How well do you know your business? Organizing a venture and eventually longing for it to be listed or included in the Fortune 500 list are common long term tasks. You only think of prosperity, projection of cost and profit which indicates a green-light for you to execute the business. Not to mention you have done market studies of other factors that should be considered when it comes to setting up a startup. Why do you think ventures that are at its primitive stage are called “startups?” Breaking this word into two and mixing them would give “upstart,” which implies a head start at an activity if used as a noun, and as a verb it means “to spring up into existence.” For it took time to be extant, businesses do not necessarily prosper as initially planned. Likewise, even well-established companies may file for Chapter 7 or 11 at any point in time depending on what placates the predicament. An article from the Harvard Business School on the subject states that “Average life expectancy of Fortune 500 companies is 40-50 years” and that “1/3 of Fortune 500 companies in 1970 had vanished by 1983.” In other words, startups and a company of considerable size have the same outcome if mismanaged by the entrepreneurs.
When organizing their ventures at an early stage, entrepreneurs usually tend to believe highly in themselves to a point where it brings acrid results. Life expectancy of a firm in the Fortune 500 is to be “less than 15 years and continuing to decline.” If companies cannot adapt to the changing environment, they will inevitably go bankrupt. To prevent such calamity, entrepreneurs need sound management to navigate through the heavy turbulence. Entrepreneurs do employ peculiar strategies when it comes to the entrance and exit of a venture. However, those distinctive ways may not suffice to be everlasting. Furthermore, there are a few companies that have not been moved by the storm and still standing strong. For instance, The Sumitomo Group has its origins “in a copper casting shop founded by Riemon Soga in the year 1590.” This Japanese conglomerate exemplifies that the natural average lifespan of a corporation should be for centuries, to say the least.
Nevertheless, why do so many companies die out prematurely? In terms of business in general, there is much speculations about that matter and this area is still in the gray. Corporations fail because they do not adapt themselves properly or link themselves ‘emotionally’ to the community they conduct business in. Not focusing on the importance of community or catering to specific people. Mismanagement is not the sole problem that exasperates the problem. Acknowledging business’ life cycle provides the significance of understanding the basics. Entrepreneurs only think about the products and services they can offer that should have comparative advantage over their competitors, but they neglect the life cycle notion, the very fundamentals of management.
Of course, there are a lot of factors that contribute to the fall of companies, whether it is a company at its baby steps or one that has a long history. You should recognize the importance of your business’ life cycle, as other factors that proves detrimental or the opposite will eventually follow after the fundamentals have been covered.
(This article was developed with H.G. Byun, a publicist at KingsBay Capital.)