The Next Big Company

People live longer. Businesses, in contrast, die faster. The question is, why? And is there a way to spot the next big company, in a world of growing uncertainty, where businesses appear and disappear so rapidly?

We know why people live longer, massive advances in healthcare, especially for infants and children. And we know why businesses die faster, inability to change and adapt. As Peter Drucker observed trenchantly, businesses persist in doing the wrong things right.

Here are the numbers for people and firms. For people: Life expectancy has risen steadily for 200 years and has doubled since 1900. But for businesses: In 2020, the average lifespan of a company on Standard and Poor’s 500 Index was just over 21 years, compared with 32 years in 1965. And that lifespan will fall further, to 15 years in a decade or so.

Life expectancy for small businesses is considerably less. According to J.P. Morgan, half of small businesses are 10 years old or less, and one-third are 5 years old or less. Hence, small businesses live just half as long as big ones.

The top 20 companies in the 1992 Fortune 500 were (ranked by revenue) largely oil, cars, chemicals.[1] Compare this with the 2022 Fortune 500: Only two of the 1992 Fortune 500 remained: Exxon and Chevron.[2] Move over, Big Oil. Enter health care and digital.

Who will star in 2052? Who will replicate Microsoft, whose shares rose by 22,200 per cent from early 1992 through Dec. 31, 2021?

Investment advisors often counsel long-term investment: Buy and hold. It makes sense. The question is, how to avoid holding shares in a business that is heading South?

In our next post, we will make some modest suggestions on how companies can build long lasting value to break the trend of shortening company lifespan.

[1] In order of revenue: General Motors, Exxon Mobil, Ford Motor, Intl. Business Machines, General Electric, Altria Group, DuPont, Texaco, Chevron, Texaco, Chrysler, Boeing, Procter & Gamble, Amoco, Shell Oil, United Technologies, PepsiCo, Eastman Kodak, ConAgra Foods, Dow Chemical.

[2] In order of revenue: Walmart, Amazon, Apple, CVS Health, United Health Group, Exxon Mobil, Berkshire Hathaway, Alphabet, McKesson, Amerisource Bergen, Costco Wholesale, Cigna, AT&T, Microsoft, Cardinal Health, Chevron, Home Depot, Walgreens, Boots Alliance, Marathon Petroleum, Elevance Health.

Originally published on Noam Maital's Medium blog.