Is there a ‘Golden Age’ for entrepreneurship in the Middle East?

By Tatjana de Kerros
 
The relationship between age and entrepreneurial propensity has recently been the subject of much debate. The romanticizing of the image of the young “college drop-out-turned-millionaire” startup founders has only be reinforced by media headlines. Some of the most controversial include:‘Want to be an Entrepreneur? Drop out of College’; or ‘Teen Entrepreneurs Getting Paid to Drop-out”.

This has been accentuated by studies demonstrating that the tender old age of 25 is the optimum age for high-tech entrepreneurship; and that among other factors; younger people perform better at raising venture capital1, channeling risk, uncertainty and high creativity.

The flip side of the coin has been led by advocates such as Adeo Rossi of The Founder’s Institute and Vivek Wadhwa of UC Berkley, who have argued that on the contrary, the golden age for entrepreneurial success if above 40 years of age. This is correlated by data from the Ewing Kauffman Foundation that show that the average founder age for company founders is 40, and that most founded a start-up after having spent more than ten tears in wage-employment. In a study entitled ‘The Coming Entrepreneurial Boom’, data collected by Kauffman demonstrated that between the period 1996 to 2007, Americans between the age of 55 to 64 had a higher rate of entrepreneurial activity than those in the 20 to 34 age bracket. Amongst 5000 startups founded in 2005, two-thirds of firm-founders where between the ages of 35 and 54; and to further demolish the claims of a ‘high-tech peak age’, the average age of the founder was 39, with twice as many over the age of 50 as under the age of 252 .

Age and demographics are undeniably important determinants of entrepreneurship that have largely been left unexplored in entrepreneurship research. On the contrary, age has been treated “as a factor exogenous to the utility function of the decision maker and is usually introduced indirectly in analytical models either as a cost or as a variable in the joint utility function of a household3”. However, founder age as a stand-alone factor does not provide sufficient evidence to determine the competency, entrepreneurial propensity, and growth potential of a venture or of entrepreneurial activity. On the contrary, entrepreneurial activity does not occur within a vacuum- it is deeply embedded within a cultural and social context, amid a web of human networks that are both social and economic4.

By attributing entrepreneurial success to age, it sets a dangerous precedent within environments that are seeing a nascent entrepreneurial culture. This is particularly true of youth entrepreneurship. It demands for a distinction between promoting entrepreneurial education to increase the skills and propensity for future entrepreneurial activity among youth; and giving the wrong message that entrepreneurship provides more opportunities than education and experiential learning. Rather, as Norris Krueger, Fellow of Max Plank Institute for Economics argues, “The environment need not be rich in entrepreneurs, but has the potential for increasing entrepreneurial activity” (Krueger & Brazael, 1994, p. 92).

In the Silatech Index: Voices of Young Arabs 2011, insight was given to the fact that 70% of youth in high-income GCC countries had a favorable opinion of entrepreneurship, and over 50% believed their local community provided a suitable environment for entrepreneurial activity. For example, 59% of young people in Saudi Arabia who took part in the survey claimed they would be willing to start their own business.

Aside from an improving economic outlook in the GCC, and the progressive elimination of barriers that hinder access to entrepreneurial opportunities; other factors such as the nationalization of the labour market and access to university education are among the prime factors that have correlated positively with entrepreneurial propensity and competency. Today, governments throughout the Middle East have prioritized the transformation of their economies into examples of ‘entrepreneurial capitalism’, and offer a myriad of programs and initiatives aimed at supporting and funding startups. But with conflicting messages being iterated by both the media and organizations responsible for fostering new venture creation, is it doing more harm than good to Arab Youth? Is it advisable to favour entrepreneurship over education and employment?

In light of these issues, it may be an appropriate time to decipher the myths and realities that associate age with startup founding rates and venture success, and how this applies to the Arab World.

Age Structures and Entrepreneurial Rates are based on Western contexts

Although there have been a number of studies which have sought to demystify how age affects the entrepreneurial anatomy, these have only focused on Western countries. However, if age can influence the decision to launch a business, this is strongly influenced by the surrounding environment, as entrepreneurship is a regional event affected by the local context. Social norms and economic conditions are strongly dependent on the Middle East’s entrepreneurial landscape and influence entrepreneurial decisions. Moreover, the behavioural characteristics and personality assigned to the individual entrepreneur (such as risk-taking, opportunity-recognition etc) is shaped by the environment. It would therefore be worthwhile to investigate how the recent focus on entrepreneurship in the Middle East has affected the decision to launch an entrepreneurial venture; how age structures have mutated and how this varies across region.

Baby-Boomers Vs. The Y-Generation

The phenomenon of 40 plus entrepreneurs in the US and Europe is marked by an aging population, and the coming of age of the baby-boom era. This rise in entrepreneurial activity among older members of the population has been intensified by the recession and rising unemployment- diminishing the opportunity costs usually attributed to choosing between wage-employment and entrepreneurship. The baby-boom period of 1989-1991 saw the highest rate of graduates in history, strengthening the link between higher education and entrepreneurial propensity.

In contrast, the Middle East has the fastest growing global youth population in the world, with 50% to 65% under the age of 24. Due to high unemployment and accounting for other socio-economic factors, it would only be logical to presume that there will be higher entrepreneurial rates among younger segments of the population (below 40). However, with an increasing number of graduates as well as employment generation within the private sector, it is possible that we will see an inverted ‘U’ curve within the next decade for when the Y-Generation comes of age. Similarly, this same generation will be the baby-boomers of tomorrow, when continued reform efforts will reduce the opportunity costs of founding a startup.

Entrepreneurial Education

Successful initiatives have shown that the supply of entrepreneurs can be increased by developing a positive perception about the feasibility and desirability of entrepreneurship through education5, particularly when delivered from a young age. Entrepreneurial education is not solely focused at raising awareness, but at providing business, financial and social skills that are transferable through the work place. In addition, amidst the ‘are entrepreneurs born are made debate’, entrepreneurial education can develop the psychological attributes associated with entrepreneurship. Research by Kauffman shows that entrepreneurs who demonstrate an early interest in entrepreneurship were more likely to start a company within 5 years of graduating. This means, the more Middle Eastern students and youth have access to entrepreneurial education, the more they are likely to found a business at a younger age.

Knowledge is the Root of All Opportunities

What differentiates a young professional from a CEO? Knowledge and experience.

Opportunity-recognition, key to the entrepreneurial function, is based on the ability to stock and decipher various types of information. Knowledge thus becomes the most important economic resource. Hayek once said that the ‘economic problem’ was not due to resource allocation, but rather, the dispersion of knowledge and utilization of information6. Knowledge is most commonly gained with experience, and individuals who have access to specific types of existing knowledge have a higher likelihood of recognizing opportunities. Startups in knowledge-intensive industries generally have highly qualified human capital, meaning that the founder is more likely to be older, although when it comes down to startup founding rates, these dominate non-knowledge intensive industries. Statistics also show that startup founders usually have approximately 10 years professional experience before launching their own business. In the bid to contribute to building the ‘knowledge economy’, today’s graduates will in the next decade, launch tomorrow’s Apple’s.

Do You Have the ‘X-Factor’? Personality, Perception and Credibility

Although most tend to agree that personality and behavioural traits only tell part of the story when it comes to entrepreneurship, these are attributes that deeply impact on age and propensity to enterprise. Personality is important, and dictates behaviour and interaction within a social environment; however, perception is just as important. Alertness, tolerance of uncertainty, risk-taking and knowledge are all factors that are intrinsic to the individual, and that are difficult to change through national policies, although they can shift with time and experience. For example, willingness to invest time in a startup will decrease with age, whilst young potential entrepreneurs may be more risk-adverse due to the fact they have not yet encountered significant economic risks, such as unemployment or prior business failures.

On the other hand, whilst experience may not be on the side of younger entrepreneurs, certain characteristics such as the ability to intake knowledge, adaptability, flexibility and a great deal of creativity have been attributed to younger founder rates. The most important factor recognized in the entrepreneurial anatomy, is perceived self-efficacy; Perception of one’s own ability to manage uncertainty, anticipate risks and set goals, and generally this is attributed to individuals who see past experiences not as failures, but as a learning curve .

Lastly, the all important credibility factor. The choice to launch a startup has to be credible to the entrepreneur through the realization of his own potential, but also, to the social context in which he will operate in. Will he be able to raise capital? Does he have access to networks? Is he a leader? Does he have a vision? Credibility of course, is enhanced with age, but entrepreneurial potential isn’t.

Social Networks

According to recent studies, age is one of the strongest influences on the composition of a social network. In turn, access to network is one of the strongest determinants to venture growth. This implies that the probability of starting a business will increase with age, perhaps explaining why there has been a boom in aging entrepreneurship. As entrepreneurship is a regional event, access to networks facilitates the gathering of knowledge and access to resources needed by the founder. However, there has been a major trend that goes against this popular perception; the social media era. Generation Facebook, Twitter and LinkedIn have proven that networks do not necessarily have to be acquired through the workplace, and especially, do not have to remain local. On the contrary, it would be futile to argue that if online social networks have the capabilities of acting as tools for revolution, they could not, and are not being catalyzed as tools for entrepreneurship at whatever age. Secondly, whilst most startups remain very much regional in their initial pre-growth phase, most Middle East countries have invested heavily in creating industry clusters, leading to intense potential for the spillover of entrepreneurial knowledge and networks. It then comes down the individual competency of the entrepreneur to know how to seize these opportunities.

The age-debate is difficult to resolve, and whilst it is clear that each camp have certain attributes that help determine the entrepreneurial propensity, it is not a clear indicator of venture success or failure. Within the crucial topic that is entrepreneurship in the Arab world, generalizations should be avoided at all costs. What this does show us however is that age is not a barrier. Rather, it could be a valuable determinant which could provide more insight into providing adequate support, training and policy measures which are custom-made for the entrepreneur. However, before jumping the bandwagon, young potential entrepreneurs should be aware of the opportunity costs and risks that come not with age, but venture creation.

1 / http://techcrunch.com/2011/05/23/david-lee-and-ron-conway-bust-entrepreneur-myths-on-stage-at-disrupt/
2 / Stangler, D. (2009). The Coming Entrepreneurial Boom. The Ewing Kauffman Foundation.
3 / Levesque, M., & Minniti, M. (2006). The Effects of Ageing on Entrepreneurial Behaviour. Journal of Business Venturing , 21, 177-194.
4 / Krueger, N. F., & Brazael, D. V. (1994, Spring). Entrepreneurial Potential and Potential Entrepreneurs. Entrepreneurship Theory and Practice , 91-104.
5 / Rasheed, H. S. (2000). Developing Entrepreneurial Characteristics in Youth: The Effects of Education and Enterprise Experience. International Journal of Entrepreneurship Education , 1-24.
6 / Corbett, A. C. (2005). Experiential Learning within the Process of Opportunity Identification and Exploitation. Entrepreneurship Theory and Practice , 29 (4), 473-491.

Check Tatjana’s Blog : The Entrepreneurialist

Read more on http://www.iloubnan.info/business/actualite/id/63000/titre/Is-there-a-‘Golden-Age–for-entrepreneurship-in-the-Middle-East?

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