What is the Key to Business Longevity? Ask an Old Company.
Guest Article by Sandra Harbrecht Ratchford, Paul Werth Associates
If you took a poll of CEOs, our guess is that all of them would say resilience is key to business longevity. So, knowing this, why do so many companies close before reaching their full potential?
Vicki TenHaken, in her excellent book Lessons From Century Club Companies, notes that the average lifespan of companies today is 15 to 20 years. TenHaken says that the lifespan of S&P 500 companies has declined by more than 50 years in the last century. (In the 1920s, the average company age was 67 years.)
While there are all sorts of reasons a business might fail, one issue that has received its share of attention is a bent toward short-term thinking. Business schools often teach students that the purpose of a company is to return value to shareholders, and that often is interpreted as showing a profit every quarter. Investors, boards and even company executives sometimes view this goal through the narrow lens of quarterly results.
This kind of thinking can lead to short-term decisions that are bad for a company’s long-term success, such as cutting investments in R&D or safety testing. They can also be bad for society (consider Wells Fargo). As Martin Reeves and Kevin Whitaker noted in a 2020 article for Harvard Business Review, “resilience requires a multi-timescale perspective, forgoing a certain amount of efficiency or performance today for the sake of more-sustained performance in the future.”
That seems to be exactly the thinking of Century Club leaders. When TenHaken and research partner Makoto Kanda asked mostly small and medium-sized American companies (that’s the vast majority of us) how they had survived for 100 years or longer, five common factors popped up. And none of them centered on quarterly profits.
One important attribute was having a strong corporate mission and culture. All of these companies pointed to having a clear company philosophy that had been passed down decade after decade. Central to a company philosophy, mission or value statement was the understanding that the most important goal was company survival, with profits only a means toward that end.
Among the five common survivability factors, three focused on relationships: with business partners, employees and the community. For example, Century Club companies don’t believe they could survive without close-knit business partnerships that go beyond the transactional, and they say fostering strong relationships with employees leads to better retention. That leads to more robust institutional memory, which allows companies to develop leaders from within, which avoids cultural mismatches that often doom external leadership hires.
Particularly now, as Werth celebrates its first 60 years in business, we are thinking about the future and the sustainability of our firm. What TenHaken seems to be telling us is that surviving for 100 years requires, first and foremost, an operating philosophy based on enduring core values and a universally understood reason-to-be. That’s a reassuring message as our company embarks on what we hope will lead us, eventually, to the Century Club.
A summary of TenHaken’s findings are here.
Sandra Harbrecht Ratchford
Chief Executive Officer
Paul Werth Associates
Sandra is a former guest speaker at OAMES Annual Meeting & Exhibition and located in Columbus, Ohio.