March 21 (Bloomberg) -- Lucas Kovalcik and Tim Walsh turned their passion for rock climbing into a business. Their success helps show why U.S. entrepreneurship probably is about to get a shot in the arm.
After toiling at jobs such as hotel management and wireless network administration, the high school friends opened Gravity Vault in 2005, a cavernous 13,000-plus square foot (1,208 square meter) gym for those wanting to work up a sweat by rappelling faux walls, overhangs and arches. What began in Upper Saddle River, New Jersey, as a six-person operation -- including their wives -- now has two locations with 45 employees.
“We learned what we enjoy doing, and part of our skill set is knowing who we are, what we’re good at,” said Kovalcik, 37.
A record 93 million Americans will be 30 to 49 years old in 2030, a group that includes the Echo Boomers born to the Baby Boom Generation, the Ewing Marion Kauffman Foundation projects. Kovalcik and Walsh, 38, are part of this age bracket, the one most likely to start new businesses, which research shows account for a disproportionate share of job creation.
“We should expect more new businesses to be created,” said Dane Stangler, vice president of research and policy at the foundation, a Kansas City, Missouri-based private group focused on education and entrepreneurship. “That’s a positive for the economy. It’s a piece of good news in the standard narrative about how we’re aging as a country.”
Older people are perceived to have lower levels of risk tolerance and higher opportunity costs of giving up a secure job to start a business toward the end of their working life, said Stangler. A wave of potential younger leaders could help stem a slowdown in the pace of startup activity as the population ages. The number of new companies in March 2010 slumped to the lowest level since records began in 1994, according to figures from the Labor Department.
While concerns about such falloff are valid, a jump in Echo Boomers who are starting to reach the prime years for business creation provide some “cushion,” Stangler said.
Americans in their prime years for starting a company benefit from having prior work experience, which also gives them credibility and easier access to financing, including personal savings, a spouse’s income to fall back on and bank credit, according to Donna Kelley, an associate professor at Babson College in Wellesley, Massachusetts. The school’s entrepreneurship program was rated No. 1 in U.S. News & World Report rankings for the 17th consecutive year in 2013.
“Here are people who are at their most confident, and have the resources to do it,” Kelley said. “They’ve tried a couple of things and then come to entrepreneurship.”
Technology has made it easier to experiment with new ideas at a low cost, and sticking with one career is no longer a goal as more information and training is available for startups, said Kelley. “There’s more opportunity than ever.”
New businesses also appeal to a generation that yearns for more flexibility in the workplace.
Sara Sutton Fell said she was shocked by how difficult it was to find employers willing to let her work from home or have more flexible hours in 2007, when she was 32 years old and had a three-month-old son to tend. So that year she took matters into her own hands and opened FlexJobs, an online company dedicated to listing openings at firms that offer telecommuting, part-time and contract positions.
The recession ended up helping her business by putting more qualified job seekers on the market just as employers were seeking part-time or contract help instead of full-time jobs, she said. More recently, companies have begun to view telecommuting as a perk they can offer to lure workers that doesn’t cost them much.
Sutton Fell, who works from her home in Boulder, Colorado, says she may add 15 employees this year to a current staff of about 40 as “things are picking up.”
The outlook isn’t all rosy. About one of every four startups fail within their first year of operation, and almost half, 44 percent, don’t make it past their third year, according to data from Entrepreneur Weekly magazine.
Robert Gordon, a professor at Northwestern University in Evanston, Illinois, in a 2013 research paper also argued that economic growth in the U.S. will slow as innovation falters like it did in the 1970s. New businesses are focusing on improving existing products and technology rather than on new breakthroughs, he wrote.
Dori Roberts is trying to check that trend. She started Engineering for Kids in 2009 to bring science, technology, engineering, and math (STEM) skills to children from 4 to 14 years old in a fun and challenging way through classes, camps, clubs, and parties.
Roberts, who taught high school for 11 years and turned 40 this month, began a pilot summer program in engineering with 50 kids in Stafford County, Virginia.
Encouraged by the initial run, she expanded rapidly, “researching every step of the way” to make up for lack of business experience, she said. Roberts opened programs in 62 locations in the U.S. and six overseas last year. Another 50 to 60 are possible this year, including some in Mexico, Kuwait, India and the Philippines, she said.
The brighter outlook for startups isn’t just focused on the young, said Kauffman’s Stangler. Americans who are living longer and staying healthier are choosing startups over retirement, and past trends indicate that many who created a firm before 50 may later become serial entrepreneurs. The U.S. could well be entering a period of “entrepreneurial rebirth” even as its population grays, Stangler said in a 2013 report with Dan Spulber of Northwestern University.
While it’s hard to predict whether demographic changes will accelerate business creation, greater competition among innovators will result in “better quality” startups, said Ross Levine, professor at University of California at Berkeley’s Haas School of Business. “A dynamic economy where people are commercializing new ideas is very positive for society.”
Company founders “are a small group but absolutely crucial for the economy,” said Levine, whose research last year showed entrepreneurs make more per hour than their salaried counterparts. “They’re creating opportunities for themselves and for others. Entrepreneurship is what pushes the economy forward.”
Few know that better than Kovalcik and Walsh, the rock-climbing business operators who plan to open a third location this year and are also licensing franchises. Having opened their first venture two years before the worst recession since the Great Depression and survived, they are confident their business will thrive.
“We went through the economy falling apart,” said Walsh. “We’re not afraid.”
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