Onward

Dominating the list of the world’s oldest companies are a number of Japanese enterprises. Those include Hōshi, a hotel located an hour’s flight from Tokyo in an idyllic mountain setting. Established some 1,300 years ago, it is famous for the hot spring nearby, which supposedly heals almost anything, from psoriasis and high blood pressure to world-weariness. Protecting this spring is the prime responsibility of the Hōshi family, who have run the traditional Japanese inn since it was founded in 718. “That’s why we have to bear many things and endure it all,” they told the makers of a 2014 documentary.

This mission sounds like a tale of sweat and tears, and could explain why so many companies around the world do not last anywhere near as long as Hōshi. Might they have less capacity to endure suffering? Whatever the case, businesses in the US disappear from the market after 10 years on average. Publicly listed ones survive for longer, but even their life expectancy is declining. In the late 1950s, S&P 500 companies existed for an average of 60 years. Today, the consultancy Innosight puts this figure at less than 20 years – a trend that is also apparent across Europe. For example, less than two percent of all German companies make it past their 100th anniversary. According to a 2019 study by credit reference agency Creditreform, the average business lasts eight to 10 years before it is closed down, merged or taken over.

The fact that companies run out of steam more quickly today could also be a sign of a functioning economy. It can be seen as economically beneficial when old businesses fail because they cannot compete with innovative newcomers. We know this thanks to the Austrian economist Joseph Schumpeter, who introduced the key principle of ‘creative destruction’ in 1942. However, problems arise if too many established players disappear from the market, leading to permanent loss of capital and expertise. In his book The Living Company, former Shell manager Arie de Geus says that across all industries, too many firms suffer an untimely death at the hands of ever-faster capital and innovation cycles, as well as economic downturns and mismanagement.

If the criteria for failure are unrelated to any particular business model, might not the same apply to criteria for success? This makes it worth taking a closer look at the strategies employed by long-lived companies and the contents of their survival kits.

BECOMING AMBIDEXTROUS

Another typical attribute of long-lived companies is their embracing of change, but not as an end in itself. According to a Harvard study from 2018, successful firms are radically traditional, with a stable core but a disruptive edge. Being risk-averse, these companies create safeguards by acting with both hands, or ambidextrously. They optimize what they currently have while also working hard to develop future products and business models.

One of the sectors in which this model has proved itself is pharmaceuticals. “Many of our active ingredients are 100 years old and remain the go-to choice, like aspirin,” says Dr Hans-Georg Feldmeier, Chairman of the German Pharmaceutical Industry Association. “At the same time, there are a large number of indications for which we are constantly developing new drugs.” The pharmaceutical industry has always been a front-runner in research and development spending, which is seen as a measure of a company’s innovative strength. However, what counts is the success rate, such as the returns that innovations yield over the years. Feldmeier describes a holistic approach: “You have to take into account production efficiency even when you are developing pharmaceutical products. That’s why I advocate having process engineers in the team from the outset, to ensure feasibility.”

The sector does not see it as contradictory to hold onto the tried and true while also attempting new things. That means it is open to new entrants and ideas. “In the past 10 years, we have welcomed a great many new players that have carved out new niches with highly innovative products,” says Feldmeier. He is referring to the high-profile example of Biontech, creator of the world’s first coronavirus vaccine to be approved for clinical use. “Biontech’s success was due in no small part to their partnership with Pfizer, an established company, as well as to a network of experienced firms around Europe that handled the production,” he adds.