Evolve or Die: Survival as a performance measure

Ian Cassel believes that exceptional businesses not only survive, but continue to dominate and endure.
By Guest |  25-01-19 | 
 
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A great business is one that dominates and endures. I find that 99% of articles and books that study great businesses and leaders focus on the factors that lead to domination. Very little research is dedicated to endurance.

If I were to ask – What is the #1 characteristic of an exceptional business?

Many would say – The fastest growing companies.

Some would say – The company that earns the most money.

Others would say – The largest companies.

Few would say – The company that can endure over a long period of time. A company that survives.

Fortune Magazine has compiled its Fortune 500 list every year since 1955. The Fortune 500 list ranks the 500 largest corporations (public and private) by total revenue in the U.S.

When you look at the Fortune 500 companies from 1955, only 60 companies remain on the list.

In addition, the average lifespan of a Fortune 500 company in 1955 was 60 years. Today the average age of a Fortune 500 company is 18 years.

The lifespans of companies are shrinking.

In 1955, the Fortune 500 list was filled with companies like American Motors, Brown Shoe, Studabaker, Collins Radio, Detroit Steel, and others. These companies were the largest companies in the world. They are now gone. Wiped out. Which begs the question: Why?

Let’s look to Winston Churchill for perspective.

Winston Churchill was a British politician who eventually became the prime minister of the U.K. and led the country through WWII. A prolific writer, he wrote 42 books and earned the 1953 Nobel Prize for Literature.

When he was born, in 1874, there was no electricity, no lightbulbs, no radio, no television, and no telephones. By the time he died in 1965, men had orbited the earth, walked in space, sent a probe to the surface of Venus, an automobile had already driven more than 600 miles per hour, and nuclear power was being used.

Everything changed. In fact, change was something that was constantly on Churchill’s mind.

 I wonder often whether any other generation has seen such astounding revolutions of data and values as those through which we have lived. Scarcely anything material or established which I was brought up to believe was permanent and vital, has lasted. Everything I was sure or taught to be sure was impossible, has happened. -  Winston Churchill

Now think about that rate of change through the lens of a business. How hard it must be to operate a business through that type of environment. Think about the companies that have endured over a long period of time. Many of the products or services that originally launched their businesses aren’t even in demand anymore.

Evolve or die

To endure you need to adapt quicker than the competition.

People generally look at old companies through the wrong lens. When people think “old” they think slow, set in their ways, etc. They basically think of an old person. This is the wrong lens.

Old companies are often the most innovative and adaptive companies. They have focused on an area for a long time. Many old companies aren’t large companies. They are small to medium sized companies that focused initially on an area that they ultimately ended up dominating. They wouldn’t have survived 50-100+ years if they weren’t innovative and adaptive.

It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change.  - Charles Darwin

Hewlett Packard

In 1939, Bill Hewlett and David Packard partnered up to launch Hewlett Packard. The product that launched the company was the Model 200A audio oscillator. They literally baked the paint on the first units in a kitchen oven. David’s wife said food never tasted the same. They priced the product at $54 when competing products were $200-600. Sales took off.

No one is buying the Model 200A product today. But the company evolved, innovated and adapted around their customer’s needs to become one of the world’s largest electronic instrument manufacturers.

Other companies haven’t evolved fast enough.

In 2005, the newspaper industry was a $55 billion business. Today its $10 billion. An entire industry almost gone. In just 14 years.

The Internet has transformed and destroyed industries.

In the last five years, online retail sales as a percentage of total retail sales has gone from 5% to 10%. It doesn’t sound like a big jump but has led to very material losses for brick and mortar retailers who didn’t adapt and pivot to digital channels quick enough. What is the result?

In 2017 - 21 U.S. retailers declared bankruptcy including Toys R Us, The Limited, and Payless.

In 2018 - 16 U.S. retailers declared bankruptcy including Bon-Ton, Nine West, and Sears.

Kongo Gumi

This Japanese company is the world’s oldest company still in operation. Founded in 578 AD, the company builds and renovates Buddhist temples. It was family run up until 2006; a family business for 1,400 years.

It is Japanese custom that the oldest son inherits all of the patriarch’s wealth, including titles to all businesses. If a business owner doesn’t have a son, it was also Japanese custom up, until the 20th century, to adopt into the family a person they trust, often a son-in-law, to pass on the business. This is why most of the oldest companies in the world are Japanese companies. It is not unusual to see Japanese businesses that are “still in the family” operate for 100, 200, 500, even 1,000 years. Even the gaming company Nintendo is 129 years old.

Garbellotto S.p.A

Founded in 1775, it is the world leader in manufacturing of finely made casks, vats, and barrels for the wine industry. The most historic wineries in the world are its customers. The company employs 80 master-coopers and has an annual revenue of €15-20 million. The company is 8th generation family operated and owned.

Garbellotto is the largest and oldest company in the world dedicated to the production of wooden barrels. A cooper is a person trained in the art of making wooden casks, barrels, vats, and tubs from wood. The job of cooper is virtually non-existent except for Garbellotto and a few others. There are no schools that teach it. It is a craft that is passed down from generation to generation. Garbellotto is one of the last remaining employers of coopers and thus controls the skill and trade that is passed down to apprentices. It reminds us a bit of Steinway & Sons (the piano maker).

The company continues to grow and is quite innovative. You can learn more about the company in this case study.

Catherineau

Founded in 1750, this company designs and manufacturers made-to-measure to interiors for aircraft and yachts. The company’s customers are the rich, famous, and powerful – mainly in France. The company employs 90 people and has annual sales of €10 million. From the start, the company has been controlled by its founder and heirs. It has been passed down through nine generations.

The company’s founder Pierre Catherineau began the company making cartwheels. Then in 1820, his son started a new business customizing scows, which are small sailing vessels. The business would evolve and grow from generation to generation. In the 1960’s the company ventured into aeronautics and business aviation. In the 1980’s the company started innovating by patenting its own lightweight composites to reduce weight of its aircraft fittings.

Catherineau credits their success and endurance to the following values:

  1. Constantly reinventing their business to survive
  2. Constantly adapting to their environment
  3. Meeting and Exceeding customer requirements

You can learn more about this company in this case study.

In a very real sense, survival is the ultimate performance measure of a business.  - Ian Davis

Exceptional businesses dominate and endure. Not enough emphasis is put on survival and the character traits and belief systems that have stood the test of time.

This post has been authored by Ian Cassel and initially appeared on Intelligent Fanatics

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