The nation is on the brink of
an explosion of new business start-ups, which may eclipse the dot.com boom
of the late 1990s. This time around, however, the burst in entrepreneurial
activity will not be led by 20-somethings, but by baby boomers and would-be
retirees in their 40s, 50s, 60s and even 70s, who are better educated, healthier
and more tech-savvy than their predecessors.
The boomer-led surge in start-ups
could have a profound impact on the economy, both from new job creation and
decreased tax burden, as this large, aging population is supported by entrepreneurial
income instead of government assistance.
Evidence that the entrepreneurial
renaissance may already be on the way can be seen in the latest quarterly
job market survey conducted in the second quarter of 2005 by global outplacement
firm Challenger, Gray & Christmas, Inc. The survey of 3,000 job seekers
found that 13 percent started their own businesses in the second quarter.
That was up from 9.9 percent in the same quarter a year ago and was the highest
percentage since the second quarter of 1994, when 14.9 percent of job seekers
started businesses.
A large portion of these entrepreneurs
– 86.6 percent – were over 40, providing support for the idea that the next
wave of start-ups will be dominated by seasoned business veterans. Further
support is found in a Challenger analysis of unpublished government
data, which showed that those 55 to 64 and older represent one of the fastest
growing groups of self-employed workers. Data from the Bureau of Labor Statistics
show that the number of Americans 55 to 64 categorized as self-employed in
non-agricultural industries has increased 29 percent from 1,434,000 in July,
2000, to 1,846,000 as of July, 2005. The number of self-employed 65 and older
has grown 18 percent from 641,000 in 2000 to its current level of 756,000.
Meanwhile, the largest number of self-employed workers is represented by late
boomers – those 45 to 54 years-old – who make up nearly 2.6 million or 27
percent of the nation’s 9.6 million self-employed. All told, the boomer-and-older
entrepreneurs now account for 54 percent of self-employed workers, up from
48.5 percent in 2000. While self-employment was expanding among older workers,
it was stagnant or falling for almost every other age group. The biggest group
of self-employed workers in 2000 was the 35- to 44-year-old cohort, which
numbered 2,790,000. Their numbers have fallen 15 percent to 2,359,000. Self-employment
has risen by only one percent among 25- to 34-year-olds.
“It may be a foregone conclusion that many baby boomers, either out of desire
or necessity, will work beyond the ‘retirement age’ of 65. What some employers
may not have expected is that a growing number of these baby boomers are abandoning
traditional employment for self-employment,” noted John A. Challenger, chief
executive officer of Challenger, Gray & Christmas. “This could have negative
consequences for employers, some of whom are already starting to experience
a shortage of skilled workers.” In a June survey of human resource executives
by Challenger, 40 percent of respondents said that their companies did not
meet hiring expectations in the first half of 2005 due to a lack of qualified
candidates. “As a result of the shortage, the new wave of senior entrepreneurs
may find that their biggest customers are their former employers, who have
no choice but to outsource certain functions to those with the most relevant
experience,” Challenger observed. So, why the surge in boomer start-ups? Boomers
are better educated than previous generations who entered their retirement
years. As a result, they are more ready, willing and able to take on the intellectual
challenges of continued employment. Thirty percent of the leading edge boomers,
aged 55 to 59, have a bachelor’s degree or higher. That is up from 25 percent
just six years ago in 1999, according to Census Bureau statistics. Overall,
our society is becoming more educated. Census data show that in 2004, 85.2
percent of Americans 25 and older completed four years of high school or more.
In 1974, the high school completion rate was just 61.2 percent. Furthermore,
27.7 percent of the 25-plus population has gone on to complete four years
of college or more, up from 13.3 percent in 1974.
Aging boomers as well as those
who are now in their 60s and 70s have also shown a propensity to continue
their education. The latest available statistics from the Department of Education
show that the number of Americans between the ages of 45 and 69 enrolled in
adult education classes increased 23 percent from 22.6 million in 1995 to
27.9 million in 1999.
“With the oldest boomers scheduled
to reach the early retirement age of 62 in 2008, many are saying that they
plan to stay in the workforce. As a result, we will continue to see adult
education enrollment grow as these aging workers and entrepreneurs attempt
to keep up with changing developments in technology, business management and
other areas,” said Challenger.
While some boomers start their
own business out of the desire to continue working, others will do it out
of necessity. For many, imploding pension plans and a volatile stock market
have diminished retirement savings. To make matters worse, many aging workers
suddenly found themselves out of work due to corporate downsizing.
“With a weakened safety net,
more of these older downsizing victims are opting for self-employment in order
to have more control over their job security and financial destiny,” said
Challenger.
As it is, younger boomers have
a lot of catching up to do when it comes to retirement savings. A recent U.S.
News & World Report story cited statistics showing that 55 percent
of 45- to 54-year-olds have less than $50,000 saved toward retirement. Ninety
percent have less than $250,000, a nest egg that will only provide about $10,000
annually for those hoping to stretch it out for 30 years.
In addition to a lack of retirement
assets, the surge in boomer start-ups may be due to several other factors,
including the enduring perception that age discrimination persists and the
growing desire among older workers for a high level of workplace flexibility
that they feel can only be achieved by acting as their own boss.
Ironically, many companies will
be forced to contract work out to these older, independent consultants and
freelance workers due to the approaching mass retirement of aging baby boomers,
which is expected to leave an enormous void of experienced workers at companies
in nearly every industry throughout the U.S.
“It will be a win-win situation
for the company and older contract workers. The company will benefit from
the experience that these experienced free agents bring -- paying them a fee
vs. a monthly salary, which will also save money on benefits.
The boomer entrepreneur will
have an ongoing flow of work and income, which will be critical for many of
these individuals since the economic slump and subsequent stock market losses
inflicted significant damage to their retirement savings,” Challenger noted.
Entrepreneurship will be the
road to continued earnings for some, but starting a business is not for everybody,
according to Challenger. He offered the following suggestions on what makes
a good entrepreneur :
Sales experience. As an entrepreneur, you should expect to spend 75 percent
or more of your time on sales as the business is getting off the ground. If
you do not feel comfortable selling, your business is probably doomed before
it even begins.
A financial cushion. Many entrepreneurs are forced to fund part or all of
their business with their own savings and/or credit cards. The return on this
investment probably will not come immediately, so it is critical to be financially
able to get through the lean times of little or no steady income
A business plan. Consult with a CPA or an organization such as SCORE
to help develop a business plan. Many entrepreneurs have great concepts that
fail due to poor execution.
Commitment. Starting a business takes a substantial commitment of
time and personal effort. It is a time-and-a-half job, not a part-time job.
Your business must come first. You will have less time for family and personal
activities -- and less money, too. Before you decide to go out on your own,
make sure you are willing to make these sacrifices and remain dedicated to
your business goals no matter what.
A solid track record. A common mistake among would-be entrepreneurs is venturing
into a new field in which they have no previous experience. Just as we counsel
people not to change careers when they seek new employment, we counsel people
who want to start businesses to stay with what they know. Trying something
different -- including the purchase of a franchise about which you know nothing
-- only increases your chances of failure, because you would be competing
with others who have more experience.
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