Business Mortality – Company life spans reduced
The life span of companies across the globe is getting shorter each year. According to a recent study made by Stratix Group in Amsterdam; many businesses in Japan and Europe lasts on average 12.5 years. Germany leads the way with 18 years of good business stamina. Sadly, 80% of companies in Turkey can’t make it past their 5th year. So the question is; why is business mortality increasing?
Many believe that businesses fail due to increased competition, and others take the view that the effects of unjust economic policies affect all companies regardless of the establishment history or solidity. Many experience bankruptcy, liquidation or merger, causing companies to end all business venture.
So, how can we improve the lifespan of a company when many are hanging on by a piece of string? Companies like General Motors require government support to get over their very public bankruptcy or Kodak who admitted they sought help from creditors.
How to avoid business mortality
With a digital revolution going on, at Cloudnames we believe that businesses have better possibilities of making it -simply by having a good online establishment. Being online means that you can persevere without having to take too much risk. But equally, it will entail working a lot harder to maintain and sustain a successful business in the public eye, especially over social media. Therefore, having a website built to generate interest and revenue is a good idea.
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A group of researchers from Santa Fe University published a study in Royal Science Interface journal recently, whereby they suggest that on average a company can last for up to 10 years. To analyse the lifetime of these companies, research was conducted by using techniques that are generally used in biology.
Both a company and a living organism contain complex systems living inside of their bodies. And, the parts must work in solidarity for the good of the whole. However, both can ‘die’ by the defect of a single part. In addition, both are subjected to the communication of each part. They can be sensitive to stress, ageing, neglect and disease.
But also, both feel to build a defence mechanism to be able to survive in a hostile environment, and finally for both not adapting itself to the environment that surrounds them can be fatal.
When Charles Darwin published his famous “The Origin of Species” in 1859, it was not just about the biology of man, but the origins of almost anything that could be deemed ‘alive’ or living. He suggested that humans had the best chance of survival through adapting to their environment. The same goes for businesses in some retrospect.
We now know for example that heredity can produce resemble children, but in time species will take on the characteristics of those that were most adaptable. “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change”, says Darwin.
When it comes to business, we see that companies who have longer lifespan will try to add and gain value by adapting their products or services in accordance with the environment to which they are selling their goods to- we call this localisation.
For instance, let’s look at Gillette’s Razor products that were adapted to the Indian market, we can see that they were able to acknowledge the wants, needs, and the desires of the target consumer.
A shaving experience is different when it comes to people who live in rural areas in India. They use very little water or not use any at all whilst having to hold the mirror at the same time. So they included features like easy rinsing and produced easily held razors just for this market.[Tweet “Business Mortality – The life span of companies is getting shorter each year. @cloudnames”]
Changes are accelerating
Or take McDonald’s adaptation of different kind of menus depending on the region. In the Japanese market, Mcdonald’s incorporated more Japanese like cuisine, or halal meat in the Muslim regions. Coca Cola changes the taste of its product to increase appeal and sales for the locals.
Thanks to the technological development, the diffusion rate of the products has risen dramatically. It took 39 years for telephones to become common in the market, but for the mobiles, it took only six years, for smartphones it was three years.
This suggests that; companies must adapt themselves to these changing business life cycles. This way they won’t end up like brands that were once very popular but gradually died out like Polaroid or Borders.
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Community, Solidarity and Relationship
A community is a group of various species interacting in the same location, and it is very important in nature. Trees, for instance, have plants inhabited by animals and soil with bacteria or fungi underneath them which create a biological community. It is a cycle where they all need each other’s dynamic to be able to survive. As Habermas pointed out, in order to develop, communities need antagonism and the dynamics that these antagonisms create.
Business’ are like the same. One market needs the other to be able to improve themselves even if they are competing in the same sector. But there is this another issue with business’ and it is the commercial organisation which we call family business’.
Researchers show that the oldest companies around the world are also home to people who live the longest. 20,000 companies in Japan, for example, live more than 100 years, according to Tokyo Shoko Research. Therefore not surprising there is an even specific word for the companies who have a longer lifespan, it is: shinise!
If we look at data from Tokyo Shoko Research, we can see that small, family-run companies can last longer and what is important to see in them is that they don’t build their selling strategy solely on making a profit but focuses on the main credo.
However, we don’t want to make a sure definition out of this because we believe that since companies were born in different countries and raised in a different kind of culture dynamic, they gain various reflexes.
For instance, it’s not hard to believe that most of the Japanese companies are built and run by family business’ since the eastern cultures have more customs that are built on family relations. Even though someone marries in the family, they continue to live together, while western societies started to give more importance on individualism after the 18th century.
Family businesses are dominating SME’s; In the UK a reported 70% of SMEs are family run businesses, and the trend follows- while Sweden is 79%, France 60%, Germany 83%, in Holland 75% and in Turkey it is 95%.
What is surprising is that while researchers show that Turkey has the higher ratio of family owned businesses, it has also got a shorter company life-span amongst the others. Because of the lifespan of a business in Turkey, generally lasts as long as the founder of the company is biologically alive, even though they start their business as a family company.
In our body system, there is this multicellular organism called stem cells which have a strong sense of identity. When you take out of their environment for example and grown in some other similar habitat, these cells continue to be fair to themselves.
It is not clear how these stem cells are so strong and very loyal to their “identity” but it is obvious that the evolution cycle that they were living in, made them evolve into who they are. Even under the extraordinary conditions they can retain their ability to produce new tissue and heal our wounds.
It is just the same when it comes to business’. Why do you think that we are so fascinated with companies like Apple, Nike or Starbucks? It’s not because these companies use the finest materials in the world. They know exactly what we human beings feel the need for.
Building an identity. Identity is an abstract concept for humans, it is always fragile and based on culture and environment. Therefore we always feel the need for creating a “trademark” for ourselves and that is exactly what companies like Apple uses in their marketing strategies.[Tweet “Identity is an abstract concept for humans, it is always fragile and based on culture and environment @cloudnames”]
Heterogeneity is not only a nuisance; it is an essential characteristic of organic life. Many diseases or virus’ continue to live because they have a high mutation rate. Although we are able to fight and develop resistance to these virus’ in our days, new ones always emerge and while we keep fighting against them we continue to evolve with their dynamics as well. As a whole, heterogeneity completes the reservoir where the selection finds a place to act.
If we are talking about robustness, variability is essential for companies as well. It produces an opportunity for the companies to customise their services and the products with the demand of their customers. Fujifilm is one example which gives us an idea on robustness through building a strategy in heterogeneity.
With the improvements on cameras around late 90’s, digital era started photography as well. Fujifilm answered with many radical reforms to vary its business. Working with new companies, investing in research and development and overtaking 40 different firms, Fujifilm was able to overcome the crisis she faced. Meanwhile Kodak didn’t do any kind of exploratory efforts and diverse offerings and unfortunately in 2012 Kodak announced its bankruptcy.
However, when a company experiences an environmental shock like the one Fujifilm and Kodak faced, heterogeneity is a key source of robustness.
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