In North America, the average life expectancy of a company is less than 20 years. If you are a Fortune 500 company – one of the top 500 U.S. public corporations as ranked by gross revenues – then your life expectancy goes up – 40 to 50 years.
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Of the companies in the 1970 Fortune 500, a third had disappeared by 1983.
Long-lived companies tend to share a number of features:
- A commitment to learning. Businesses are people, and when people are always learning then they are able to adapt easier.
- Loyalty to a manifesto or some well-articulated set of core values that help provide the firm with a sense of identity.
- Excellent finances that allow them to act flexibly as opportunities arise. They don’t waste their capital.
- They are tolerant of activities that stretch the business, whether it is experimentation or research and development.
Let’s take a look at some of the longest-lived businesses in the world:
1. Nisiyama Onsen Kieunkan (1310 years)
This Japanese hot spring hotel has been in business from the time when years only had three digits! Started in 705, this is the oldest running hotel in the world, and has been run by 52 generations of the same family.
2. The Shore Porter’s Society (517 years)
Starting out as a co-operative of porters in Aberdeen, Scotland in 1498 – just 6 years after Columbus discovered America – this transporter of goods is still alive and kicking in 2015. They have 11 warehouses in Aberdeen and provide shipping, removal and storage services.
3. Beretta (489 years)
Fabbrica d’Armi Pietro Beretta is an Italian multinational firearms manufacturer, established in 1526 and renowned for their handguns. The Beretta 92FS is the primary side-arm of the United States Army, Marine Corps and Air Force.
4. Lorillard Tobacco Company (256 years)
Pierre Lorillard began selling his tobacco products back in 1760, packaged inside dried animal bladders. Today the tobacco company’s cigarettes are packaged in a more mainstream manner and are marked under the brand names Newport, Maverick, and Old Gold to name a few. Lorillard is listed on the NY Stock Exchange and has revenues of nearly $6.5 billion!
5. International Business Machines (103 years)
A relative youngster, IBM is a 100-year old computer company. In 2012 they were ranked the second largest U.S. company in terms of employees (435,000) and 19th by revenue. They have twelve research labs scattered across the globe, in areas like Melbourne, Rio de Janeiro and Zurich.
Make no mistake. The above examples are extreme outliers. Think about the companies whose services you use every day. Not very many of them will have been around for 40 years. I use Google products every day but they have only been around for 17 years.
Why do some companies burn out while some carry on?
A lack of long term planning could be one reason. Short-termism is not a good mode for a business to function in. Unfortunately, the way public companies are set up, the incentive for many of them is to make decisions based on short-term results. After all, shareholders only care about how much money they are making now.
With pressure from big-name shareholders and private-equity firms looking to make a quick buck, it is no surprise that corporate bosses have become obsessed with the upcoming quarter’s results. Add in employee incentives such as bonuses based on the firm’s stock price, and you start to see that, from top to bottom, the company culture is messed up.
This kind of business approach is good for shareholders in the short run but bad for the businesses and investors in the long run. The temptation is to focus on short-term results to the exclusion of long-term success.
Companies that are publicly held have to be able to convince their shareholders that their strategic focus on growing long-term value is consistent with short-term returns. Maximizing profits for a single quarter can be accomplished with mere accounting tricks, but it takes real grit to create value over a long period of time.
It takes time to build confidence and trust with your customers, so that they come back to you day after day, year after year, century after century.
Focusing on maximizing your immediate profits can make companies vulnerable. Managers start to dismiss projects that may not have any ROI (return on investment) in the near future. Sometimes you just have to make defensive investments.
Imagine a company that sells televisions. It’s the ’90s and it is doing incredibly well. Suddenly a fad emerges: everyone wants flat screen televisions. Does the owner jump in on the trend or stay with what he knows?
The ones who survive do so by investing in evolving markets, investing for the future and providing products and services that continue to be in demand. That’s how you stay in business. Sometimes you have to be willing to disrupt your own market to be successful.
The focus then, has to be on creating massive value for customers over time. Focusing on the bottom line works for a while but if you want to achieve outsize results and longevity then you’d better make sure you are the best at what you do.
Think about it this way, you’re the head of a family-owned company that has been around for a 100 years. At that point here’s more to doing business than just turning out an ‘OK’ product. You’re representing your family. Your name is on the sign.
That’s how we should all do business, as if our name was on the sign.