In 2012, it was reported that a companies' lifespan is 15 years. Tackle the viscious, brief business cycle.
By Ed Eppley
Companies in the 1920s had a typical life span of 65+ years. As of 2012, the average is 15 years according to Professor Richard Foster from Yale University. Today, the margin for error in running an effective business is decreasing. So, how do companies ensure longevity?
First, you need to determine if it is more important for the business to be smart or healthy. Smart companies have great strategy, technology, marketing and finance. In healthy companies, people are united in a common purpose, share the same values, have high levels of trust and politics are minimal.
Is smart or healthy more important? Surprisingly, it's usually a function of the size and age of the company. Startups are inherently healthier as the typical startup is undercapitalized, being started by someone who's never owned a company. The only thing the founder can offer to their first employee is the chance to be part of something that could be special.
The tipping point to focus on smart:
In Scaling Up, Verne Harnish mentions that once a company reaches 50 employees, it starts to be a "real" business. The company is no longer solely dependent on the founder for its day-to-day existence. To grow and thrive, the company needs to be professionally managed. At this stage, it is more difficult to find, hire and retain committed and engaged people. Employees want to know that the leaders have a plan and strategy for how the company will continue to be successful and create opportunities within the organization.
When does health become critical?
Companies that make it to 300+ employees have "crossed the chasm." Per Harnish, less than one percent of all companies get to $10 million in revenue. Think of that. Of the 28 million businesses in the US, only slightly more than 100,000 get that big.
With growth comes a new set of problems. Decisions are made more slowly, politics more prevalent, and conflicting priorities the norm. Marginal performers seem to be tolerated and rewarded similarly to the top performers.
Companies experiencing these symptoms, regardless of size, have lost that intangible "thing" that launched the company, helped it survive and allowed it to attract talent.
If your company has lost its health, can you get it back?
Absolutely. There are four simple steps.The company leadership must be cohesive and aligned. Until it is a high-performing team, most companies will flounder. (A few lucky ones grow because the market lets them.) Create clarity for the rest of the organization. Answering questions like "How will we succeed?" and "What's most important?" prove to be far greater levers of improved performance than a SWOT analysis. (Strategic plans are still essential, but seldom produce clarity.) Over-communicate the clarity. The leaders must communicate these crucial ideas until blue in the face. Then, do it again and again. It won't be fun for the leaders, but are you interested in pleasing activities or pleasing results? Finally, once the clarity permeates the business, that clarity must be reinforced in all systems and processes. Make sure the performance management system and compensation pushes people toward the behavior that supports the priorities.
Sustainable, profitable growth is a very rare business outcome. Companies that can do this will have talented, highly productive and engaged people. And those companies will be healthy and smart.
Ed Eppley is a principal consultant for The Table Group, an organizational consulting firm founded by author Patrick Lencioni, and on the faculty at Aileron, a nonprofit organization in Dayton dedicated to helping entrepreneurs and small business owners grow.