Innovation Grows Among Older Workers

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Peach-fuzzed entrepreneurs like Mark Zuckerberg, 19 when he founded Facebook, and Larry Page and Sergey Brin, both 23 when they developed Google, have created a collective image of the successful innovator as youthful, brash, and brilliant. In turn, we've been taught that with middle age come calcified habits, outdated skills, and an aversion to risk. Sounds bad, right? Hey, it gets even worse when you consider that, by 2030, the average age will rise from 37 to 39 in the United States, from 40 to 45 in the European Union, and from 45 to 49 in Japan. The implication is that such figures, plus the post–baby boomer decline in birthrates, could leave swaths of the world with a deficit in creative potential. The question then becomes whether these places can continue to compete, grow, and create wealth with an aging pool of prospective entrepreneurs and workers. According to several new studies, the surprising answer is yes.

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It turns out that many of the most common stereotypes about aging are dead wrong. Take the cliché of the youthful entrepreneur. As it turns out, the average founder of a high-tech startup isn't a whiz-kid graduate, but a mature 40-year-old engineer or business type with a spouse and kids who simply got tired of working for others, says Duke University scholar Vivek Wadhwa, who studied 549 successful technology ventures. What's more, older entrepreneurs have higher success rates when they start companies. That's because they have accumulated expertise in their technological fields, have deep knowledge of their customers' needs, and have years of developing a network of supporters (often including financial backers). "Older entrepreneurs are just able to build companies that are more advanced in their technology and more sophisticated in the way they deal with customers," Wadhwa says.

And the age at which entrepreneurs are more innovative and willing to take risks seems to be going up. According to data from the Kauffman Foundation, the highest rate of entrepreneurship in America has shifted to the 55–64 age group, with people over 55 almost twice as likely to found successful companies than those between 20 and 34. And while the entrepreneurship rate has gone up since 1996 in most other age brackets as well, it has actually declined among Americans under 35. That's good news for one very simple reason: baby boomers are now in their prime, startup-founding years, which will unleash what Kauffman researcher Dane Stangler expects to be an entrepreneurship boom. Since new companies create the vast majority of jobs, the positive impact on a post-recession economy could be great.

Part of the reason that companies started by older workers don't get much recognition is because they don't generally produce hot Web apps or other easily understood products. Instead, they tend to involve more complex technologies like biotech, energy, or IT hardware. They also tend to sell products and services to other businesses, which consumers rarely see but which do most of the heavy lifting in powering innovation and economic growth. In fact, America's fastest-growing tech startup, according to Forbes Magazine's Fast Tech 500, is First Solar, founded by a 68-year-old serial inventor in 1984. The founders of No. 2 on the Forbes list, Riverbed Technology, were 51 and 33 when they started their networking company. Even the Internet is no longer just the province of young adults. Zynga, the company behind Farmville and other infectiously popular games, will likely pass a billion dollars in revenue next year. Its founder and CEO, Mark Pincus, is a stereotype-defying 44. In sectors such as biotech and energy, Wadhwa estimates the average entrepreneur to be even older.

So if entrepreneurs don't necessarily fade out with age, what about regular workers? One of Germany's largest companies had a researcher examine its system for continuous improvement, expecting the findings to back up its policy of pushing workers into early retirement. The numbers, however, showed that older workers not only had great ideas for making procedures and processes more efficient, but their innovations also produced significantly higher returns for the company than those of workers in younger age groups. Birgit Verwonk, a Dresden University of Applied Sciences economist and author of the study, says the findings were so surprising for the company (which wasn't named in the study) that it is now phasing out its early retirement program.

Given these sorts of results, why is the notion that older people are less productive or innovative so entrenched? Part of it is because there are deep stereotypes and cultural narratives at play. In a series of landmark studies on creativity in the arts and sciences, David Galenson, a University of Chicago economist, identified two types of creativity. One was based on radical new concepts, at which young innovators excel (think Picasso or Einstein, who were both in their 20s when they revolutionized their fields), and the other built on probing experimentation that coalesces later in life (think Cézanne or Darwin). The second type of innovation is more hesitant, probing and often a work in progress, which Galenson argues leads to some of the conventional wisdom regarding older genius. That misconception has some ugly side effects, according to Wadhwa. It becomes the reason why some venture capitalists often don't return calls from 40-plus entrepreneurs. "The VC people boast that they're financing all the whiz kids," says Wadhwa. But given the rates of entrepreneurial success for that group, "they should really be embarrassed."

The way companies tend to be organized is also to blame. Companies often put new hires fresh out of college on their most innovative projects, while making older workers do routine jobs with existing systems, says Verwonk. Also, too few companies spend enough on continuous training to keep their employees' expertise up to date. But workers themselves are at fault as well. Many older workers coast into premature obsolescence instead of keeping their skills current. In the European Union, for example, only 30 percent of employees over 55 participate in any kind of job-related training, compared to 50 percent of their younger colleagues.

One thing is clear: a change in the prevailing mindset about older entrepreneurs and workers won't happen by itself. Mixed-age teams, such as the ones automaker BMW is using, are one possible approach and have the added benefit of minimizing the loss of knowledge that occurs when older workers retire. Siemens, the Munich-based technology conglomerate, has instituted a "cross-mentoring" system under which older employees show younger ones the ropes while getting an update on the latest skills from these new hires. These shifts are a start, but a lot still has to be done, says Verwonk. Demographic and economic pressures will soon force workers, businesses, and entire economies to rethink certain stereotypes; in a post-recession world, assuming that someone can be phased out due to age will be a luxury no one can afford.