Companies constantly have to adapt to their environment, overcome crises and seize opportunities. These days, many of them fall by the wayside much earlier than a few decades ago. What is it that long-lived and successful businesses do right? Or what do they do differently? Time to consult the survival manual.
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.
FIRM GOAL – FLEXIBLE ROUTE
Like Hōshi, a number of very old establishments essentially stem from local hospitality businesses: breweries, wineries and creameries that have maintained their regional niche and whose business model has stayed constant for centuries. Then there are international enterprises with a long history that show the viability of a different approach. Take Swedish company Stora Enso, for example. It is considered the world’s oldest joint stock corporation and was founded around 700 years ago as a copper mining enterprise. Today, it is a leading manufacturer of paper, pulp and chemicals. Or look at Mitsubishi, established as a marine shipping company in 1870 and now Japan’s flagship corporation with activities in energy, building materials and automotive. According to de Geus, all of the 27 major long-lived companies he analyzed have completely changed their portfolio at least once in the course of their history. “Such companies are willing to scuttle assets in order to survive. To them, assets – and profits – are like oxygen: necessary for life but not the purpose of life,” he writes in his book. This means that flexibility is just as important as endurance, along with the business owners’ willingness to fund this long-term evolution.
Reinvention as a means of survival is also the recipe behind the success of Haniel, a company based in Germany’s Ruhr area. After starting out as a colonial goods store in Duisburg and then turning into a global mining group, it pivoted its portfolio again in the mid-1960s by investing in the retail giant Metro. Today, Haniel positions itself as an investor in sustainable business models with the goal of creating ‘value for generations’. “Our advantage has always been that we don’t drive ourselves crazy by thinking in terms of quarterly figures, unlike many companies with outside shareholders,” says Haniel employee Jutta Stolle, who for more than 30 years has acted as a link between the far-flung family of owners and their company. She praises Haniel for its tremendous resilience and its willingness to forgo short-term profits in favor of long-term success: “Change is part of Haniel’s DNA, and I don’t know any other family business that is so 10 consistent in its approach.” Of course, she adds, there are people at Haniel who advise caution and express doubts, whose voices are listened to for good reason. Stolle recalls one example from the 1990s, when level-headed numbers experts dissuaded Haniel from investing in the dot-com bubble that would later burst.
“Such [long-lived] companies are willing to scuttle assets in order to survive. To them, assets – and profits – are like oxygen: necessary for life but not the purpose of life.”
Arie de Geus,
author of The Living Company
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.
“As companies, we are all confronting the same challenges, so it’s vital that we work with each other to find solutions.”
Dr Patrick Wouters,
Vice President of the European Hygienic Engineering & Design Group
Japan’s Hōshi hotel is 1,300 years old, making it one of the five longest-lived companies in the world.
TRUST IN THE TEAM
Networks are a success factor in other industries as well. A growing number of companies are joining forces to cope with the plethora of challenges they face. The pandemic led to the collapse of global supply chains; the energy crisis caused by the Russian invasion of Ukraine has brought entire sectors to their knees. At the same time, climate policies are increasing the pressure to innovate while reducing the ability of businesses to plan reliably. “As companies, we are all confronting the same challenges, and it’s vital that we work with each other to find solutions,” says Dr Patrick Wouters, Vice President of the European Hygienic Engineering & Design Group (EHEDG), a network that connects food producers, food processing companies, equipment manufacturers and research institutes worldwide.
“This dialog is extremely valuable to us, because it helps us gain a better understanding of the market environment and current trends,” stresses Wouters, who is also the global hygienic design lead for Cargill, a food producer and commodities trader. “It wouldn’t do for companies to look just at their own products and production processes. Instead, we need to focus on the entire supply chain, keep on learning and respond quickly where necessary.” In view of the varied crises taking place today, staying adaptable is the most important task for experienced managers. Wouters also believes that trust plays an important role: “Whether you are dealing with colleagues, communicating with customers or working together with partners, I think honesty and transparency are crucial factors for long-term success.” His employer, Cargill, is a family business that has held its own on the market for 150 years.
TRAIN FOR ENDURANCE
Ultimately, the formula behind the success of long-lived companies is as simple as it is obvious: adapt to your environment in good time, don’t fixate on quarterly figures, think in terms of networks and stay true to your values. However, keeping on the right track day after day, year after year, takes a lot of perseverance in the face of cost pressures, skills shortages and multiple crises. Endurance pays off, though. According to a McKinsey study from 2017, companies that stick resolutely to a long-term view generate 47 percent more revenue and 36 percent more profit than their industry peers. In the end, long-lived companies may also be able to put their faith in the Lindy effect, which says that the mortality rate of technologies, companies and ideas decreases the longer they exist. Good things last – just like the spa at Hōshi.
Published 09.03.2023, last updated 20.03.2023.
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