The average lifespan of a company is getting shorter and shorter — so how can business leaders bust the trend and build a company that can last for generations? The three principles below will help companies stick around.
We humans are used to the idea that we’ll probably outlive our parents and that our life expectancies will keep rising as medicine and technology advance. As business leaders, we tend to carry the same assumptions about our companies.
The truth, however, is that the average lifespan of a company is actually decreasing. Some experts even predict that by 2027, the average S&P 500 corporation will only make it to its 12th birthday.
Why the dire forecast? Well, the modern era we live in makes it hard to sustain a company past a decade or so. Companies used to experience a natural regeneration as family-run businesses, but the pressure to scale rapidly in today’s technology-fueled market has forced companies into a sink-or-swim environment.
At the advent of the Industrial Revolution, the concept of scalability was born. Technological advances meant family businesses could expand and compete with other enterprises for market share by keeping up with demand. Now, the pressure to scale and compete is so overwhelming that leaders can overlook the natural ingredients of sustainability — such as simplicity or purpose — as they grow.
How can business leaders avoid this trend, scale gracefully, and build a company that will last for generations? Here are the top three principles to keep in mind to ensure your company’s journey is much, much longer than its life expectancy.
1. Think ‘compact’ even as you grow.
If you look at the world’s oldest companies, you might notice that they don’t try to scale quickly. In fact, many of the most successful businesses have compact, close-knit teams. In this small zone of influence, business drivers such as purpose and vision are strong, and they’re passed down from leader to leader.
At 1,400 years old, Kongo Gumi is often cited as the world’s oldest company. The temple-building company survived civil and world wars, natural disasters, and economic downturns that would floor many of today’s biggest corporations. How? Well, keeping business in the family wasn’t just tradition in Japan, where Kongo Gumi was founded — it was law. Companies were handed over from eldest son to eldest son, and the margin for misunderstanding and dilution of purpose was very narrow.
You don’t have to be an ancient legacy business to stay nimble, though. Your family name is your brand name, and if you keep your leadership team as tight-knit as possible while you’re growing, you can sustain it with the same intensity as Kongo Gumi.
A compact, closely aligned team creates a clearer sense of purpose and company values. This means fewer hang-ups in the long-run.
2. Keep your organizational structure simple.
The company I work for was founded and built with Kongo Gumi in mind. So when I started in my role, the narrative passed down to me. I researched the history of this business-world dinosaur and found that Kongo Gumi was basically a family tree: 50 CEOs linked by blood, each carrying on the company’s vision. This simple, streamlined process of inheritance meant that each leader had the responsibility of keeping values and reputation strong and sustaining the family name.
You can also increase your company’s lifespan by streamlining organizational structure. That means creating and communicating clear connections between people across all levels of the organization. Clear processes of promotion and succession can also minimize chaos as old leaders retire and new ones take the helm.
In addition, creating efficient, manageable networks can improve relationship quality: According to the University of Oxford, humans have a “magic number” of approximately 150 people they can sustain meaningful contact with. When you go beyond that number, effectiveness at communication and knowledge sharing decreases. Try to keep this guideline in mind — even as you scale up and plan out your teams.
3. Build from a foundation of purpose.
Purpose is the most important of these tips. What unites the long-lasting companies of the world, no matter where they operate? A sense of purpose, a mission, a calling.
The most important thing about having a purpose isn’t the difference it makes to consumers or brand power, but the binding effect it has on employees. Companies with a clear, evergreen purpose motivate employee loyalty. This builds the foundation for a supportive environment where employees rally and bond with each other, even when the going gets tough.
When this purpose is missing or faulty, companies can begin to lose control of their legacy. Take Facebook as an example. When you view Facebook as a consumer, it does seem to have a clear purpose. It lists its mission as: “Give people the power to build community and bring the world closer together.”
That sounds great, but how does this translate for Facebook’s employees? Although many of its recruits probably signed up with the same mission in mind — to make a difference by connecting the world — Facebook’s high-profile status and role in daily life introduced complicated political and legal battles. This takes the emphasis off individuals. As a consequence, Facebook’s employees have a notoriously short tenure of only around two years.
Every company has a purpose, but it’s how that purpose is shared and upheld by the individuals in the team that matters. First, be sure your purpose reflects your organization’s purest values. You can then test each decision your company makes against this purpose. If your decision is aligned with this mission (instead of diluting it), you’ve made the right choice.
Besides this, focus on connecting employees to both their personal and collective sense of purpose. They’ll be excited to come to work every day.
Tight connections, organizational simplicity and a shared sense of purpose can ensure that a company strengthens from generation to generation, even if those “generations” are colleagues and partners rather than parents and offspring. Cultivate a family-style environment and you might just beat the odds — doing business for well beyond your company’s life expectancy.