Instead of retiring, boomers are starting second-act businesses; some are motivated by an independent lifestyle, others by economic necessity
In May, 2004, at age 50, Bob Axisa, then vice-president of enterprise technology services for JP Morgan Chase (JPM), had his position eliminated when the company merged with Bank One. "It was really scary," says Axisa. "I started at the bottom and worked up to a good position—what do you do when it gets pulled out from under you?"
Axisa decided not to return to the uncertainty of the corporate world because, he says, "with offshoring and outsourcing of work, no one really has a secure position. At least that's what I think." Rather, he used part of the 49 weeks of severance-package funds he received from his buyout to start a CertaPro Painters franchise (see BusinessWeek.com, 4/12/05, "Extending the Front Lines of Franchising") in Staten Island, N.Y., where he lives. Axisa is entering his third year of business and says his second act provides the kind of security he needs.
Corporate Jobs Too Insecure
Like Axisa, many boomers—or those 78 million Americans born between 1946 and 1964—are leaving corporate jobs to start their own businesses. And it's not just because they're ready to retire; though some have the time and money to try life as an entrepreneur, many don't. They, like Axisa, are often worried about disturbing corporate trends like layoffs and pension cuts that are leaving many in their age bracket with a tough road through retirement.
"Baby boomers are looking at starting real businesses—looking for another 10- to 12- to 15-year career, God willing," says Paul Magelli, senior scholar-in-residence at the Kansas City (Mo.)-based Kauffman Foundation, a center promoting entrepreneurship. "Just the topic of whether Ford (F) and GM (GM) would engage in consolidation talks sends a huge tremor among a huge, experienced workforce—they need to be thinking about opportunities with some kind of income security. It's somewhat subdued, but that anxiety is still very much in the workplace, from the reports we get." Entrepreneurship is, somewhat surprisingly, increasingly seen as a stable way to ensure financial security, Magelli says.
About one in three self-employed workers ages 51 to 69 made the transition to self-employment at or after age 50, according to a 2003 AARP Baby Boomers Study, and 15% of the 1,200 adults between 38 and 57 who were surveyed planned to start their own businesses. "I think we are likely to find more people likely to go into self-employment. The [15% planning to start businesses] is not a statistic to sneeze at, even if the proportion of older workers who are self-employed remains stable," says Sara Rix, strategic policy adviser for the AARP.
Business Experience Reapplied
And these boomers aren't just dreaming up part-time gigs for some extra spending cash. Some are opening high-growth, angel-worthy second acts. Bill Payne, a consultant at the Kauffman Foundation and an active angel investor for more than 20 years, says he's seen a marked increase in boomer-led companies seeking funding. He prefers funding such companies because of their founders' level of expertise and competence. "From an investor who looks at hundreds of business plans per quarter, we are encouraged when we see some senior guys who have a lot of vertical experience—we know they're bringing business savvy and that they're reasonable, rational people. We definitely are seeing more people in the boomer age bracket," says Payne.
Diane Smith, co-founder and chief executive officer of Aurorus Entertainment, an Internet Protocol TV (IPTV) services company based in Kalispell, Mont., says having a corporate background—she had been at Alltel Wireless for 15 years, most recently as senior vice-president of government affairs—helped her find funding for her business. "I wouldn't say [securing angel investment] was easy because I had deep experience, but it certainly helped us gain an audience more easily," says Smith. "You've still got to have a great business plan, and you have to show that you know how to execute."
Despite female-boomer success stories like Smith's and the fact that Census Bureau numbers depict a rapid increase in the number of women starting businesses—between 1997 and 2006, the number of women-owned firms grew by 42.3%—their combined annual sales grew only 4.4%. That's largely due to the inability of many women-owned firms to get the kind of funding they seek, at least partially due to cuts to the SBA loan program, says Margot Dorfman, executive director of the U.S. Women's Chamber of Commerce (see BusinessWeek.com, Winter, 2006, "Paying the Piper"). "The broadest trend that I see is that the majority of women-owned firms are in the service sector, because of the smaller financial investment to start up service companies," she says.
Other Self-Employment Ingredients
Pension cuts are another huge element in the number of boomers going out on their own. Controlling for wealth, having pension coverage in current wage and salary employment reduces the likelihood of becoming self-employed by a factor of three or more for both men and women, according to "Self-Employment and the 50+ Population," a March, 2004, study conducted by the Santa Monica (Calif.)-based research group RAND Corp. for AARP. Since 2004, many companies have cut pension or eliminated it altogether, so many older folks are seeing self-employment as the key to financial security in their older age.
Household wealth is also a predictor of who transitions into entrepreneurship. Men and women in the highest wealth quartile are more than twice as likely to pursue self-employment than their counterparts in the lower wealth quartiles, according to the RAND study. And overall, the number of wealthy people in the baby-boomer generation is high. According to the Government Accountability Office analysis of the 2004 Survey of Consumer Finances, 97% of baby boomers are in the top 50% of population by net wealth.
For Smith, starting her own business was something she could afford to do monetarily. "We had the resources to be able to take some time off and entertain new ideas. It is a second act and feels like a second act. It's invigorating and energizing, and it just feels right in a lot of respects," she says.
For Axisa, it was out of necessity.