Buy the Book: Lessons From Century Club Companies breaks down 10 years of research to find the unique characteristics behind companies that have survived and thrived for over a century.
The Notes
- The author studied 100+ year old companies in Japan and the U.S. for unique characteristics that stood out.
- Japan has some of the oldest continuously-run companies in the world — 7 were founded over 1,000 years ago.
- The average life span of a company today is 12 to 15 years.
- The average life span of an S&P 500 company today is 15 years. The average life span of an S&P 500 firm in the 1920s was 67 years.
- The Henokiens is a group of international companies founded over 200 years ago and still run by the original family. 48 companies are in the group.
- Over 1,000 companies in the U.S. are at least 100 years old. They represent less than 0.5% of all U.S. companies.
- “A fundamental objective of any organization, though often unstated, is survival.”
- “Companies die prematurely because managers focus exclusively on economic activity, forgetting that an organization is a community of humans.”
- “In a very real sense, survival is the ultimate performance measure.” — Ian Davis, McKinsey & Co.
- Stakeholder Theory = To obtain a competitive advantage through the development of close-knit ties and shared values with customers, suppliers, employees, investors, and the community. Many century club companies have practiced this since their founding.
- The first lesson from the study is that these companies see survival as the ultimate goal. They achieve it by following 5 Main Factors:
- Strong corporate mission and culture
- Unique core strengths and change management
- Close relationships with business partners
- Long Term Employee relationships
- Active members of the local community
- Leaders say all 5 factors must be in play for long-term success.
- Strong Corporate Mission and Culture
- Specific values are laid out to create a culture and guidelines for management to make decisions around.
- Mission statements emphasize the tech or skills that make the company unique and its relationship with business partners.
- Mission statements make no mention of profits, financial strength, or other business metrics.
- The old companies live their mission statements.
- The values become a teaching moment. It’s shared with employees, customers, and suppliers. It’s a way to get everyone to buy in (filter out those that don’t).
- “Century Club companies pay great attention to the representation and protection of their company or brand name… Name and reputation mean everything to these companies, and they guard them carefully.”
- They take a financially conservative approach: generally opposed to debt, prefer profitability over growth, and are run lean and efficiently.
- Profits are the fuel that drives long-term survival. It’s not about maximizing profits, but being profitable so as not to be reliant on debt or outside investors to fund anything. The goal is to accomplish the mission, and if that happens, profits will follow.
- “Most of the companies in our industry I have seen go out of business did so during periods of unsustainable growth and overreaching.” — Hancock Lumber 1848
- The average net profits for old Japanese companies was twice the average profitability for all Japanese companies.
- Old European companies have a 10% higher profit margin compared to younger companies.
- These companies build a cash reserve during the good times which gives them optionality. It allows them to internally fund growth, take advantage of opportunities without relying on debt, and continue to pay their employees rather than lay them off during bad times.
- “Wheelwright also believes in these core principles: Carry very little debt, Pay off everything during the good times and that will get you through the bad times, Own everything Lease nothing—it is much cheaper when things are slow, Keep your best people.” — Wheelwright Lumber 1890
- “A fundamental objective of the Century Club firms is survival, and staying financially sound is a means to this end. For these company leaders making a profit is not an end in itself: it is the means to sustain their business.”
- “As Max De Pree of Herman Miller, Inc. (1905) said, profit is the result of doing well what they do as a company, not their goal.”
- Unique Core Strengths and Change Management
- “Sure, we invented the ceiling fan—but every day we find new ways to perfect it. That’s our challenge and our passion.” — Hunter Fan Co. 1886
- Most companies tie their “secret” to success to the knowledge, skills, and tech built up and shared over time. It’s unique, difficult to replicate, and has a competitive advantage over the competition.
- That knowledge and skills transfer over to how they train new employees and educate suppliers and customers.
- Passing down knowledge and skills is in the company’s DNA but so is constantly improving their business operations.
- “Century Club companies are not dinosaurs. They would not have survived world wars, economic depressions, globalization, changing social and cultural mores, and quantum leaps in technology that created whole new industries (and obsoleted others) without innovation and change.”
- They balance tradition and innovation by getting everyone — employees, suppliers, and customers — involved in the process. It gives them a sense of ownership in the process.
- “A company’s culture and core competencies can evolve. They become the building blocks used to make needed changes in Century Club companies. Changing through building on your company’s core competencies and unique technologies rather than abandoning them may make take longer but will be far more effective in the long run.”
- “Almost every Century Club company interviewed said they take a long time to make major change. But it is the care and attention they give to figuring out how to maintain their culture while moving forward, bringing everyone along with them, that is their strength.”
- Close Relationship with Business Partners
- “We depend completely on the strength of our relationships—with our consumers, with fellow associates, suppliers, distributors, and the communities in which we live and work. We believe we only achieve the best results if we are unselfish in these relationships and give a fair return.” — Mars Inc 1911
- Building relationships between customers, suppliers, employees, and the community is seen as mutually beneficial.
- The companies understand that they exist because of their partners — those connections are nurtured, especially when changes are being made. It reinforces loyalty across customers, suppliers, etc. Which makes it easier for old companies to survive industry-wide innovation and things out of their control.
- Suppliers are viewed as business partners. Their success is dependent on their partner’s success and vice versa. It becomes a collaboration, learning from each other, and more likely to share tech and info, which improves performance for both sides.
- “Often the old companies define their purpose in terms of helping customers accomplish their purpose.”
- “When customers and suppliers become trusted partners, both parties are willing to share information and do favors for each other that don’t necessarily result in any readily apparent financial gain.”
- They prioritize connecting with customers. It allows them to train customers and make sure the products are used in the best way. It also leads to learning how customers use their products which leads to improvements.
- “Companies must take the lead in bringing business and society back together… The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges.” — Michael Porter
- Long-Term Employee Relationships
- “Old companies believe long-term employees bring a wealth of “institutional memory” to issues and opportunities that arise. Building relationships with employees so they stay with the firm for a long time is consistently described as a key longevity success factor by 100-year-old companies.”
- Long-term employee retention bring stability and keep costs low due to not having to train a fresh supply of new employees.
- Old companies often go out of their way to continue paying employees when there isn’t enough work rather than laying them off. Some pay employees to do volunteer work — work at non-profits — during that time to help the community.
- They tend to rely on non-traditional ways to make jobs attractive: flexible schedules, family-friendly practices, bonuses, profit sharing, and employee ownership.
- Hiring from within is a key factor. Outsiders don’t understand the company, the culture, the customers, and the business relationships like insiders do.
- The 100 best companies to work outperformed the S&P 500 2 to 1 since 1998.
- Active Members of the Community
- “One of the values that shape our actions is “Be a friend and neighbor.” After Great Uncle John died, we found a big stack of personal notes adding up to almost $50,000. The Depression made it difficult for banks to give families the loans they needed. But when a Carrollton family desperately needed financial help, Uncle John would quietly take them into his office and make them a loan out of his own pocket.” — Carrollton Bank 1877
- “The old companies actively participate in their local communities, promoting them and developing local networks for mutual learning and benefit. In many cases a company and its local community are so closely associated with each other that they are seen as one and the same.”
- These companies see their community support as being socially responsible. Plus it’s mutually beneficial. If the community thrives, the business thrives. They invest in local projects, step up in times of crisis, and pay employees for local volunteer efforts. It often takes an environmental approach.
- “Not all destruction is creative, and not all creativity is destructive. The demise of a company is not damaging only for its stakeholders. Sometimes, it may also be an inefficient way of innovating in the economy or an industry, because it breaks up established and tangible assets, such as R&D know-how and strong consumer and supplier relationships. A company that learns to adapt and change to meet market demands avoids not just the trauma of decline or an unwanted change of ownership but also very real transaction and disruption costs.” — Ian Davis, McKinsey Quarterly
- No consistent leadership qualities or behavior were found across older companies in the study.
- “The Century Club companies also seem to survive under weak leadership, as long as the core principles of the longevity model are not violated. Increasingly, companies are beginning to realize that this collective force of a company’s culture can be more powerful than individual leaders.”
- For U.S. companies 100 years old or more, about 88% are privately owned firms to 11% for publicly owned, which is no greater than it is for all U.S. businesses.
- About 60% of century club companies are multi-generational family firms. 1.5% (over 20 firms) have been in the same family for 7 generations or more, 4.2% (60 firms) are 6th generations, 11.5% (150 firms) are 5th generation, and 24% (over 300 firms) are 4th generation.
- “Whether private or public, family firms tend to take a longer-term perspective… Non-family-controlled public companies tend to be obsessed with meeting the demands of investors to maximize short-term profits… There is evidence of a positive ‘family effect’ on financial performance equivalent to five percentage points of extra return per year.” — The Economist
- Century-old companies are found in every U.S. industry, but a larger portion are found in mining, utilities, manufacturing, finance, and insurance.
- “Survival over the long term may be the ultimate measure of organizational and leadership performance. Long-term survival tests the value, relevance, resiliency, and creativity of an organization in ways that short-term financial performance does not.”
