Mark Zuckerberg, who founded Facebook as a college student, was an outlier.
Sam Walton was 44 when he opened his first Walmart. Ray Kroc was 52 when he created McDonald’s, and Colonel Sanders was 65 when he started franchising Kentucky Fried Chicken.
Retirement isn’t for everyone. Some employees in the later stages of their careers decide to strike out on their own and start a new business.
And older workers make up the greatest portion of entrepreneurs nationally.
It’s a growing trend among baby boomers as the generation begins to approach retirement age. These “boomerpreneurs” want to put the skillsets they’ve gained over their working years into practice in a new venture.
Experience helps
According to the U.S. Bureau of Labor Statistics, workers age 55 and older have a higher rate of self-employment than the rest of the workforce.
A 2009 study by the Ewing Marion Kauffman Foundation showed entrepreneurial activity was highest among those in the 55 to 64 age group from 1996 to 2007. The 20 to 34 age group usually associated with technological startups created new businesses at the lowest rate in the same time period.
Those trends are evident among startups in the Milwaukee area.
While younger folks often found flashy technology startups, it’s the older entrepreneurs who tend to be most successful, said Dan Steininger, president of BizStarts Milwaukee, a nonprofit that helps entrepreneurs obtain the funding to launch businesses.
“The truth is that nationally … the most successful entrepreneurs tend to be in their 40s and beyond,” Steininger said. “A lot of the successful entrepreneurs have jumped out of an industry (and) they know that industry. Starting a company is a holistic thing. It’s not just somebody with a great app or a brilliant idea.”
The entrepreneurs who are making it to the investor forum stage at BizStarts have a lot of experience, are familiar with their industry and have an understanding of how the world works, he said.
“A truly disruptive, scalable company that can grow at a significant pace, it tends to be led by someone who is older,” Steininger said. “We’re not going to allow them to go before those investors unless they’ve got what it takes. It’s our version of ‘Shark Tank.'”
A business owner needs a variety of different skillsets and diverse strategies that take years to develop. Those attributes are hard to glean by age 22, he said.
There are a lot of entrepreneurs in the baby boomer age bracket at the Global Entrepreneurship Collective, a Milwaukee start-up business organization, said co-founder Greg Meier.
Victory Spark, the GEC’s military veteran accelerator, is focused on experienced entrepreneurs who have had a career, Meier said. Of the 29 veterans who have completed the program, most are in their mid-30s to 40 and some are Vietnam veterans.
“Very often, and this is what’s key around a lot of these folks, they tend to be subject matter experts in the field that they’re working on,” Meier said.
An entrepreneur with experience in the field may have thought about his solution for decades and is further down the path on creating a working business model. A boomerpreneur also is more likely to have an established network and know people who could be helpful in the industry, Meier said.
Karl Rajani has a lot of experience. He has started several successful businesses in the health care field, most recently American Telehealthcare Inc. in Milwaukee. The company provides telepsychiatry services, in which a patient and doctor are connected by videoconference for a mental and behavioral health appointment.
Rajani, 65, has more than 30 years of experience in the health care field, during which he has learned to anticipate the industry’s needs.
“I’m always looking to anticipate trends and to see where the health industry’s going,” Rajani said. “Since 1990, I saw that the health care industry was going to managed care.”
So Rajani resigned his position as president of St. Francis Hospital in Milwaukee in 1990 and started an HMO, Genesis Health Plan Insurance Corp. He built the business to cover 14,000 patients and then sold it to Milwaukee-based Managed Health Services Insurance Corp.
He also founded and sold several other companies under the Genesis name, including Genesis Behavioral Services Inc.
Rajani is currently president of Horizon Healthcare Inc., an alcohol and drug abuse and mental health services provider, and Matt Talbot Recovery Services Inc., an addiction recovery program. Altogether, the companies have 125 employees at their new headquarters at 4650 S. Howell Ave. in Milwaukee, which opened in January after a $500,000 investment in the purchase and remodel.
Rajani started American Telehealthcare because he again saw a shift in the health care industry – this time toward remote appointments.
“Just as HMOs 20 to 25 years ago changed the landscape in a fundamental way, I’m absolutely confident that health care is going to change in an even more critical way, in an even more fundamental way with telehealthcare,” he said.
While Rajani has so far financed his businesses using personal capital, he is now working to raise $1.5 million through BizStarts to expand his model nationwide.
He doesn’t have any plans to retire, since growing new businesses is his passion.
“I don’t know what I would do with myself,” Rajani said. “I don’t go fishing. I live a fast-paced life.”
Financing options
Startup capital for boomerpreneurs usually comes from traditional methods such as family, loans and outside investors. However, if those avenues have been exhausted and the entrepreneur or buyer still needs additional funding, nontraditional options come into play.
A nontraditional strategy that some boomerpreneurs are using is called rollovers as business start-ups, or ROBS. It involves the conversion of 401(k) accounts into new retirement plans, which are used to finance the new business.
Joe Braier, shareholder and mergers and acquisitions advisor at VR Business Brokers in Waukesha, said he has seen many buyers and sellers taking the ROBS route for the transfer of existing businesses. VR often refers clients to SDCooper Co., a California firm that offers its own brand of ROBS, called Employee Rollover Stock Ownership Plans, or ERSOPs.
Braier said he often sees buyers in the lower middle market who are leaving corporate America and want to strike out on their own.
“They’re leaving because maybe they had false hopes of climbing the corporate ladder and taking over the business one day and that dream somehow shattered and fell apart,” Braier said.
There has been an uptick in interested buyers over the past two years as they regain confidence in the economy and the M&A market improves, he said.
A combination of financing can help a potential business owner make the purchase. If it’s a solid business with growth potential, a ROBS might be a good option, he said.
“From conducting thorough due diligence, the overall risk tolerance could be minimized,” Braier said. “Through the due diligence process, growth opportunities are going to become more and more clear, as well as the reasons why those growth opportunities haven’t been capitalized on yet.”
However, using retirement funds to start a business can be a risky venture, said David Eckhardt, an attorney specializing in employee benefits at Whyte Hirschboeck Dudek S.C. in Milwaukee.
“A lot of your retirement is based on your funds that you’ve saved up for retirement,” Eckhardt said. “We all know that starting a business is risky, and there’s a high potential for failure, so if the business fails, you lose all your retirement funds.”
There are some firms that are aggressively marketing ROBS tax strategies nationwide, but business owners should be wary of the tax implications, he said.
Once the new company has been established under a ROBS, the new retirement plan owns the business, he said. So the company owner, as an employee of the company, could receive shares into his 401(k) account.
The 401(k) plan that owns the business still has to comply with all the normal 401(k) regulations, and growing the company to more than one employee gets tricky under this format. This is where the IRS has seen some businesses get into trouble, Eckhardt said.
“The tax consequences, why they’re so great, is you have untaxed retirement funds initially, and then you have this rollover into the new 401(k) plan, which is not taxed, and then the business is able to use those funds … for business expenses,” he said.
Anyone planning to start a business with a ROBS should make sure it’s done properly with expert advice, to avoid potential complications, Braier said.
Joel Nettesheim, principal at SVA Certified Public Accountants S.C. in Brookfield, has seen an uptick in baby boomers becoming entrepreneurs.
“There’s an increase in the confidence that the economy’s good enough right now that they can take the risk to buy the business,” he said.
There’s also an increase in the supply of businesses that are available for purchase, which provides more options at different price points, he said.
Nettesheim has advised clients on the advantages and disadvantages of ROBS.
“Going that route creates something of a death trap from a tax perspective, especially when you sell the business,” Nettesheim said.
He tries to persuade clients to consider other options before cashing in on their retirement funds.
Refinancing a house and taking some equity out can help a business owner get started. Another alternative is taking a loan from a spouse’s 401(k) plan, which can be up to $50,000 if the employee is actively working. And loans can also be taken from investment accounts.
And though it can be uncomfortable, it’s worth asking relatives for loans, Nettesheim said.
“When you take into account the issues associated with ERSOPs and/or the tax issues when selling, suddenly that loan from a relative looks a lot more favorable,” he said.
Nettesheim is currently advising Mike Robinson, a retired Cudahy firefighter who is 51 and not ready to stop working. Robinson is planning to buy a business, though he’s not sure yet what it will be. Robinson has looked at a vinyl graphics company and a mailing company, and he knows he doesn’t want to get into a restaurant, hotel or retail business.
“I recently retired from my other career, and I was looking for another opportunity to be successful,” Robinson said. “I’m looking for something that’s a good fit, not only financially, but something that I could grow into.”
Depending on the price, Robinson plans to take a loan against his home and either take a loan or complete a rollover with his 401(k). He also may tap into his 403(b) account.
“If the financial situation called for it, we could pull money out of my 403(b), but the tax consequences would be pretty severe, so it would have to be almost a perfect fit to do that,” he said.
Robinson’s main question when he’s considering a business is, “Could it be another career for me that would be a good fit?”
Steininger advises business owners to look to the “three Fs” for financing first: friends, family and fools.
And they should have some skin in the game, too.
“Yes, any entrepreneur who’s starting a company is tapping their own savings to do it,” he said. “And if they don’t, nobody’s going to take them seriously.”
But when it comes to ROBS, Steininger isn’t sold.
“I would tend to think that you should go to friends, family and fools and also use assets that are not in retirement accounts,” he said. “I think it’s kind of silly to take money out of your retirement.”
Fundraising
Finding investors who want the business to succeed and applying for grants are also options for startups.
Clint Laskowski and Ryan Brooks founded Milwaukee-based AuditPad in November to make IT audits easier for businesses. The cloud-based service acts as a self-assessment tool for companies that deal with sensitive consumer health and financial data. It can serve companies required by the government to complete IT audits, which are primarily in the retail, banking and health care industries.
AuditPad provides a questionnaire that the user completes about the business, and then provides a score on its compliance and recommendations for next steps. This is particularly useful in an age of data breaches at major retailers like Target.
Laskowski, 50, hasn’t decided yet whether to leave his day job in IT. But he hasn’t considered slowing down his career trajectory.
“There’s still the passion and all the interest in doing this,” Laskowski said. “I don’t think it’s so much about getting rich…it’s more about fulfilling a passion and maybe having a little bit more control over what you’re doing.”
After bringing an investor on board in May and participating in the Victory Spark accelerator from September through December, the military veteran has developed customers and prospects while learning more about the needs of area companies.
Laskowski and Brooks also received a small grant from Victory Spark to develop the software for AuditPad.
Meanwhile, John West flunked retirement. He tried it, but got bored.
West spent his first career in hardware and software, founding software company Cimlinc Inc. in the early ’80s and selling it to Boeing Co. in 2000.
In 2008, the Whitewater resident started designing a collapsible watercraft device and formed a business, Bomboard LLC.
“My idea was to build something that’s much smaller, lighter and much easier to transport than any of the previous jet skis so you don’t have to use a trailer,” West said. “What’s always worked for me in the past is I’ve been able to have a vision for new products and new markets and disruptive technologies.”
The Bomboard is priced at $3,495, much less than the average jet ski, and West has been targeting the young action sports market.
West gathered $1.3 million from personal savings, family and friends to complete prototypes of the product, which breaks into four parts and can be transported in small cars. He is currently raising a $1.5 million round of capital to enter production.
The company has raised about $160,000 of it so far, through the Whitewater Community Development Authority and local investors. Bomboard is working with BizStarts to raise the remainder.
“That’s one of the good things about being a successful entrepreneur,” West said. “You’ve got a little bit more wherewithal to invest.”
Another Victory Spark participant, Bruce Kiefer, is 64 years old and a serial entrepreneur. He has a cabinetmaker background, and his previous business made custom office furniture. Then, about 12 years ago, he incurred a back injury and could no longer lift the heavy pieces he created.
As a result, Kiefer started working as a financial associate at Thrivent Financial for Lutherans, selling life insurance and annuities. But he still had the itch to use his skillset and create things with his hands.
So Kiefer decided to start a business to make wooden urns, called Mood Wood, about six years ago.
“The more I looked into it as a business, I was totally shocked to realize that in Wisconsin, cremations actually are 50 percent of the market,” he said. “I did find people that had pets, that they treat those pets like they were their children. That was kind of an untapped market.”
Kiefer outsources machining on the wooden parts and photo engraving the plates that are used for creating pewter plaques. He makes the boxes himself at home, in his free time, while continuing to work at Thrivent.
“I didn’t want to retire and just do nothing,” he said. “I had all of these life skills that I had built over my working career. (And) it is a way for me to supplement my retirement income doing something that I enjoy.”
