Built to Last: Lessons in longevity from 100-year businesses

Did you know that the oldest operating business in the world was founded in the 6th century? That makes it over a thousand years old!

Headquartered in Osaka, Japan, Kongo Gumi is a construction company that was founded in 578 A.D that specialized in building temples and shrines for local nobility. A family owned and operated business, it stayed family owned for 15 centuries before finally being bought by the Takamatsu Construction Group in 2006. In an age where publicly traded companies have an average life-span of around ten years, Kongu Gumi stands out as an incredible example of longevity in business.

A thousand-year-old business is unique but there are many companies today that have lasted well over a century and are still going strong. Unfortunately, they are also fast becoming the exception. Research shows that fifty years ago the average lifespan of a Fortune 500 company was 75 years. Today, it is 15 years and declining.

How many of these companies do you recognize? – Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, Riegel Textile. None? These are all Fortune 500 companies that were publicly traded less than sixty years ago. Here are some other names you are definitely familiar with – UPS, L.L. Bean, Kraft Foods, Kellogg’s. Every one of these businesses is well over a century old. Why do these companies find success when more modern organizations fail? It’s not a lack of competition (There are plenty of popular retailers and cereal brands). Neither is it about the uniqueness of their product (Can you really tell the difference between a Pepsi and a Coke?).

What can businesses today learn from these long-lived corporations? What secret sauce do legacy businesses like Ford, American Express, and Jim Beam add to their product that keeps them ticking for so long?

Don’t just build a product, build a system

Companies need to be more than one-trick ponies. Founders need to have the imagination to anticipate and plan for long-term challenges and make sure their organizations are capable of pivoting to meet these challenges. One highly successful product is no guarantee of long-term viability. Just ask FitBit, GoPro, TiVo, or any other flash-in-the-pan successes of the recent past.

The best way of building a business that can outlast even your most popular product is to find an unoccupied niche in the market and build a system that can exploit that niche. The FitBit is a product. It can measure your heart rate, count the steps you’ve walked, and keep track of the calories you’ve burnt. Like almost everything else, it comes with a mobile app. Great.

The Apple Watch is a system. Not only can it do everything a FitBit does, it is also fully integrated with your phone—because it is made by the same company that makes your phone. You can use it to take calls, reply to messages, and use the internet. But more importantly, it can now also connect you automatically to your health care provider, record fluctuations in your ECG, and help them keep a track of any alarming changes. In one piece of technology, the Apple Watch has created a system that experts say can potentially reduce your dependency on your healthcare provider by 85%. And it can tell time!

The System that Ford Built

Automobile giant, Ford, is one of the best-known examples of a system built by a legacy corporation. In 1896, a year considered by many to be the most important in automobile history, Henry Ford built his first successful motorcar in his garage. As significant as this innovation was, a far more significant one was around the corner. In July 1903, the now fully formed Ford Motor Company, produced the first ever car to be built using an assembly line, at their Mack Avenue plant. This was followed a few years later in 1908, by the Model T.

Unless you are an automobile enthusiast you probably don’t know the name of Ford’s first car. But almost everybody has heard of the legendary Model T. Why? Because the Model T was more than just a product. It represented the creation of a system. The first mass produced car, it paved the way for wide-spread automobile ownership. The Mack Avenue plant was able to manufacture cars faster than anybody else. Until then, automobiles were largely viewed as a small market, with a few boutique companies making customized products for a select clientele. A luxury for the uber-rich. But the assembly line model changes that completely. Now cars could be made for a third of their previous price and the speed at which they were manufactured meant that Ford could afford to take on large orders and deliver on them easily.

By identifying a niche i.e., the potential demand for personal transportation, and a way to exploit it—the assembly line plant— Ford was able to create a system that not only changed his industry but made his brand the lodestar for automobile production. The Model T went out of production decades ago but the house that Ford built still stands at the forefront of automobile innovation, over a century later.

Prepare for crisis

F. Scott Fitzgerald once wrote,

“There are no second acts in American lives.”

He was referring to the short-lived successes of the movie industry in the 1920s but the observation can also apply to a lot of businesses today. Many industries are going through a period of rapid transformation. Globalization, advancing technological innovations, and the internet have sped up the time it takes for new ideas to achieve market viability. An innovation made in one corner of the world can have an impact on business in the opposite corner within the space of a few years. Just look at the sudden rise in 3D printing, a technology that, even until the mid 2010s, was considered too expensive for widespread use. Or drone technology, which was confined to military use only a few years previously. Ideas and innovations can move from novel to normal very quickly and businesses need to be able to keep up. By anticipating cycles of maturation and systemic transitions, and having the vision to spot impactful innovation, businesses can stay current and write successful second acts.

AmEx finds second act success

American Express is one of the big four multinational financial services companies, along with Visa, Discover, and Mastercard. A study conducted in 2016 showed that the American Express network accounted for almost 23% of all credit card transactions in America and that they currently had 114 million cards in regular use. But do you know why the company is called American Express?

American Express was first created in 1850, as a freight and express mail business, in Buffalo, New York. The company was very successful expanding its reach from to cover most of the United States. In 1857, it began a money order business to compete with the U.S. Postal Service and also went into partnership with railroad and steam ship businesses to extend their presence into Europe.

Sometime in the late 1880’s, then President, J.C. Fargo was taking a trip to Europe, when had a frustrating realization. Despite carrying letters of credit from reputable banks, Fargo was unable to exchange them for cash in many of the smaller European towns. Fargo realized, “If I, being the president of a multi-national company, am having such problems, then ordinary travelers probably have it much worse!”

Realizing that the old credit systems no longer worked, he teamed up with inventor Marcellus Berry to create the first traveler’s cheque—the American Express Travelers Cheque. So successful was this second act that when war broke out in Europe in 1914, American Express was one of the few companies that could afford to extend credit to European nationals. When President Theodore Roosevelt cracked down on the railroad monopoly, many freight businesses suffered huge losses and went under. But Amex’s secondary lifeline was able to keep them going.

Amex didn’t set out to be in the credit business. They provided freight services and were very good at it. However, the ability of Amex’s leaders to spot a systemic transition and their willingness to innovate to match this transition, made them capable of growing in a new direction that eventually proved vital.

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People, not trends, drive business

On a fundamental level people, or rather consumers, haven’t changed that much in the last few centuries. People want to build relationships with the brands they consume and make emotional connection. Definitely, there is a lot more awareness of the kind of PR and marketing strategies that brands employ to sell products. There is also a greater level of cynicism with which attempts at brand management are viewed. But this is also why consumers are more likely to choose brands they have more than a B2C relationship with.

As anyone with a favorite neighborhood pizzeria will tell you, people like the idea of having a relationship with the products they consume. The deli around the corner which has been in business since you were born, the local watering hole that has existed since before Watergate, the mom-and-pop store that your dad used to buy his candy from as a child. These are all businesses that consumers have a strong, almost familial, relationship with and what a lot of successful legacy brands have figured out is that having this emotional connection makes a big impact on customer satisfaction. Consumers like to build a narrative about their favourite brands and include themselves in this narrative.

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Consumers like making the emotional choice

No one builds consumer focused narratives like Jim Beam. One of the world’s best-selling bourbon and whiskey brands, Jim Beam was first established in Kentucky in 1795 (then sold under the name Old Jake Beam’s Sour Mash). The business grew steadily over the next two centuries, surviving through the Civil War, two world wars, the Great Depression, and the Prohibition. They did it by being keenly aware of their brand narrative and their consumer base. In the words of Fred Noe, Jim Beam’s master distiller and seventh generation descendant of founder Jacob Beam,

“There’s no reason to go into business if you don’t have consumers who will buy what you’re selling, so you’ve got to take care of them… We don’t take anyone for granted, never have. We’ve always made an effort to let them know we appreciate their loyalty. And we have loyal customers, about as loyal as you can get. People who are engaged with our brand, people who feel part of the Beam family… So, stay close to your customers, engage them in your business, and show them you understand them, that you care.”