Stop looking for the exit
What can founders learn from the oldest businesses in existence?
I once asked the founder of a business that had been operating for 6-9 months about their objectives, expecting to hear about establishing a solid position in a crowded market, expanding to new geographies, or developing the product. “The goal is to be acquired by Google in 2-3 years”. That was it. Every move made by that business was, to a greater or lesser extent, driven by the founder’s desire to ‘exit’ as quickly and lucratively as possible.
This conversation was not an outlier - many founders have their eye on the door from day one, and there are countless resources and articles encouraging entrepreneurs to develop the optimal ‘exit strategy’. In some circles, the number of exits an individual has been a part of is proudly displayed on LinkedIn and Twitter bios, like the confirmed kills on the fuselage of an ace fighter pilot.
Although it is almost always spun as a positive, planned outcome, it is not always a founder’s desire to sell their business. Many will be forced to exit at the behest of investors impatient to realise returns, because growth is stalling (Slack is a recent case), or because they are mentally and physically exhausted from the effort of building a business at maximum pace.
“In Japan, where there is an unusually high number of extremely old small businesses, they even have a special name for these firms: shinise”
This obsession with short-term gain provides some incredible stories (payment businesses Square and Paypal were both floated on stock markets after operating for only four years), but can also create inherently fragile businesses. When the ultimate goal is to sell the business to another party, decision-making is geared towards attention-grabbing headline metrics rather than the fundamentals. Instead of focusing even more intently on the customer needs that have got the business this far, leaders start to think of the business itself as the product, and potential acquirers as the target customer. This shift leaves businesses vulnerable to any shocks, from a new entrant or new technology to an economic downturn. There are many reasons why businesses fail - but what can we learn from those that avoid this fate?
At the other extreme are small businesses that are so robust they have survived for centuries - through wars, plagues, depressions and revolutions. In Japan, where there is an unusually high number of extremely old small businesses, they even have a special name for these firms: “shinise” The shinese, along with venerable firms in other countries, can show us the principles behind businesses that far outlive their founders.
1) Focus on enduring needs…
Instead of piggy-backing on trends, robust businesses look to serve core human needs. For example, many of the oldest businesses in existence are engaged in hospitality, fabrication or construction. Travellers will always need sustenance and shelter, businesses will always require high-quality tools and components, and society will always need new buildings to be built and existing ones to be maintained. Businesses operating in sectors such as these will still face threats from competitors, new technologies and changing tastes, but it is very unlikely that their core market will simply disappear. This does not mean that today’s founders should limit themselves to traditional sectors, but they should challenge themselves to provide a product or service that won’t be all the rage today, but out of favour tomorrow.
2) …but remain flexible
However, that does not mean doing the same things, in the same way, decade after decade. Instead, there is a continual path of evolution, centred around a ‘core competency’. Over time, building upon this core can lead a business far away from its starting point, and many shinese have moved from manufacturing simple items into electronics and technology. Nintendo (founded in 1889) established it’s core competence in ‘creating fun’ - an understanding that has taken it from manufacturing playing cards to its current position as a leading digital business. Identifying this ‘anchor’ allows leaders to quickly identify the right opportunities for growth and development without the risk of over-stretching the business.
3) Plan for the super long-term
These old businesses can follow this slow-and-steady evolutionary path due to the way they set their goals. Rather than maximising profits or shareholder returns, simply keeping the business running is the number one aim. Sustainability and conservation are central to this approach, and these principles are applied to the business’s assets (the shinese are famous for holding significant amounts of cash - many times more than would be expected for any small business), and their use of natural resources (many firms still use traditional, less-energy intensive manufacturing techniques and maintain short supply chains). These businesses often sit at the heart of their communities and are a source of pride - in return, they go to great lengths to care for their employees and customers, maintaining reputations that have taken centuries to establish.
We are not arguing that all businesses should aim to survive for a thousand years, but understanding those that have might just help SMBs everywhere to get through the next Wall Street crash, natural disaster or outbreak of disease.