Whether by choice or by consequence (or some combination of the two), baby boomers have become an entrepreneurial force to be reckoned with, even surpassing the ambitions of those almost half their age. But underlying this spike in entrepreneurial activity among boomers nearing the age of retirement, is the need for an extra dose of diligence and business know-how.
Why Are Baby Boomers Starting Businesses?
According to the results of a survey conducted by the Kauffman Foundation, from 1996 to 2007, Americans between the ages of 55 to 64 have consistently started more businesses as compared to those of the population aged 20-34. The actual difference is quite significant- with the average rate of entrepreneurism among boomers holding at more than 30% higher than their younger counterparts.
At first, these results may seem surprising, especially when there has been so much media attention surrounding the entrepreneurial energy and predisposition of the youngest generation of workers. But after taking a step back, it actually makes a lot of sense. The results of the Kauffman Foundation’s survey is indicative of a shift in attitudes towards retirement. Today, many boomers are shunning or at least postponing a total break from the ranks of the employed to embrace instead a working, semi-retirement. There are several reasons why a baby boomer would choose to start his or her own company so late in life. The Kauffman Foundation suggests a few, including:
- The decline of long-term employment over the past fifty years, especially among those aged 35-64.
- The increased financial strain brought on by the recession coupled with inadequate retirement savings.
- Advances in healthcare that have led to longer lives and have increased the overall health and productivity of those in their later years
- The ease with which someone can start a business today due to the Internet and the availability of resources and information.
But there are other reasons as well…
- The truth is that many baby boomers are highly experienced, knowledgeable, and capable and the thought of not being productive in their later years is unappealing. Starting a new business fulfills a need for continued mental stimulation, social interaction, and adventure.
- Along the same lines, some businesses require a significant investment of capital. Boomers are more likely to feed the entrepreneurial bug if they are in a better cash position now, then they were when they were younger.
What Should Baby Boomers Consider Before Starting a New Business?
Though there exists this mass entrepreneurial movement among baby boomers, the truth is that starting a business requires a lot of care, work, and business savvy, and the process is very much not for everyone- irregardless of age or background. Baby boomers thinking about starting their own companies should keep the following five tips in mind:
1. Do you have what it takes to be an entrepreneur? Becoming an new entrepreneur is not a simple process and typically requires a significant investment of time, money, and attention. Determine beforehand how much of each of these things you have to give. You should also make sure that your venture fits your personality, experience, and background.
2. Can you risk loosing your assets? One of the biggest advantages of starting a business later on in life is having more personal assets to tap into to fund your business. These typically include: cash savings, retirement accounts, and home equity; even insurance policies can be used as collateral on a loan. But this also exposes the older entrepreneur to a great of risk. Though there are ways to minimize the risk somewhat by, for example, taking out liability or property insurance, incorporating the business, or in some cases, taking on a partner, you need to be very clear about how much you can afford to lose should your business go under.
3. Is the venture viable?How much to you know about the prospective business opportunity? Your new business may present a break from your dull 9 to 5 job, but it may not be a sustainable operation. Have you done your research regarding the industry and possible demand for your product or service? How much can you expect to make and approximately how much time will it take before you can expect to be profitable? These are important questions that should be answered before you go about starting your business.
4. Exercise due diligence when forming business partnerships. Many business owners fall into this trap, but with older entrepreneurs avoiding it is all the more urgent and necessary. If you are starting a business with another person- whether a family member, friend, or business contact- make sure that you have a formal, written partnership agreement. This agreement is a legally binding road map outlining business ownership, partner responsibilities, a plan for handling partner disputes, and what will happen in the event that one partner leaves the business under various conditions. To help you draft this agreement you should seek the services of a qualified legal professional.
5. Prepare your exit strategy. Baby boomers looking to start a new business have the added responsibility of creating a thorough exit strategy. Like the partnership agreement above, this should be developed with the assistance of a qualified professional. Some basic things to consider: Who will take over the business when you leave and under what circumstances? Will the business be sellable? Will you receive value from the business after you have left it?
In short, starting a new business is often a major life decision, and while it can present new opportunities, especially for baby boomers looking for change or an additional income, there are several risks as well. Older entrepreneurs would be wise to weigh the benefits versus risks before taking the plunge.
Adam Gottlieb is a small business owner and small business consultant with over ten years experience helping small and home-based businesses improve their image, increase sales and better manage their resources (both the animate and inanimate ones). He is currently the owner and senior editor of the The Frugal Entrepreneur Small Business Blog providing business tips, tools, and resources to frugal small and home-based business owners.