Average company lifespan has shrunk to 10 years – Don’t be average!

Business Rescue: Part I

Everything is an S-Curve. Even you and even your company.

Everything that grows and develops over time (Including businesses) follows a predictable pattern: The classic S-Curve model. It means you’re born; you grow, you slow down as you mature, and then you fade out permanently. This trajectory is true of people, organizations, cities, countries, civilizations – everything. All of us and all we do is somewhere on that curve.

Where would you place your company on that curve?  Still growing? Maximizing revenue? Starting to fade away?

Sometimes you won’t see the warning signs. Companies disappear all the time without a word, even profitable ones.

Kodak had one of its most profitable years in the months before it went bankrupt. That story is still being told, but it will depend on their next S-Curve.

Toys R Us had 14 percent of the toy market and $7 billion in revenues just before it was dissolved completely.

WOW Airlines had to cease operations this year while more than thousands of their passengers were in the middle of their journeys.

Mistakes are easy to see in hindsight, but sometimes it is nobody’s fault. It can happen due to reasons out of your control, like changing cultural values, changing technology, or shifts in customer demographics. People simply move on and leave the past behind. The ability to move on is precisely what you must master to survive.

The very first thing a successful company must learn to do in order to survive is to jump from one S-Curve to the next.

“Why jump?” you might ask. “Why not just keep extending your current S-Curve?”

This might have been possible in the past, but no more. Technology is changing so rapidly now that the assumptions you made about the market a few years ago probably no longer hold true. Beyond that, the effects of globalization, urbanization, and the rapid population growth make any past assumption irrelevant. Lessons from business school that would have saved you a decade ago will ruin your company today.

You can see the evidence in the shrinking lifespan of big companies. The average lifespan of a S&P 500 company was about 60 years in the 1950s, based on research by Credit Suisse.

In 2019, the average lifespan is down to about 10 years before the company is bought, acquired or liquidated, in a comprehensive study by the Santa Fe Institute.

It doesn’t matter what you sell, you’ve got a decade on average. Don’t be average.

In the near future, company lifespans could be cut even shorter as the cost of barriers to entry fall for competitors, information transfer accelerates, and funding for entrepreneurs in developing economies becomes more readily available.

The companies that have been able to survive for decades have done it by reinventing themselves over and over.

Think about what IBM, Lego, and Samsung have in common.

IBM

From its beginnings as a producer of the “business machines” included in its name, Internationals Business Machines was able to transform into a service provider by acquiring cloud-based companies and leaving hardware far behind. Years after selling their entire personal computer business to Lenovo, IBM’s revenues for mainframes, servers and other hardware shrank by 26 percent while revenues related to cloud services grew by 69 percent. IBM has successively reinvented itself in the image of new technology.

LEGO

The Danish home of build-it-yourself toys teetered on the brink of bankruptcy several times, especially in 2004, before they found a way to reinvent themselves and survive the onslaught of video game culture. After listening to advice from LEGO fans, they moved into K-12 educational programs, business consulting with the Serious Play initiative, and emerged as a giant in the entertainment arena with movie and television production deals. All of these adjacent innovations have reinvigorated their core toy business.

Samsung

This electronics megacorporation began its life as a grocery trading company, specializing in noodles. Moving carefully into textile mills and then shipbuilding, Samsung never gave up innovating for new ways forward before finding success as a smartphone maker. Seeking to shed their reputation as a “fast follower” in the tech space, Samsung’s new “Grand Discussion” initiative has generated thousands of internal ideas for their future direction and encouraged teams to take up to a year to work on ideas worth developing.

The point is that even as you improve efficiencies on your current S-Curve and extend it as long as you can, your company must think further ahead than the next sales cycle. Tomorrow’s businesses depend on finding and jumping to the next S-Curve before it’s too late.

You should also expect that every other business leader out there is attempting to do the same, sometimes competing for the same S-Curve – and the game is on. Some S-Curves have a limited window of viability and may be very popular. Some S-Curves never take off, and some S-Curves may never be discovered if you don’t find them, so timing is of the essence.

Most companies do nothing. They make hay while the sun shines and cease operations when the sun sets.

By taking action now, you are already operating with an advantage. Which actions you can take, and which warning signs to look for, will be covered in our next blog.