Over 90% of start-ups fail. That sounds dramatic, but the truth is, creative destruction and constant change are a central part of doing business. And yet, some companies survive for generations, outliving their founders.
What’s their secret to business longevity?
In the world of business, Japan is something of an outlier. The country has over 26,000 companies that have been trading for 100 years. And out of all the businesses in the world that are over 200 years old, 40-45% are in Japan. In fact, Japan has 600 businesses that are 300 years old, 190 firms over 400, and an incredible 40 companies with over 500 years of history!
Some of that is about a values-driven approach. But surely, there’s more to it.
Students at the GLOBIS University Nagoya Campus looked into this very question, examining 69 Japanese companies over 300 years old. They discovered three main characteristics which allow these companies to survive (and thrive) for centuries.
Business Longevity Is About…
1. Identifying Core Competency
The companies in the study have survived a lot of history. They traded through Japan’s Sakoku period of deliberate isolation that began in the 1600s. They survived the Meiji Restoration in 1868, the Sino-Japanese War in 1894, and the Russo-Japanese War in 1904. They survived World Wars I and II.
Naturally, the products and services they sell have changed significantly over time. But because these companies were able to deeply understand their own strengths and spent time thinking how to produce value, they were able to thrive. That means the first secret to business longevity is understanding your company’s core competence.
Companies that harnessed this power include Fujifilm (founded in 1934) and Kodak (1888). Although both are relatively young, they are prime examples of understanding core competency (or not) when that their primary business was threatened by a changing market. Fujifilm and Kodak both started as successful film manufacturers, but due to the advent of digital cameras, their customer base vanished.
Kodak decided its core competency was “tech to create film.” But customers no longer needed tech to create film. As a result, Kodak was not able to adapt, and the company went bankrupt in 2012.
On the other hand, Fujifilm noticed that their core competency was the “technology to apply extremely thin film.” This small change made a huge difference. Fujifilm used its know-how in thin film to branch out, creating the successful cosmetics business Astalift in 2016. From there, it continued to grow its market share.
2. Evolving with the Times
Okaya & Co. began trading agricultural and iron products across Japan in 1669. Centuries later, it became a major importer of computer chips from Intel.
This seems like a smart shift for business longevity. But how did they accomplish it?
Okaya acknowledged that its core competency was the ability to “synchronize relationships.” Or, put another way: for every seller there is a buyer. From the moment Okaya identified that core competency, its business was no longer limited to traditional products. Its strategy was now free to revolve around the very latest technology.
Japanese sake manufacturer Gekkeikan (est. 1637) notes that its core competency is the ability to “scientifically merge intuition and experience.” As a result, the company has expanded its business in a variety of new ways, even doing what was once thought impossible: producing sake in America.
3. Knowing Your Market
Business longevity isn’t only a matter of seizing trends such as digitalization and globalization. It’s also about doing business in fields where change is slow. For example, the basic model of hotels and Japanese ryokan inns has not changed significantly over time.
Why is there less pressure to evolve when others (like Kodak) fall hard when they try to stick to their product roots?
Because the product or service a company offers counts. Hotels and inns generally only need to provide customers with food and a place to sleep. The restaurant and construction industries are similar. Modern consumer electronics such as mobile phones, on the other hand, have a core value that changes frequently. Those companies must keep up, or they’ll fall behind fast.
4. Keeping It Simple
Last, but certainly not least, companies with business longevity tend to focus on products and services for which changes in functionality are small. It’s tempting (and sometimes appropriate) to start a business with the latest technology serving an emerging need. But it’s important to note that such a business model will raise the hurdle significantly for your business longevity.
Take sake and Japanese confectioneries. These industries change slowly, and their essential value does not shift significantly, so they naturally endure longer. But a sector like the automotive industry? Certainly, the functionality of cars has not altered much since they were first introduced. However, research shows that when there are changes—such as shifting from gasoline to hybrid vehicles and electric cars—the shifts are huge. This makes the operating risks much bigger.
Study These Secrets to Achieve Business Longevity
There is much to be learned from studying the past. If you want your business to live on for centuries, remember these points:
- Recognize your core competence
- Evolve with the times
- Know your market
- Keep it simple
Who knows? If you follow this advice, that new business idea you have could end up outliving you.