“Demographic trends in the developed world indicates that older entrepreneurs will play an increasingly important part of economic activity as populations age yet this cohort has been largely ignored in entrepreneurship research.”
Weber & Schaper (2004)
Most people profile the “typical entrepreneur” to be less than 40 years old, highly mobile in previous jobs, or well educated (Hardawar, 2011). Few people know that Ray Kroc, the founder of McDonald’s, sold paper cups and milkshake mixers until he was 52 (Nilssen, 2014). Nor would they describe a typical entrepreneur to be between 55 and 64 years old, having extensive personal networks and resources at their disposal. In the case of Evelyne Schimmel and Carlos Spiller, their previous experience in engineering and business helped to successfully operate LAR, an architectural residential centre for adults in Uruguay. This residence was founded with the aim of differentiating itself from traditional nursing homes by reducing the clinically negative reputation attached to this kind of habitation. Personalized recreational programs and natural light flooding the 5,200-square meter building communicate a feeling of home and warmth. Schimmel and Spiller recognized the potential of the idea as they discovered a niche in the market upon failing to find a suitable service for a relative (GEM, 2017).
Therefore, elder entrepreneur, often referred to as senior entrepreneur or encore entrepreneur, is a highly relevant yet largely under-researched phenomenon. From a psychological perspective, further exploration on why senior entrepreneurs actively decide to leave a steady income, safe environment and anticipated future behind is worthwhile. Catalysed by demographic or country specific environment and individual behaviour, research has to be very country and group explicit (Zhang, 2008). Moreover, there are indications in literature that elderly people have different founding motives and pursue other approaches than their younger counterparts.
The aim of this thesis is to disregard the proven model of the inverse U-shaped curve. A first indicator is the behavior observed in the USA, where Total Entrepreneurial Activity (TEA) has a flatter curve for entrepreneurs from 55-64 years old than it used to be. In the following, a first step is taken to show that this change is mirrored in Germany as well. My research adds value by looking at the senior entrepreneurial eco system in Germany, as countries’ reaction on this phenomenon continuously diverges. Therefore, this paper investigates the following question;
How did the approach of senior entrepreneurs in Germany change from 2003 to 2013?
In answering the problem statement, the paper is structured as follows. First, senior entrepreneurship is defined continued by the difference in opportunity and necessity driven motivation of starting up at a later stage in life. Next, global research on encore entrepreneurship and differences on regional level is analyzed. The motivation for this research paper originates from there, as the Global Entrepreneurship Monitor publishes findings only on global and regional scale. However, it is crucial to observe country specific differences. On the basis of the introduced hypothesis, collected data will be analyzed. Finally, statistical findings will be presented and recommendations are proposed. Finally, a conclusion is drawn and limitations of the study are stated.
1.1 Definition of Senior Entrepreneurship
A senior entrepreneur is commonly classified as “a person aged 55 or over running their own business, be that as a company, partnership or on a self-employed basis, with a view to generation of income or capital value” (Small, 2011). The official notation of a “senior entrepreneur” is not only coined by major discrepancy on the age range but also on the official notation and term usage. To illustrate, the Global Entrepreneurship Monitor (GEM) classifies “seniors” as being between 50-64 years old. Whereas Dane Stangler from the Kaufmann foundation concluded in 2014 that they are “older Americans between 55-64, who are active entrepreneurs whose new businesses provide self-employment and employment opportunities to others.” Therefore, this paper disregards subjective discrete categorizations of senior entrepreneurs and focuses on the relationship between entrepreneurial intention of the age group from 55 to 64 (Tervo, 2014).
1.2 Opportunity and Necessity driven entrepreneurship
Since 2001 the Global Entrepreneurship Monitor discusses two different types of motivations for an entrepreneur to start a business. These are the drivers of felt necessity and perceived opportunity. The GEM made this distinction by asking people the question whether they were starting and growing their business to take advantage of a unique business opportunity or was it the best option available (GEM, 2001)
Necessity entrepreneurship is the concept were an inconvenient initial situation leads to the decision to become self-employed. Namely because of sudden job loss or age discrimination. Thus, these people were “pushed” into entrepreneurship by not having any other employment prospects.
In theory, opportunity entrepreneurship is the concept where someone becomes self-employed due to opportunities available. This is of high relevance for this research, as it is very important to investigate the economic and non-economic factors behind the chase of new opportunities. For instance, the possible access to higher financial rewards and creative freedom. Moreover, why people actively decide to leave their job and steady income behind in order to become an entrepreneur.
In addition to the two types of entrepreneurial motivations Singh and DeNoble (2003) investigated an additional approach on finding especially an explanation on why people aged 55-64 start their own company. Here, they identified three kinds of senior entrepreneurs: Necessity driven, opportunity driven and they define constrained entrepreneurs, who although they possess the necessary entrepreneurial tendencies, have not been able to implement or experience them in their previous careers due e.g. to family obligations (Singh and DeNoble, 2003). Further, these entrepreneurs feel like they missed out on an opportunity because of responsibilities. Also, one could argue because they took on a role to which they felt obliged to by societal norms or their upbringing. Risk-seeking behaviour may be a result of this mind-set. Therefore, the first hypothesis developed assumes that:
H1: Encore Entrepreneurs in Germany are less risk averse than their younger counterparts.
2. Background Literature
Although, encore entrepreneurship was first recognized in 1990’s, research on this young phenomenon is on the rise. In the past, studies on senior entrepreneurship have examined the respective areas as individual attributes of senior entrepreneurs; important drivers for entrepreneurial behaviour of encore entrepreneur (Weber & Shaper, 2004); factors for opportunity recognition and exploitation in older age (Cressy & Storey, 1995; Peters, Storey, & Cressy, 1999); the impact of work experience on the entrepreneurial intentions of seniors (Kautonen et al., 2011); and changes in entrepreneurial behaviour with age (Le?vesque & Minniti, 2006). In addition, a few studies in firm level entrepreneurship have focused on unsuccessful performance of firms established by seniors, compared to their younger counterparts (Barclays, 2001; Cressy & Storey, 1995). However, aggregate level senior entrepreneurship studies have preliminarily examined the relationship between age distribution and the global entrepreneurial activity rate. what makes studying entrepreneurship cross-nationally more difficult is that reliable and consistent data for a representative number of countries is still generally lacking. In addition, differences in national political and demographic setting have to be taken into account.
2.1 Global Research
Especially the special topic report published by the GEM in 2017 showed that age influences total early-stage entrepreneurial activity on a global scale. (……)
Isele & Rogoff (2014) found that senior entrepreneurs especially need technical support, governmental support,
2.2 Regional Research
Countries like the United Kingdom or Sweden already recognized this change and have therefore implemented training and regional development programs (ILC, 2018). In the UK, Hart (2004) concluded that third stage entrepreneur are only half as likely to engage in early stage entrepreneurial activity as prime respondents. This is supported by Curren and Blackburn’s study in 2001 that indicates a clear negative relationship between economic activity and age. In Ireland however, Senior Enterprise is a European Union (EU) supported initiative for greater involvement in founding a company at older age (Senior Enterprise, n.d.). With this, individual countries address the concern of an ageing population and the need to increase productivity, competitiveness, and entrepreneurial activity raised by the EU.
Uruguay belongs to the Latin American and Caribbean countries grouped by the GEM as the LAC region. Representative for this area is When Evelyne Schimmel and Carlos Spiller from Uruguay founded LAR in 2009, there was no governmental support or initiatives for senior entrepreneurs on their journey of starting up. Today, there is an established network of encore entrepreneurs providing information and guidance (Ltaif, 2009).
For the purpose of finding country specific data on the change of senior entrepreneurial activity, the following hypothesis is proposed:
H2: In Germany, there is an increase in Total Entrepreneurial Activity (TEA 55-64 years) for senior entrepreneurs from 2003 to 2013.
Currently, there are no programs in the United States that specifically target senior entrepreneurs and provide the most relevant services that address their unique needs (. Just as there are programs that provide targeted services to women, minority, and immigrant entrepreneurs, senior entrepreneurs should be recognized as a group that merits such special attention.
As observed in the United States, senior women are more prevalent than men in starting up. According to a 2010 report by Babson College near Boston, 10% of US women aged between 55 and 64 had taken steps to start their own business, compared with 7.5% of men. This assumption is in clear contrast to the findings published in the GEM special report. According to this report, only 3% of senior women in the European Culture Countries (ECC) are engaged in early-stage entrepreneurial activity compared to 6% of the men. Therefore, it is in question to which extend these findings are transferable to the German context.
H3: In Germany, women are more likely to become senior entrepreneurs than men.
2.3 Demographic Change in Germany
Today’s seniors have been given the gift of additional 20-30 years of longevity and health (Isele & Rogoff, 2014). However, a country with an aging population soon faces multiple challenges. For instance, the gradual increase of economic and social demands (Heinrich et al, 2010), diminishing economic growth of the country (Bloom et al., 2010) and ultimately, declining quality of life of the entire population (Hartholt et al., 2011). Although a reformation of welfare policy was generally thought to be the most feasible solution for the ageing crisis, questions remain about its effectiveness (Meier & Werding, 2010; Pierson, 2001). Another approach to addressing the problem of an ageing population has generated more interest: governments are promoting the idea of active ageing and encouraging older people to actively participate in various activities, including employment, volunteering, and leisure activities (Zaidi et al., 2008).
Despite the persistent demographic change in Germany and shift in job and employment forms, hardly any adequate age-specific personnel policy has been pursued (Weber & Schaper, 2004). Continuous occupational biographies became a rarity while change in job position or employer are the norm. In the early 2000’s, it was an economic challenge to regard the aging generation as an entrepreneurial potential group. Today, encore entrepreneurs are creating businesses of their own from micro- to multimillion dollar ventures and break down barriers. Weber & Schaper (2004) suggest that elder entrepreneur should be encouraged and further educated, so that existing motives for starting-up are not abandoned due to risk aversion or lack of knowledge about financing possibilities and technology.
As a response to this shift, the German government issued the
Likewise, the Senior Entrepreneurship Good Practice Manual (2016) states multiple advantages of encore entrepreneurship. The skills acquired over the years, allows for a better contextualisation of information to make more informed business decisions. Additional research studies have found that they are “more prudent and sustainable” entrepreneurs. Hence, the start-up companies established are more likely to generate sustainable jobs. Although, the meta-analysis on personality traits by Rauch and Frese (2007) concludes that there is a general positive relationship between personality traits and entrepreneurship, no research has been done on the timespan a senior entrepreneur spends in the company before starting-up.
H4: Senior Entrepreneurs spend more than 10 years with their employer before starting up.
3.1 The GEM
The importance of small business led to an increase of related studies and institutions to understand and monitor entrepreneurial activity. The Global Entrepreneurship Monitor (GEM) is an example of such an institution. It is a non-profit academic research consortium, with the goal to provide high-quality international research data widely available. The Global Entrepreneurship Monitor is a gradually evolved conceptual framework with the intent of bringing more clarity into assumed interdependence between entrepreneurship and economic development (Reynolds, 1999). Correspondingly to the above-mentioned research studies, a lot of research focuses on the reasons why people turn into entrepreneurs. The GEM introduced two main concepts to describe the main reasons.
The GEM uses the concepts of necessity and opportunity entrepreneurship to explain why people become self-employed.
3.2 Research Method
The Data for this quantitative study originates from the Global Entrepreneurship Monitor. This database is especially credible with its large scale international data collection, random sampling and usage by the United Nations or the World Bank. The research relies on aggregated opinions and … .
It aims on understanding the phenomenon in a comprehensive, holistic way by analytically disclosing the meaning-making practices and reasons of human subjects above the age of 55 to engage in entrepreneurship. This requires careful examination of the variables as the analysis focuses on subjective behavior of a group of individuals.
The data is drawn from individual responses of the German Global Entrepreneurship Monitor (GEM) Adult Population Survey (APS) for the periods of 2003 and 2013. The German GEM is a population weighted sample based survey of entrepreneurial aspirations, attitudes and activities.
The 2013 data set consist of 244381 participants, out of which 2,5% (n=5997) are from Germany. The group of seniors is made up of 1105 respondents, being 18,5% of the total German sample with 29 people refused to disclose their age.
The 2003 data set holds answers of 96712 respondents with 7534 (7,8%) from Germany. The ratio of senior entrepreneurs to their younger counterparts was in 2003’s survey at 659 to 4578 (14,4%). In addition, the survey in 2003 holds respondents under the age of 18 and above the age of 64, which is not the case in the data set from 2013. Therefore, 445 minors and 1407 pensioners have not been taken into account during the research. Nevertheless, it can be concluded that the sample size is sufficient for further analysis.
4.1 Comparison of senior and younger entrepreneurs in the likelihood to take on risks
Hypothesis 1 for hypothesis one special attention has been given to the 5997 German seniors in the 2013 APS Individual Data set. The independent variable (GerSen) has been correlated against the dependent variables
4.2 Change in elder entrepreneurial activity in Germany
Hypothesis 2 is tested by retrieving APS Individual Data Sets from 2003 and 2013. Next, respondents from Germany (country=49) were extracted and merged into a new data set. Group of senior entrepreneurs are correlated by an independent t-test showing the difference in mean, median and distribution.
4.3 Difference in senior entrepreneurship of women and men in Germany
Hypothesis 3 assumes that there are more senior women in Germany being involved in early stage entrepreneurship
5. Findings and Conclusion
In conclusion, as of today there still is
6. Limitations and Further Research
Limitations of this study are in the data collection. In general, the amount and representativeness of data collected by the Global Entrepreneurship Monitor is not replicable in the scope of this bachelor thesis. This institution is equipped with greater resources a wider reach for potential respondents. All tests are run on the assumption of TEA and do not take the continued success and operation of the businesses into account. Therefore, the conclusions drawn could differ from the findings of monitoring businesses in the long-run. As Germany is just at the foot of a growing senior entrepreneurship curve, one should collect more recent data and compare it to preceding years. Future research should support the previously stated theory of a boom in older entrepreneur and be able to capture this trend. One should observe the impact of newly implemented programs by the German government on TEA of senior entrepreneurs and performance of businesses founded by this age group. This allows for a re-evaluation of these policies in order to ultimately set an environment for elder entrepreneurship to prosper.
Becker, G. (1965). A theory of the allocation of time. Economic Journal, 75, 493–517.
Blanchflower, D.G., Oswald, A.J. (1998). What makes an entrepreneur? Journal of Labor Economics, 16(1), 26–60.
Harms, R., Luck, F., Kraus, S and Walsh, S. (2014). On the motivational drivers of gray entrepreneurship: an exploratory study. Technological Forecasting and Social Change, 89, 358-365.
Hart, M., M. Anyadike-Danes and R.A. Blackburn (2004), ‘Entrepreneurship and age in the UK: comparing Third Age and Prime Age new venture creation across the regions’, paper presented to the RENT XVIII, Copenhagen, November.
Kautonen, T., S. Down and L. South (2008), ‘Enterprise support for older entrepreneurs: the case of PRIME in the UK’, International Journal of Entrepreneurial Behaviour & Research, Vol. 14, No. 2, pp. 85-101.
Kautonen, T., Tornikoski, E and Kibler, E. (2011). Entrepreneurial Intentions in the Third Age: The Impact of Perceived Age Norms. Small Business Economics, 37(2), 219–234.
Levesque, M., & Minniti, M. (2006). The effect of aging on entrepreneurial behavior. Journal of Business Venturing, 21(2), 177-194.
Lorrain, J., Raymond, L. (1991). Young and older entrepreneurs: an empirical study of difference. Journal of Small Business Entrepreneurship. 8, 51–61.
Parker, S. C. (2009). The economics of entrepreneurship. Cambridge: Cambridge University Press.
Rauch, A., & Frese, M. (2007). Let’s put the person back into entrepreneurship research: A meta- analysis of the relationship between business owners? personality characteristics and business creation and success. European Journal of Work and Organizational Psychology, 16(4), 353-385.
Tervo, H. (2014) Starting a new business later in life, Journal of Small Business & Entrepreneurship, 27:2, 171-190, DOI: 10.1080/08276331.2014.1000148
van Praag, C. M. and van Ophem, H. (1995). Determinants of willingness and opportunity to start as an entrepreneur. Kyklos, 48(4), 513–540.
Weber, P. and Schaper, M. (2004). Understanding the grey entrepreneur. Journal of Enterprising Culture, 12(2), 147–164.
Zhang, T. (2008). Elderly entrepreneurship in an aging US economy: it’s never too late (Vol. 2). World Scientific.