Viewpoints: An entrepreneur at any age

Amazon’s Jeff Bezos just sold 3% of his stock for $3,5 billion. He is worth $115,6 billion at 56. Elon Musk’s Tesla is worth $174 billion – more than the entire US car industry. Musk is personally worth $38,1 billion at 48.

Founders in their 40s in the US have the greatest chance of success as entrepreneurs, says Daniel Kim, Wharton’s management professor, in an article titled ‘Age and high-growth entrepreneurship’. While the success stories are legendary around Zuckerberg and Gates starting their companies in their teens, and Steve Jobs founding Apple at 21, this research shows that they are exceptions.

Key findings included:

• Founders in their 20s had the lowest likelihood of a successful exit or a highest-growth firm.
• A 50-year-old founder is 1,8 times more likely to achieve upper-tail growth than a 30-something founder.
• For the highest-growth new ventures – it’s 45 years old (even in Silicon Valley it’s the early 40s).
• Examining the forward five-year stock multiple as a function of founder age, Jobs peaked at 48, Bezos at 45, and Gates at 39.
• Experience and taking more measured risks were invaluable.

Having sufficient wealth to live comfortably and retire is not an issue for these icons. Gates has slipped to third place as the richest person in the world only because he has given $35,8 billion to charity.

Building and protecting the right assets is critical if you’re going to take measured risks:

Intellectual assets The ability to generate income through one’s IQ, EQ, expertise, experience, innovative abilities, leadership skills, and in fact, physical capacity. These are the intangibles that can generate cash flows and tangible assets. You are your biggest asset. Protect yourself with dread disease, income protection, disability and other life insurance solutions.

Business assets The cash flows generated as an employee and shareholder, and ultimately a capital value on exit from the business. Until exit, they are always subject to the challenges of business risk. Buy and sell, key man, professional indemnity, short-term insurance, or contingent liability policies can assist in mitigating these risks.

Personal assets Our possessions: our homes, cars, furniture, artwork, and an assortment of toys. They are normally depreciating assets with high costs of maintenance – even though we like to argue otherwise. They are not retirement assets, as they are unlikely to generate an income.

Retirement assets Investments need to be structured, protected and balanced in a proper financial plan to fund the expected or aspirational lifestyle on retirement.

So, whatever your age …

• Understand your financial planning framework and objectives for each class of asset.
• Don’t ‘bet the house’ on your business with your retirement investments.
• Protect your business assets and personal wealth with appropriate assurances for when ‘business or life happens’.
• Invest the wealth from business assets prudently whether for business growth or building personal or retirement assets.
• Evaluate the legal structures, estate planning, tax planning, and cash flow planning options available to you.
• Have a clear understanding of the value of the business you own and your exit strategy.
• Seek professional financial advice in each category.