which were not reallynew, the database provided inormationon 381,000 new limited companies set upbetween 2001 and 2005 and still operatingin 2008. The data gave the company date obirth, 4 digit SIC and 2008 employment. Thegures on the database were subsequentlyscaled downwards to take into account theresults o the telephone survey o new starts(component our). This gave an estimate o351,000 2001-5 new starts still operating in2008

Identication o the age o the ounders.Data on the age o company directors and

their date o appointment or all high growthnew starts identied on the TBR Economicsdatabase were purchased rom Dun and


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Bradstreet. In addition, equivalent data werepurchased or a random sample o 11,500(3 per cent) low growth new starts. Thiscreated a database o approaching 15,000new businesses. This was analysed andgrossed up to represent the overall newstart population.

A telephone survey o new starts. Using thedatabase to create three sampling rames,responses were obtained rom 84 third agehigh growth new starts, 90 high growth newstarts set up by younger ounders and 143low growth new starts.

A series o case studies. These were basedon available literature, inormation romthe web and telephone interviews. Theoriginal idea was to present pen picturecase studies to illustrate points throughout

the text. However, the case studies tell moreinormative stories told in their entirety.Consequently, those case studies willing tobe identied are presented in Appendix D.

The telephone survey ound that a number orms on the TBR Economics database werenot really new. Consequently, the databaseoverestimated the number o new starts,particularly third age high growth new starts.As already noted, the data have been scaleddown to allow or this overestimate.

Structure o the report

Following this Introduction, Part Two estimatesthe number, sectoral distribution, innovationand employment contribution o newbusinesses and, in particular those set up bythird age individuals. Part Three examines thecharacteristics o ounders and the start-upprocess ollowed by an analysis, in Part Four,o the actors making or, or constraining,new company growth. Finally, drawing on thendings o this research, the SBS Small FirmsSurvey and the Literature Review, Part Fivediscusses the possible implications or policy.


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Part 2: Their number and economic contribution

This chapter estimates the number onew businesses examining them rom ve

perspectives: the ounders age, businessperormance, the number o high growth newstarts, their sectoral distribution and theireconomic contribution (the number o peoplethey employed in 2008). We also estimatethe number o innovative new businessesand the contribution o third age ounders toinnovation.

New rms make an important job

creation contribution

There were an estimated 351,300 businessoperating in 2008 which had been set up aslimited companies between 2001 and 2005.In 2008, these businesses had 1.51 millionemployees accounting or around 5.5 percent o UK employment. O the businesses,just 0.85 per cent (nearly 3,000) had 25 ormore employees (dened in this study as highgrowth). Larger new starts or high growth newstarts are ew and ar between. In 2008 theyemployed 248,800 people or 16 per cent onew company employment.

Third age entrepreneurs make asubstantial contribution

Much discussion o new business ormationeither implicitly or explicitly assumes that theyare set up by individual ounders. However, animportant early nding rom our analysis is that37 per cent o new companies are set up by at

least two ounders. These were subdivided intothird age teams with all the ounders aged 50or over; young teams with all ounders aged

under 50; and mixed age teams with at leastone ounder aged 50 or over and one ounder

under 50.

The number o new businesses and theiremployment by age o ounders is summarisedin Table 1. Third age ounders set up, or helpedset up, 93,500 new companies with 392,000employees. This contribution consists o:

47,400 businesses with 160,300 employeesset up by individual older ounders. O these,47 per cent were set up by a ounder aged50-54.

16,500 businesses set up by third age teamsemploying 62,100, and

20,600 businesses set up by mixed ageteams. These had 169,100 employees in2008.

Taken together, third age ounders participatedin 27 per cent o all start-ups with 28 per cento start-up employment.1

Older ounders participated in setting up just870 high growth new starts between 2001 and2005, or 29 per cent o all such new starts.These businesses employed 66,600, equivalentto 17 per cent o the 392,000 employees in allnew companies set up by older ounders and32 per cent o employment in all high growthnew starts.2

Team start-ups are overrepresented amongstthe high growth new starts. Whilst representingjust 37 per cent o the smaller businesses, theyaccount or 54 per cent o the larger start-ups.

O the 870 high growth new starts in whicha third age ounder participated, 57 per cent

0

1. These percentages are basedon totals excluding thosebusinesses in which there areno remaining ounders (andthereore no evidence on theirages). It is assumed that thesebusinesses had ounders withages similar to the businesseswhich have original ounders.

2. These gures are percentageso the totals excluding those

rms or which there areno remaining ounders. Itis assumed that such rmsare similar to those in whichoriginal ounders continue inthe company.


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were set up by a mixed age team, 15 per centby a third age team and 29 per cent by anindividual third age ounder.

The nature o new starts

As explained in Appendix A, a broaddenition o new starts is adopted includingManagement Buy Outs (MBOs) and thepurchase and resuscitation o bankrupt rms.Table 2 breaks the new starts down into thosewhich were completely new, those which wereMBOs and those resuscitated bankrupt rms

and compares them by ounders age andemployment size. The businesses set up bymixed age teams are allocated to the Over 50

age group. Overall 86 per cent o the 351,300businesses were completely new. Approaching6 per cent were MBOs and the remaining 8 percent ollowed the purchase and resuscitation oa bankrupt business.

The high growth businesses, especially thosewith older participating ounders, are lesslikely to be completely new businesses. O the2,997 high growth new starts 77 per cent werecompletely new and 14 per cent were MBOs.For those with a third age ounder, just 66 per

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Table 1: New rms (2001-5) and their 2008 employment by ounders age

Table 2: The nature o new starts by ounders age and growth status

Total new rms High growth new rms

Number (000s) Employment Number Employment

Individual ounder

Under 50 152.5 615.9 850 99.2

50 54 22.2 75.8 123 6.6

55+ 25.2 84.5 125 9.2

Teams

Young 72.2 322.8 695 39.0

Mixed 29.6 169.1 495 44.0

Third age 16.5 62.1 127 6.4

No remaining ounder 33.0 179.1 580 43.3

Total 351.2 1509.3 2997 247.7

Low growth High growth

Under 50 Over 50 Under 50 Over 50 Total

Completely new business 87 85 82 66 86

Management buy out 6 3 10 25 6

Formerly bankrupt business 6 10 8 6 5

Source: Analysis o TBR Economics data adjusted by the results o the telephone survey.

Source: Telephone Survey.Note: The small other category is excluded rom the table.


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cent (i.e. 574) are completely new businessesand 25 per cent are MBOs. Third age highgrowth ounders are much more likely to set upa new rm ater a management buyout thanyounger ounders.

The ounders

Given that 37 per cent o businesses wereset up by a team, the number o ounderssubstantially exceeds the number o newbusinesses. As shown in Table 3, an estimated487,400 ounders participated in setting upnew businesses. The ounders are categorisedby age, whether or not they were an individualor team ounder and the growth status o thebusiness. The majority o ounders (56 percent) were part o a team, and 25 per cento all ounders were over 50 an estimated122,300 third age ounders. O these olderounders, 47,400 were solo entrepreneurswhilst 66,700 were part o a team. The 2,997high growth new starts involved almost 5,100

ounders. O the high growth ounders, 25 percent (almost 1,280) were aged 50 or over, with

the majority o these (56 per cent) being parto a mixed age team.

Younger ounders perorm better thanthird age ounders

Table 4 shows three indicators o new startperormance. These are: the proportiono new starts achieving high growth, theaverage number o employees per rm; andthe average number o employees in highgrowth new companies. For businesses setup by individuals, the proportion achievinghigh growth status declines marginally withounders age. For example, 0.56 per cent obusinesses set up by those under 50 are highgrowth. This proportion declines to 0.55 percent or businesses set up by 50-54 year oldsand 0.50 per cent or those over 54. There isa similar pattern or average employment pernew rm, which declines rom our employeesor ounders under 50 years o age to 3.3or ounders over 54. Finally, the size o theaverage high growth new start is substantiallygreater or those set up by younger ounders.

This is due to a handul o businesses set up byyounger individuals which achieved very highgrowth.

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Table 3: Number o ounders by individual, team, age and growth status

All ounders (000s) High growth ounders

Sole ounder

Under 50 152.5 850

50 54 22.2 123

55+ 25.2 125

Teams

Young 150.3 1,598

Mixed under 50 39.0 778

Mixed over 50 33.2 718

Third age 33.5 315

No remaining ounder* 33.0 580

Total 487.4 5,087

Source: TBR Economics data weighted by the results o the telephone survey.Note: *Given there is no inormation on the ounders o these companies, it is conservatively assumed they were set up byan individual.


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3

3. In part the superiorperormance o team star t-ups is because they beginlie with more ounders.The average size o teams isvery marginally above two.Allowing or the dieringnumber o ounders, theaverage number o employeesis no higher in team start-ups than businesses set

up by an individual. Theexception is mixed age teamstart-ups which, on average,employ more than individualstart-ups. However, aterremoving the additionalounders, a greater proportiono team start-ups still employ25 or over. For example, theproportion o mixed agestart-ups in the high growthcategory is 1.59 per cent andor young teams 0.80 per cent(compared to 1.67 per centand 0.96 per cent withoutallowing or the larger team atstart-up).

Table 4: Indicators o new rm perormance by age o ounder

Average 2008 employment per rm

Per cent employing All High growth25+ in 2008

Individual ounder

Under 50 0.56 4.0 116.4

50 54 0.55 3.4 53.7

55+ 0.50 3.3 73.6

Teams

Young team 0.96 4.5 56.1

Mixed 1.67 5.7 88.9

Third age 0.77 3.8 50.4

No remaining ounder 1.76 5.4 74.1

Total 0.85 4.3 82.6

Source: TBR Economics data

However, teams and especially mixedage teams, perorm even better

Table 4 shows that start-ups ounded by ateam perorm better than individual start-ups.Both the proportion achieving high growth andtheir average employment are higher.3 At thesame time, third age teams perorm less wellthan younger teams on all three indicators.For example, while new rms set up by youngteams employ an average o 4.5 people, theaverage employment in rms set up by olderteams is 3.8.

But perhaps the most signicant nding inTable 4 is the perormance o businesses setup by mixed age teams. With 1.67 per centachieving high growth, their record is betterthan average. On average, they have 5.7employees again, well above average. As aninteresting ootnote, new starts where noneo the original ounders are still in the rmperorm particularly well.

Third age ounders are in similar sectorsto other ounders

There is no substantive dierence in thesectoral distribution o new starts set up

by younger and older ounders. Figure 1shows the broad sectoral distribution o newstarts by age o participating ounders. The

most marked dierences are that third ageounders are somewhat more likely to set up inbusiness services and less likely to participatein construction, retail/wholesale and personalservices. Indeed, the gap in the wholesale/retail sector would be more substantial i mixedage teams were excluded, since mixed ageteams are more likely than the other sub-groups o ounders to set up in this sector.

The sectoral distribution o high growthnew starts and all new starts is illustrated inFigure 2. The main sectors or high growthare business services, manuacturing,wholesale/retail and construction. However,as a proportion o new sectoral businesses,they are underrepresented in businessservices and wholesale/retail, whilst they areoverrepresented in manuacturing.

Figure 3 compares the sectoral distributiono third age and younger high growthstart-ups. In broad terms, the sectoraldistributions are similar. However, third ageounders are somewhat more likely to be in

manuacturing, which may partly refect theirgreater participation in management buyouts.


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4

Figure 1: The sectoral distribution by ounders age: percentage o businesses

Figure 2: Sectoral distribution o high growth and low growth start-ups

Source: Analysis o adjusted TBR Economics data


Construction

Wholesale/retail

Hospitality

Utilities

Transport

Finance

Business services

Education

Health

Personal services

0 5 10 15 20

Percentage

25 30 35 40

Mining

Agriculture/fishing

Manufacturing

Third age Younger Founders

Construction

Wholesale/retail

Hospitality

Utilities

Transport

Finance

Business services

Education

Health

Personal services

0 5 10 15 20

Percentage

25 30 35 40

Mining

Agriculture/fishing

Manufacturing

High Growth Low Growth


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Again, they are less likely to be involved inconstruction.

It is sometimes argued that third age oundersare underrepresented in the high tech sector.High tech start-ups account or 8.2 per cent oall start-ups and 7.4 per cent o employmentin new rms. However, third age ounders areonly marginally under-represented in the hightech sector: compared with 27 per cent o allnew starts, they participated in 24 per cent ohigh tech start-ups. Post-start perormancemirrors that o other sectors. High tech newstarts are no more or less likely to grow thanthe average business start-up. Those set up bymixed age teams outperorm both younger andolder teams and those set up by individuals.Those involving younger individual oundersmarginally outperorm those set up by olderindividuals.

The creative industries demonstrate similarpatterns. These industries account or 14per cent o all start-ups and 15 per cent oemployment in new rms. Again, third ageounders are only marginally underrepresented,participating in 26 per cent o new businesses.

Post-start perormance again mirrors thato other sectors with teams outperormingindividual start-ups, younger individuals

marginally outperorming older individualsand mixed age teams having higher average

employment per rm than other groups.

New Firms Contribute Substantially toInnovation

As shown in Table 5, the ounders o anestimated 45 per cent o new starts saythe business was set up with some orm oinnovation in their product, process or businessmodel. New businesses set up by olderounders are somewhat less innovative thanyounger ounders businesses. For example,compared with 48 per cent o youngerounders, just 30 per cent o ounders over 50say their business introduced an innovationwhen it was set up. Nevertheless, they accountor 20 per cent o ounders saying the businessis based on some orm o innovation.

As might be expected, the high growth newstarts are more likely to be innovative thanthose with relatively ew employees. Sixty oneper cent o high growth new starts, compared

with 43 per cent o other new starts, believethey were innovative. And older high growthounders are just as likely to be innovative as

5

Figure 3: Sectoral distribution o third age and younger high growth start-ups


Construction

Wholesale/retail

Hospitality

Utilities

Transport

Finance

Business services

Education

Health

Personal services

0 5 10 15 20

Percentage

25 30 35 40

Mining

Agriculture/fishing

Manufacturing

Third age Younger Founders


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their younger counterparts. This illustrates thesel selective bias o the data. I third ageounders are innovative, their business is just as

likely to grow as any other innovative rm.

In contrast, only 30 per cent o older ounderso low growth rms say that at start-up thebusiness introduced some orm o innovation.This is signicantly lower than the 49 per cento younger ounders o low growth rms.

Four important observations can be drawnrom this data. First, innovative new rmsare more likely to achieve growth. Second,many businesses are set up with some orm

o innovation and do not achieve highgrowth status. Given that innovation involvesexperimentation and risk, many simply do notmake it. Third, a substantial number o newbusinesses achieve growth without innovation.Fourth, older ounders are generally lessinnovative than younger ounders.

Their contribution to teams is morethan assumed or asserted in theliterature

We have seen the importance o team start-ups. Older ounders are somewhat more likelyto be part o a team than younger ounders.The literature tends to argue that third ageteam members are usually not the leadentrepreneur. Rather they may be brought inby younger more energetic lead ounders ortheir expertise, experience and money.

However, evidence rom our survey suggeststhat older ounders are more actively involved.

For example, almost 60 per cent o teammembers over 50 responding to the surveysaid it was their idea to orm a team. This

is the same proportion as or younger teammembers. Rather more (53 per cent versus40 per cent o younger team members) say

they had the original business idea. At arounda th, a similar proportion o third age andyounger team members were brought in byother ounders as a source o nance and ortheir specic skills. So, the contribution oolder entrepreneurs to the team appears tohave been more substantial than sometimesassumed.

Conclusions

Large numbers o new rms generate largenumbers o jobs. Entrepreneurs aged over 50participated in setting up 27 per cent o the351,200 new companies established between2001 and 2005 and still operating in 2008. Thisis a substantially higher proportion than wouldbe expected rom previous research.

Very ew (0.85 per cent) o these new startshad 25 or more employees in 2008. Thesebusinesses accounted or 16 per cent o the1.51m jobs in all new starts. O the almost3,000 high growth new starts, older oundersparticipated in setting up 29 per cent o them.

Teams were responsible or 54 per cent o highgrowth new starts compared to 37 per cent oall new starts. Older people are more likely toset up in business as part o a team. With 1.67per cent o mixed age teams new companiesachieving high growth, mixed age teamsperorm well above average.

Compared to 43 per cent o lower growth new

starts, 61 per cent o high growth new startsintroduced an innovation. Younger ounders(48 per cent) are more innovative than older

6

Table 5: New starts and innovation: per cent based on some orm o innovation at start-up

Founders age

All ages Under 50 Over 50

All business 45 49 30

High growth 61 62 58

Low growth 43 49 30

Note: i) Estimated by weighting the survey results by the population o businesses in the high growth/low growthcategories by age o ounder. ii) The dierence between those under and over 50 in the Low Growth businesses isstatistically signicant.


17/83

ounders (30 per cent). Nevertheless, olderounders account or 20 per cent o newbusinesses which introduced some orm oinnovation. I third age ounders innovate, theyare just as likely to achieve growth as youngerounders.

7


18/83

Part 3: Founders and the start-up process

This chapter describes the characteristics othird age ounders. It compares their motives

and concerns, their pre-start experience, and,importantly, their attitude to risk and timehorizons with those o younger ounders.

Third age ounders make up 25 per cento all ounders but just 5 per cent areover 60

The age prole o all ounders and high growthounders is shown in Table 6. It shows the

age at which the ounders set up a limitedcompany. As such it excludes those becomingsel-employed (including a move into sel-employment) or are considering doing so.4

The data conrm that business ormation canbe described as an inverted U pattern with the

probability o setting up a business initiallyincreasing with age, beore declining ater theage o 50. However, that probability remainsrelatively high until age 60, ater which thedecline is rapid.

When interpreting these gures, as illustratedin the Literature Review, it should beremembered that a substantial proportiono older people is already sel-employed orrunning a business which they set up earlier intheir lives. Consequently, data in Table 6 should

not be interpreted as showing that older peoplelack enterprise.

8

4. This is in contrast to similardata rom the GlobalEntrepreneurship Monitor.

Table 6: The age prole o ounders and high growth ounders

All ounders

Age Per 1000 pop. Per cent o total Per cent o high growth

Under 30 4.3 9.5 5.4

30 49 19.3 65.2 65.9

50 54 14.5 11.6 13.2

55 59 13.4 9.0 9.5

60 64 5.8 3.4 3.7

65 69 1.9 1.0 1.8

70+ 0.3 0.3 0.4

All 10.4 100 100

Source: Analysis o TBR Economics data


19/83

When we analyse the age distribution oounders, we nd over 65 per cent are in whatis generally seen as the prime entrepreneurialgroup o 30-49 years o age. An estimated 25per cent o ounders are over 50, many in theirearly third age: those aged 50-54 account or45 per cent o older ounders, whilst just 4.7

per cent o all ounders are over 60.

The age distribution o high growth oundersshows that those under 30 are less likely toset up a high growth business they accountor barely 5 per cent o all such rms -whereasover 28 per cent o high growth rms havethird age ounders, making older oundersmarginally more likely to participate in highgrowth businesses than in other rms. Forexample, while those over 60 constitute 4.7 percent o all ounders, they account or 5.9 percent o high growth ounders.

Twenty ve per cent o ounding directors onthe TBR database are women. Compared tomen their entrepreneurship activity drops osomewhat earlier in lie. Consequently, womenaccount or just 20 per cent o companies setup by those aged over 60.

Third age high growth ounders arepredominantly well educated white

British males

Evidence on ounder characteristics rom thesurvey is presented in Table 7. Seventy ve

per cent o ounders are male; 91 per cent areWhite British and 55 per cent have a degree.With 41 per cent having an entrepreneurialparent, the data conrms the importance oparental infuence.

Turning to high growth ounders, women are

less likely to be high growth ounders: just17 per cent are emale. Older high growthounders are typically White British and welleducated, with just over 50 per cent havinga degree. They are more likely to have anengineering degree than their youngercounterparts or whom Business Studiesdegrees are more usual.

Relatively ew older high growth ounders have(or had) an entrepreneurial parent. Indeedit might be expected that parental infuencedeclines with age. However, evidence rom the

other third age ounders does not support sucha hypothesis.

Relatively ew third age high growthounders are novices

Just over 70 per cent o all ounders werenovices in that the business was their rst,although nearly 30 per cent had set up at leastone business previously. The likelihood o being

a serial entrepreneur unsurprisingly increaseswith age: compared with 21 per cent o thoseunder 50, 55 per cent o the over 50s hadprevious entrepreneurial experience.

9

Table 7: Some ounder characteristics; percentages


Under 50 Over 50 Under 50 Over 50 All

Male 70 90 86 83 75

Female 30 10 14 17 25

White British 92 90 89 100 91

Other Ethnicity 8 10 11 - 9

Degree/Equivalent 52 63 62 51 55

First Time Founder 79 45 69 53 71

Parent Ran Own Business 40 45 47 26 41

Source: Telephone Survey


20/83

Just over 50 per cent o third age high growthounders say the start-up was their rst newbusiness (including most o those participatingin a management buyout). Excluding MBOs,the majority o such ounders had previouslyset up a new business. This reinorces theconclusion that there are ew rst time older

ounders who set up a completely new businessthat achieves high growth status.

Third age ounders are more likely toparticipate in a team start-up

60 per cent o third age ounders participatedas part o a team, whereas the same was trueor only 39 per cent o the under 50s. Womenwere also more likely to have been part o ateam. Compared with 51 per cent o men, 72

per cent o women participated in a team.While participation through a team does notappear to be age related or women, it is ormen. Their participation in teams rises steadilyrom 50 per cent or the 30-49 age group to64 per cent or the 64-69 age group and moredramatically to just over 80 per cent or thesmall number o ounders aged over 70. Themajority o older mens entrepreneurial activityis as part o a team.

Few third age high growth ounderswere out o work beore setting up thebusiness

Table 8 considers the situation o oundersimmediately beore they set up their businessand whether or not they let employment

voluntarily. This shows that most ounders wereeither employed or already running their ownbusiness beore setting up the new rm. Veryew ounders had been unemployed or ormallyretired. Enterprise is much less likely aterretirement.

Sixty our per cent o older high growthounders were in employment and a urther23 per cent were already running their ownbusiness immediately beore setting up the newbusiness. Just 10 per cent were unemployedor had retired and the proportion was smaller

among the rms with low growth rates. Thereis little evidence here that large numbers oolder ounders o limited companies werepushed into the choice by unemployment orredundancy. A surprisingly high proportiono third agers were already running theirown company beore this latest venture. Thisemphasises the importance o entrepreneurialexperience or older ounders earlier in lie.

0

Table 8: Percentage o ounders immediately prior to business ormation




In Employment 70 43 72 64 64

Running Own Business 20 40 20 23 25

Unemployed/Retired 6 4 4 10 5

Reasons For Leaving Last Job

Made Redundant 16 10 11 11 14

Let Job Voluntarily to Set Up 73 60 65 53 70

Other 3 12 6 5 5

Retired (normal/early) 3 8 - 6 4

No Response 5 10 18 25 6


21/83

Turning to the reasons why ounders lettheir previous job, 70 per cent let voluntarilyto set up this business. A urther 14 percent had been made redundant, a gurerepresenting a th o those who werepreviously in employment. There is no evidencethat a greater proportion o older than

younger ounders had been made redundantimmediately prior to setting up their business.Nor is there a dierential pattern amongsthigh and low growth ounders. However, sincea smaller proportion o older ounders werepreviously in employment, a somewhat higherproportion o those in employment were maderedundant than o their younger counterparts.

Just 6 per cent o all ounders had retiredimmediately beore setting up the business.These were not conned to the over-50s. Forexample, 3 per cent o younger ounders say

they had already retired when they set up thebusiness.

Interestingly, 10 per cent o older ounders(compared with 5 per cent o youngerounders) would not respond to this question.This is a non-response rate much higherthan other questions. This appeared to be a

particularly signicant issue to the high growthounders.

They are more driven by a specicbusiness opportunity than other

ounders

Figure 4 shows the actors deemed importantby high growth third age ounders in settingup the business. The most widely cited reasonsare that it was an interesting challenge and toexploit a specic business opportunity. Beyondthese, a wide range o actors came into play.The independence o being ones own boss andnancial gain were very important motives orjust under hal the older high growth ounders.Few elt pushed into becoming entrepreneurs:only 8 per cent say that redundancy was a very

important motive, with a similar proportionnoting the diculty o nding suitableemployment. Very ew were motivated by thedesire to work rom home or to develop ahobby.

Perhaps the most interesting observation onmotivation is that a third o respondents set

1

Figure 4: Third age high growth ounder motives; percentage seeing motive as veryimportant

Source: Telephone survey

Exploit market gap

Supplement income

Work post retirement

Financial gain

Something had always wanted to do

Develop better work/leisure/family balance

Give something back to society

Could not find suitable job

To work from home

Made redundant

To build/develop a hobby

0 10 20 30 40

Percentage

50 60 70 80

Exploit specific business opportunity

A challenge

Be own boss/independence


22/83

up the business with a view to working beyondretirement age. As discussed subsequently,many plan a relatively late retirement. A similarproportion also say they set up the businessas a way o giving something back to society,while a th wished to achieve a better work/amily/leisure balance.

A comparison o older high and lowgrowth ounders ound just two substantivedierences. These were:

The high growth ounders were moremotivated to exploit a specic businessopportunity (oten the chance o a buyout)and to ll a market gap.

They were somewhat more driven by thechallenge and the desire to give somethingback to society.

However, in other respects the motives o thetwo groups are very similar, although marginallymore o the low growth ounders may havebeen pushed by redundancy.

A comparison o the motives o older highgrowth ounders with those o youngerounders (high growth and low growth) oundthe ollowing:

The desire to be ones own boss is

particularly important or those under 50.This is the most requently quoted motive.While important to older ounders, it is notthe most requently quoted motive. Also,high growth ounders are somewhat lessdriven by this motive.

The desire to work post-retirement is adriving actor or both high growth andlow growth ounders over 50. Only a smallproportion o those under 50 are driven bythis actor.

The desire to exploit a specic businessopportunity dierentiates high growth thirdage ounders rom the rest. This probablyrefects their involvement in managementbuyouts.

The desire to give something back to societyappears to be a motivating actor or onlyolder high growth ounders.

Perhaps surprisingly, rather more highgrowth ounders (32 per cent) under-50 say

that achieving a better work/leisure/amilybalance was a very important motive. Thisaim is ar rom limited to older ounders.

The desire or nancial gain and additionalincome are no more important amongst olderthan younger ounders.

Third age ounders are no more risk

averse than younger ounders

Evidence rom the Literature Review suggestsolder people may be somewhat more riskaverse than younger people. This couldboth reduce the probability o their settingup in business and infuence the nature oany businesses they do set up. For example,older people could be less willing to investthe resources (either their own or borrowed)necessary to create a growth-oriented business.

However, Table 9 shows that the survey ound

no evidence that third age ounders are morerisk averse than other ounders. Indeed, ianything, they took rather greater risks insetting up the business.

The majority o all ounders believe thatstarting a company involves great personal risk.Presumably this view has been infuenced byexperience. However, the risk clearly did notprevent them rom starting a business. Thissuggests that perceived risks are outweighedby other actors. The majority say they enjoy

the challenge o situations many would see ashighly risky. Founders in both age groups seethemselves as risk takers and this is particularlytrue o high growth ounders.

I third age entrepreneurs are more risk aversethan other ounders, we might assume thatew would take a substantial personal nancialrisk when setting up the business. However,just over 40 per cent o older high growthounders say they took a substantial personalnancial risk. Indeed, ounders aged over 50appear to have taken a greater nancial riskthan those under 50. It also appears there is alink between taking personal nancial risk andgrowth. More high than low growth ounders(o all ages) took a substantial nancial risk.

Similarly, i third age ounders are more riskaverse, one might expect them to have asubstantially greater degree o certainty aboutthe likely success o their business. I they werenot reasonably certain o success, they wouldnot have set up the business. However, this isnot the case or high growth ounders: they

were less certain o success than younger highgrowth ounders. However, or low growthbusinesses, those over 50 were more certain o

2


23/83

success. It may be that this group is more riskaverse than their younger counterparts.

Finally, when asked to trade o a guaranteed80,000 or a 25 per cent chance o obtaining400,000, around 40 per cent o all ounders(regardless o age or whether or not they are

high growth), chose to take the risk to get the400,000. There is no evidence that the inherentwillingness to take a nancial risk (or gamble)varies either between the age groups or whetheror not the business achieves high growth.

Nor do they have shorter time horizons

Linked to the argument that older people aremore risk averse is the hypothesis that theyalso have a shorter time horizon. They arethought to be less willing to orgo currentincome and invest both nance and time/eort or uture returns (the essence o settingup and growing a business). Ater all, their lie

expectancy is shorter.

However, the evidence presented in Table10 implies that all entrepreneurs, regardlesso age, have relatively short time horizons.Somewhat more third age ounders thought itwould take our years or more or the businessto achieve protability. This does not suggest

3

Table 9: Founders attitudes to risk; percentage o ounders by age and growth categories

Table 10: Founder time horizons by age and growth status; percentages




Under 50 Over 50 Under 50 Over 50

Agree starting a business involves 67 73 76 78

great personal risk

Agree they enjoy the challenge o 74 71 94 85situations many would see as risky

Took a substantial personal nancial 23 28 36 42risk when set up

More or less certain business 58 70 68 58would be successul

Preerred guaranteed 80k over 59 57 59 6025 per cent chance o 400k



Expected protability to take 4 years or over 10 13 10 18

Expected reasonable personal income 85 78 69 69

within 3 years


24/83

that older ounders have shorter time horizons

than younger ounders.

A similar conclusion is reached by an analysiso how quickly ounders expected to make areasonable personal income rom the business.The majority o all ounders expect this to beachieved within three years. Fewer o thoseinvolved in a high growth business expect thisto be achieved though 69 per cent still expecta reasonably quick income. Indeed, thoseunder 50 are more likely to expect a reasonableincome to be generated within three years thanthose over 50.

Third age high growth ounders haveimportant advantages: experience,money and ewer concerns

The most obvious potential advantage oolder ounders is their greater experience. Thisis illustrated in Figure 5 which compares theexperience o third age high growth ounderswith the experience o younger high growth

ounders. The older ounders systematicallyhave more experience. Substantially more haveprevious entrepreneurial experience or have

worked in large private sector companies or

the public sector. With little dierence, the oneexception is experience in the small rm sector.

Similar comparisons between all older and allyounger ounders and between lower growtholder and younger ounders support twoimportant conclusions:

While third age ounders have moreentrepreneurial experience, such experiencedoes not dierentiate between high growthand low growth businesses. In other words,previous entrepreneurial experience doesnot appear to be associated with additionalgrowth.

High growth ounders have substantiallymore experience o large private sectorcompanies and management than lowgrowth ounders regardless o age.5 Thedata suggests that it is these elements oexperience which contribute to high growth.

Other aspects o experience, such as working ina small or medium-sized rm, do not infuence

the levels o growth achieved by the business.Such experience may, however, infuence

4

5. However, there could bea relationship betweenlarge company experienceand MBOs. Consequently,beore concluding that largecompany experience is a keyinfuence on the achievemento high growth, the infuenceo this relationship should beexamined.

Figure 5: The experience o third age and younger high growth ounders; percentage oounders


Work experience

in an SME

Work experience in

large company

Work experience

in management

Work experience in

the public sector

0 10 20 30 40

Percentage

50 60 70 80 90

Experience of

running own business

Previously set

up a business

Work experience in

similar industry

Under 50 Over 50


25/83

whether or not a business is set up in the rstplace.

A second advantage o third age ounders isthat they have ewer concerns about settingup in business. Again, comparing older andyounger high growth ounders, in Table 11,

we see that older ounders were less likelyto worry about risks, experience or amilylie than younger ounders. For example,signicantly ewer were concerned about thelack o security on leaving regular employment,the attitude o amily and riends should thebusiness ail or that their house would berepossessed should the business ail.

A comparison with younger and third agelower growth ounders ound that these actorsdierentiate between age and not betweena rms level o growth. Whilst such concerns

may infuence decisions about whether tostart up in the rst place, they do not aectsubsequent growth status.

Nevertheless, there are still some substantialbarriers or a minority. It is perhaps notsurprising that those who set up in businesshad relatively ew concerns about doing so.However, a small minority had major concerns.As illustrated in Table 11, 30 per cent saw theeects o starting a business on amily lie asa major concern and 25 per cent saw the lack

o security o leaving regular employment as

major concerns. As in the pervious analysisthere are no dierences between high and lowgrowth ounders.

On some o these issues, older ounders maybe more polarised than younger ones. Whilea greater proportion say all these issues were

not at all a concern, marginally more saw thelack o security on leaving employment andtaking on additional responsibilities as a majorconcern. This illustrates the heterogeneity othird age entrepreneurs. Whilst the majoritywere not at all concerned about the loss osecurity on leaving regular employment, onequarter were very concerned.

The one issue on which older ounders hada distinct advantage relates to the possibilityo the house being repossessed should thebusiness ail. For the vast majority (74 per

cent) it was not at all a concern. This compareswith 60 per cent o younger ounders. Itwas a major concern or just 11 per cent oolder ounders compared with 20 per cent oyounger ounders.

A third advantage is that rather more third ageounders have an alternative source o income.Almost 40 per cent o all third age ounderssay they have an income rom outside thebusiness compared with less than 30 per cento younger ounders.

5

Table 11: High growth ounders start-up concerns


Percentage saying concern Percentage saying anot at all important major concern


Lack o security on leaving regular 49 58 19 25employment

Diculty o nding another job should 70 74 6 9business ail

Eects on amily lie (e.g. via workload, etc.) 39 43 26 30

House being repossessed should business ail 60 74 20 11

Taking on new responsibilities (e.g. people 50 57 17 15management, accounting)

Did not have the necessary skills 64 81 4 8

Attitudes o riends/associates should the 66 85 9 4business ail


26/83

For third age ounders, not surprisingly, theirmain alternative income source is a pension(23 per cent). Approximately 10 per centhave a second job or income rom propertyor investments and 5 per cent have income

rom other directorships. These proportionsare similar between rms with dierentgrowth levels. As indicated in the LiteratureReview in Appendix B, access to an alternativeincome source may infuence the decision asto whether or not to set up a business, but itdoes not infuence whether or not the businessachieves growth.

Health is probably a substantive barrier

or many non-ounders

The vast majority o ounders say they werein good health when they set up the business.Table 12 shows this is particularly true orhigh growth third age ounders and youngerounders. In contrast, a smaller proportion (butstill a high 83 per cent) o third age low growthounders say they were in good health.

Good health appears to be almost a pre-requisite or setting up a new business,particularly one achieving rapid growth. Givenwhat is involved in business ormation, thisshould not be surprising; those in poor healthrarely set up a business.

As noted in the Literature Review, theproportion o the population saying they arenot in good health increases rom 40 per centin the 50-54 age group to 51 per cent or the60-64s. Those not in good health are, notsurprisingly, unlikely to set up in business.Consequently, biology is sel-evidently animportant barrier to third age entrepreneurship.

Furthermore, this ear o ailing health and theattractiveness o retirement are substantiveadditional barriers.

Conclusions

The majority o older high growth oundersare well educated, white, British males, withwomen signicantly underrepresented. The

probability o an individual setting up abusiness declines with age ater 50. However,it remains relatively high until the age o 60,when it declines much more rapidly.

Relatively ew third age ounders are motivatedby unemployment and redundancy. Olderhigh growth ounders are more driven by theexploitation o a specic business opportunity,the challenge, the desire to give somethingback to society, or a wish to continue workingbeyond retirement age. They are no more

risk averse than other ounders, nor do theyhave shorter time horizons. This is because allounders expect relatively quick returns.

Most third age ounders have ewer concernsabout the new business than younger ounders:they are less likely to worry that their house willbe repossessed should the business ail, andmany have an alternative source o income.Nevertheless, a substantial minority had majorconcerns relating to loss o security on leavingregular employment, the eects on their amilylie and taking on additional responsibilitieswhen they set up in business.

Not surprisingly, older ounders have awider range o experience than youngerentrepreneurs. Rather more have previousstart-up experience. However, this doesnot appear to bring about greater growth.Experience o management and working in alarge private sector business dierentiates highgrowth rom low growth ounders.

6

Table 12: The health o ounders by age and growth status; percentage o respondents ingood health

Under 50; low growth 96

Over 50; low growth 83

Under 50; high growth 90

Over 50; high growth 94

All ounders 93


27/83

Part 4: The new start growth process

This chapter examines the nature o third agehigh growth businesses and identies what, i

anything, dierentiates them rom high growthbusinesses set up by younger ounders. Asa means o identiying potential constraints,it also compares them with low growthbusinesses.

Third age high growth ounders haveambitions or urther growth

Table 13 shows the proportion o ounders

saying they are actively trying to grow thebusiness over the next two or three years. Themajority o ounders are actively trying to growthe company. This is true or both those whichcurrently have 25 or more employees and orthe smaller businesses. However, rather more othe high growth ounders are actually seekingto grow the business. There is little dierencebetween older and younger high growthounders.

However, 30 per cent o older ounders osmaller rms say they are denitely not seeking

to grow the business. This is rather more thanthe 21 per cent o their younger counterpartsexpressing the same view. There is an indicationhere that a minority o third agers are engagedin liestyle businesses.

Compared with low growth ounders,third age high growth ounders aremore innovative

The contribution o new rms and, inparticular, older ounders to innovation wasoutlined in Part Two. Table 14 presents adescription o the nature o innovation by ageo the ounder and whether or not the businessachieved high growth status.

Just over 60 per cent o high growth ounderssay their business was ormed on the basis oat least one innovation. There is little dierence

7

Table 13: Growth ambitions; percentage o ounders

Younger ounders Low growth 79

High growth 88

Older ounders Low growth 70

High growth 85

All ounders 77



28/83

between older and younger high growthbusinesses. However, there is a clear dierencebetween high and low growth businesses.The ormer are signicantly more likely to beinnovative.

While age is not a dierentiator within high

growth new starts, older low growth oundersare less innovative than their youngercounterparts. Only 30 per cent say theirbusiness introduced an innovation comparedwith 49 per cent o younger ounders.

The most widespread orm o innovationamongst new companies is the introductiono new or signicantly improved products. Aswith other orms o innovation, high growthbusinesses are somewhat more likely to bebased on this orm o innovation. Third agehigh growth businesses may be somewhat

more product innovative. Some 15 per cento new business believe they introduced aradical innovation (i.e. new to the world orthe UK) when they were set up. However,radical product innovation does not seem todierentiate between high growth and lowgrowth. Older ounders are just as likely to

be involved in radical innovation as youngerounders.

Nearly 30 per cent o high growth businessessay they have introduced urther productinnovation since the start-up. Again thereis no evidence that third age ounders are

less involved in this orm o innovation. Highgrowth businesses are more likely to have madesuch innovations.

Rather ewer ounders (12 per cent) saythe business was based on new processesor distribution systems. However, a thirdo growth businesses say the start-up wasbased on a new business model. Again,within high growth businesses there is nosignicant dierence between older andyounger ounders. However, there is asignicant dierence between high and low

growth businesses with the latter less likelyto introduce a new o improved businessmodel. Within low growth business there isa substantial dierence between older andyounger ounders. Very ew o the ormer saythe businesses adopted an innovative businessmodel.

8

Table 14: The nature o innovation by age o ounder and growth status; percentage obusinesses




Product innovation 33 30 40 49 32

New to world/UK 14 15 16 13 14

New to region/market 19 15 24 36 18/industry

Subsequent product 15 17 26 32 16innovation

Process innovation 12 10 18 15 12

New to world/UK 8 5 7 6 7

New to region/market 4 5 11 11 4/industry

Business model innovation 22 5 37 32 18

At least one innovation 49 30 62 58 45


29/83

Management style and eort areprobably infuential growth actors

Figure 6 compares the management style andwork ethic o the ounders o high growthand other rms led by third age entrepreneurs.Each category o rm is characterised by a

very dierent management style: high growthounders are signicantly less conormist andmuch more ready to delegate.

Older high growth ounders also makesomewhat dierent leisure/work trade-osthan other ounders. Rather more say theyrequently sacrice their leisure time or workand somewhat ewer believe the businesscould grow more i they were willing to put inmore time and eort. Commitment and hardwork appear to infuence growth. Even so, themajority o older lower growth ounders say

they requently sacrice leisure or work andonly 40 per cent believe that more growth couldbe achieved i they were willing to work harder.

A comparison between older and younger highgrowth entrepreneurs ound no signicantdierences in their management style or workethic. I anything, the third agers are marginallyless conormist. They are equally likely tosacrice leisure time or work and do not

believe more growth could be achieved i theycould put in more time and eort.

A comparison o older and younger low growthbusinesses ound:

Third age ounders were signicantly more

conormist. Compared with 44 per cento younger ounders, 65 per cent o olderounders agreed that to succeed in businessit is necessary to conorm to acceptedbusiness practices.

They are also less ready to delegate. Just 38per cent o older ounders would delegateroutine tasks ater only a short period otime, compared with 57 per cent o youngerounders.

These ndings are again consistent with the

hypothesis that a greater proportion o lowgrowth businesses set up by older ounders are,in some sense, liestyle businesses.

Competitive advantage

The sources o competitive advantage enjoyedby the businesses o older high growth

9

Figure 6: A comparison o ounder attitudes in third age high growth and low growthstart-ups: percentage agreeing with


Business could grow more if I were

willing to put in more time

They frequently sacrifice

leisure for work

0 10 20 30 40

Percentage

50 60 70 80 90

I usually delegate routine tasks

after a short period of time

For the business to succeed must

conform to accepted business practice

I get really excited when I think of new

ideas to stimulate the business

Low Growth High Growth


30/83

ounders are shown in Figure 7. The vastmajority believe their own personal eort andexpertise are very important to the businesssuccess. Factors most likely to lead to successinclude having a unique or highly dierentiatedproduct, low costs due to high productivity/eciency and the application o IT. Relatively

ew see low wages and the production ordistribution systems as very important.

Over and above these sources o competitiveadvantage, approximately 60 per cent saidother actors were also very important. Thesevaried, though they most requently related totraining, sta quality and commitment.

A comparison with younger high growthounders and low growth ounders (both agegroups) shows remarkably ew dierences.An almost identical proportion believes these

sources o competitive advantage are veryimportant. The main dierences are:

A somewhat greater proportion o olderounders (high and low growth) say thata unique or highly dierentiated productis a very important source o competitiveadvantage.

Rather ewer high growth ounders (in bothage groups) say low wage costs are a veryimportant source o competitive advantage.

Beyond this it may be that a somewhatgreater proportion o high growth businesses(regardless o ounder age) derive competitive

advantage rom their production system.However, the dierences are small.

High growth ounders are somewhatmore concerned to protect their IP

Figure 8 compares how third age high growthand third age low growth ounders protectintellectual property. The high growth ounderssee all the mechanisms as more important.The most widely used mechanisms by older

high growth ounders are condentialityagreements, secrecy and lead time advantage.

However, each individual mechanism is veryimportant to only a small proportion ocompanies. For example, only 15 per cent ohigh growth and 3 per cent o low growthcompanies see patents as very important.

0

Figure 7: Third age high growth sources o competitive advantage: percentage oounders seeing actor as very important


Low costs due to highly productivity

Clever application of IT

Location

Other

Rapidly growing market

Differentiated business model

Absence of strong comepetition

Unique system of production

The businesss distribution system

Relatively low wage costs

0 10 20 30 40

Percentage

50 60 70 80

Founders personal experience

Founders personal effort

Unique/highly differentiated product


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A comparison between older and younger high

growth businesses shows:

The ranking o methods is the same withvery similar percentages.

There is no evidence that older ounders

make less use o any o the IP mechanisms.

There is some evidence that older oundersmake more use o secrecy.

1

Figure 8: A comparison o high growth and low growth ounders mechanisms orprotecting IP; percentage o businesses

Secrecy

Confidentiality agreements

Copyright

Design complexity

0 10 20 30 40

Percentage

50

Patents

Trademarks

Lead time advantage


Table 15: Growth constraints: percentage o ounders identiying actor*

Source: Telephone surveyNote: *Apart rom not seeking to grow, per cent are o those seeking to grow the business.



Not seeking to grow* 21 30 11 14

State o the market 51 60 63 51

Raising investment nance 10 11 19 18

Recruiting labour 11 3 13 11

Strength o competition 6 - 10 -

Recruiting management 2 - 8 4



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A comparison between older and younger lowgrowth ounders ound no substantive (orstatistically signicant) dierences.

The protection o IP dierentiates betweenhigh and low growth businesses regardlesso the ounders age. There is no evidence

that third age and younger ounders makedierential use o available IP protectionmechanisms (though older high growthounders may rely somewhat more on secrecy).

The constraints on the growth ohigh growth businesses are the sameregardless o age

The constraints on business growth identiedby the ounders are shown in Table 15. The

main dierentiating actor is whether or notthe ounder is seeking to grow the business.A greater proportion o younger oundersare seeking to grow the business. More othe ounders o the larger businesses are alsoseeking to grow the business.

The main constraint identied by those tryingto grow the business is the state o the market.This is true regardless o age and the growthstatus o the business.

No systematic dierences by ounders agewere identied. The high growth ounderstended to identiy more constraints. Forexample, 19 per cent o high growth oundersidentied raising investment nance comparedto 10 per cent o low growth ounders. Similarly8 per cent identied the diculty o recruitingadditional management compared to 2 per cento low growth businesses.

The proportion o low growth rms quotingthese constraints can be taken as an indicationo how many new rms these constraintsaect. Hence, essentially 7 per cent o all newrms say raising the necessary investmentnance is a growth constraint with a similarpercentage identiying labour recruitment.Many other specic actors such as cash fow,management time and technical problems wereidentied by a handul o ounders o all ages.There were no dierences by age.

When those not seeking to grow were askedwhy they were not seeking to grow, the mostcomment responses were simply they did not

wish to grow and the state o demand.

Many third age ounders intend to workpost retirement age

As already indicated, the desire to continueworking past retirement is a very importantmotive or 30 per cent o third age ounders.This is refected in retirement plans. Just over

50 per cent say they intend to retire aterage 65 with a urther 22 per cent saying theirretirement will depend on their health. O theolder high growth ounders, rather ewer (30per cent) intend to retire ater the age o 65. Incontrast, ewer (19 per cent) younger oundersintend to retire so late in lie.

What impact does this have on longer termplans or the business? Here there is a distinctdierence between younger and olderounders.

Almost 70 per cent o younger ounders,compared with less than 50 per cent o olderounders, believe the business will continueover the next ten years as an independentconcern. There is no dierence between highand low growth rms.

A greater proportion o third age ounders(25 per cent compared with 18 per cent)expect their business to be sold as a goingconcern. Those with a high growth businessare marginally more likely to believe this.

Slightly less than 10 per cent o oundersplan to leave the business to a amilymember. There is no dierence between agegroups or whether or not the business is highor low growth.

Third age ounders are more likely to say thebusiness will be closed within 10 years. Whilethis applies to 13 per cent o older ounders,just 2 per cent o younger ounders believethe business will close in the next 10 years.

However, very ew high growth older ounderssay the business will close. It is the older lowgrowth ounders who expect to close thebusiness.

Low growth third age ounders aredierent

As already indicated, there are ew substantivedierences between older and younger high

growth business ounders. They are equallyinnovative, have similar growth ambitions

2


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and share attitudes to work, eort andmanagement style.

In contrast, Table 16 brings together dataon a theme which emerges throughout theanalysis. It shows signicant dierencesbetween older and younger ounders o lowgrowth businesses. Substantially more third ageounders are not seeking to grow the business.

They are also less likely to have innovated andmore likely to believe they must conorm toexisting business practice to succeed. They areboth less ready to delegate and more likely toexpect their business to be closed within tenyears.

Given these ndings, it is perhaps notsurprising that businesses set up by third ageounders are generally less likely to grow thanthose set up by younger ounders.

Third age growth constraints

The preceding paragraphs illustrate some othe actors which constrain the growth othird age new starts. Many are simply notseeking to grow. They are not innovative andmay have a less than eective managementstyle. A rather dierent way o analysing thegrowth constraints is to compare the thirdage high and low growth new starts. Thisessentially holds the age variable constant.

The comparisons are shown in Table 17. Thesecomparisons reinorce many o the previousndings.

Nevertheless, it perhaps illustrates more clearlysome o the actors constraining growthamongst third age entrepreneurs. Some othe constraints are probably built in at thecompanys ormation. For example:

Those setting up the business to exploit aspecic opportunity or ll a market gap aremore likely to grow.6

Those setting up to work rom home orachieve a better amily/work/leisure balanceare somewhat less likely to grow.

Those seeing entrepreneurship as a challengeor wishing to give something back to societyare more likely to grow.

The ounders previous experience hasan impact. For example, experience omanagement or o having worked in a largecompany appears to have a positive growtheect.

Businesses based on some orm o innovationat start-up are more likely to grow.

However, whether or not the ounder is aninherent risk taker, has an alternative incomesource or had nancial gain as a start-upmotive appear to have no eect. Similarly,pervious entrepreneurial experience seems tomake no dierence.

Perhaps surprisingly, no dierences emergedbetween the two groups in their companiessources o competitive advantage. However,

3

6. However, given that thespecic business opportunityis oten an MBO, it may bethat some o these businessesbegan lie relatively large.

Table 16: Comparison o low growth older and younger ounders; percentages


Over 50 Under 50

Not trying to grow business 40 21

No innovation 70 51

Agreeing that to succeed must conrm to accepted business practice 65 43

Do not delegate routine tasks ater short period o time 62 43

Not in good health when set up business 17 4

Large company work experience 35 48

More or less certain business would be successul 70 58

Business will be closed in next 10 years 13 2


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ambition and management style do come intoplay.

A greater proportion o the low growthbusinesses have a ounder not currentlyaiming to grow the business. Even so, the

majority o the low growth ounders aretrying to grow their businesses.

The ounders o high growth businessesappear a little more excited by coming upwith new ideas, they are more willing todelegate and believe less in establishedconventions and practices.

There is some evidence that the ounderso high growth businesses are a little morewilling to work hard to achieve growth.

4

Table 17: Comparison o third age high growth and low growth new starts; percentage oounders

High growth Low growth

Not in good health when set up 6 17

Start-up motives very important

To work rom home 9 18

Better amily/leisure/work balance 23 30

Exploit business opportunities 68 48

Fill a market gap 47 35

Give something back 21 10

An interesting challenge 70 53

Experience

Ran own business 42 50

Management 87 65

Large company 64 35

A proessional job 68 57

A risk taker 60 57

Has alternative income source 36 40

No innovation 42 70

Not seeking to grow business 17 30

Took substantial personal nancial risk 42 28

More or less certain business would succeed 58 70

Could grow more quickly i put in more time and eort 27 38

To succeed must conorm with established business practices 30 65

Delegate routine tasks quickly 74 38

Get excited when i think o new ideas to stimulate the business 83 73

Agree sacrice leisure or work 83 75

Agree enjoys challenges many see as risky 85 71


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Other dierences which emerge (e.g. highgrowth businesses make some more use oormal IP protection) may be as much an eectas a cause o growth, or may simply refectthe nature o the business they may have aninnovation to protect.

An interesting nding is the relationshipbetween risk taking and growth. Those takinga substantial personal nancial risk are morelikely to achieve growth. Their start-ups weremore risky in that they were less certain thebusiness would be a success. However, nancialrisk takers (or those willing to gamble) are nomore likely to set up a high growth businessthan non-gamblers. Similarly, dierences intime horizons appear to have no eect onwhether or not the ounder set up a highgrowth company. Finally, while those takinga considerable nancial risk are more likely to

set up a high growth company, the majority othose setting up high growth companies tooklimited nancial risk.

Conclusions

The results show that older ounders o highgrowth start ups (and the businesses theyound) are remarkably similar to their youngercounterparts.

There are bigger dierences between third agehigh growth and low growth ounders and theirbusinesses than between older and youngerounders o low growth businesses. Thesedierences illustrate the actors constraininggrowth amongst third age start-ups. Theseinclude:

Less desire or motivation to grow thebusiness with a somewhat greater orientationto liestyle businesses.

A lower level o innovation, especially interms o innovative business models.

A more conormist approach to business withless willingness to delegate.

However, it should be emphasised that somegrowth constraints are the product o theentrepreneurs lie history (his/her experience)and others are built in at the start-up stage(the start-up motives).

5


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Part 5: Discussion

This nal chapter discusses implications othe research or policy and third age start-ups.

Realistic policy conclusions rarely ollow rom asingle piece o research. They should take intoaccount all available evidence. Consequently,in addition to the research presented in thisreport, this discussion draws on the analysiso the Small Firms Survey, Literature Reviewand Case Studies included as Appendices B, Cand D. However, rst we would like to touchon an important methodological problemwhich aects the interpretation o the researchpresented in the preceding chapters.

The sel selection sample problem

The research is about new businesses set up bythose aged over 50 in their third age whichhave achieved high growth status throughemploying 25 or more sta ater 3-6 years ooperation. In most respects there are relativelyew dierences between these businesses andhigh growth new starts set up by youngerounders. This is not surprising. Similarcharacteristics, motives, business strategies andother actors determining business success arerequired regardless o the age o the ounders.In other words, the third age high growthbusinesses in the sample are sel-selecting onthe basis o their success. As such, third agehigh growth businesses and their ounders is abiased sample.

This limits the conclusions which can bedrawn rom the research. For example, it isnot possible to identiy the actors which arebarriers to third age start-ups or constraints

on their subsequent growth by examining onlythose who have made it (and survived). It isalso necessary to study those who have not

set up in business to identiy start-up barriersand determine how third age entrepreneurship

might be increased. Similarly, to identiygrowth constraints, it is necessary to studythose not achieving growth (since they mayhave experienced constraints) rather thansimply those achieving it (who obviously didnot experience insurmountable constraints).

The role o risk aversion illustrates the point.The research shows that older ounders areno more risk averse than younger ounders.Consequently, it could be concluded that riskaversion is no more o a constraint on third age

entrepreneurship than on entrepreneurshipamongst the young. However, older individualswho are highly risk averse simply may not setup in business and would not appear in a selselecting sample. Risk aversion may be morewidespread amongst the third age populationand so could be a constraint on third agebusiness ormation.

To overcome this diculty it is necessaryto examine the attitude to risk o the widerpopulation. As illustrated in the LiteratureReview (Appendix B), available evidencesuggests that the third age population is morerisk averse than younger age groups and thatthis may constrain business ormation. Fromthe evidence presented in this report, thiscannot be identied simply by examining thosewho have set up in business.

To illustrate urther, a key question iswhether health is a constraint on third ageentrepreneurship. The research ound thatalmost all older ounders say they were ingood health when they set up their business.

Th

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