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US public companies have increasingly shorter lifespans, research says
April 11, 2018, Indiana University
© Phys.org 2003 - 2018, Science X network
Source; excerpts follow:

Quote

A paper by two Kelley professors, forthcoming in the Academy of Management Annals, found that the odds of a company surviving more than five years has declined dramatically since the 1960s and that this trend also holds for firms lasting 10, 15 and 20 years.

Companies emerging as publicly listed firms in the 1960s had a 50-50 shot of making it to their 20-year anniversary. By the 1990s, that percentage fell to 20 percent. Similarly, such companies used to have an 80 percent chance of being around after 10 years, but those odds were down to 50 percent for firms established after 2000.

These findings are based on an empirical analysis of nearly 32,000 U.S. publicly listed companies between 1960 and 2015 by Rene Bakker, assistant professor of management and entrepreneurship, and Matthew Josefy, assistant professor of strategy and entrepreneurship…

"We believe this trend reflects an important shift in our understanding of the very DNA of what constitutes an organization," the researchers wrote. "Short-lived, temporary organizations that rapidly accomplish a complex task and disband on its accomplishment are increasingly common across a broad range of industries."…

"We live in an environment where starting and liquidating a business is quite easy," Bakker said. "Many young firms today seem destined to become 'organizational supernovas,' which burn brighter but die quicker."

Once a start-up reaches its desired objectives, it may be acquired or morph into another entity with new goals…

Full article.
Abstract

Note that this research does not pertain to SMALL privately-owned businesses, such like you or I might start. It focuses on publicly-listed companies, and since a company must meet the listing requirements of the exchange (notably including capitalization), "Mom and Pop" operations are excluded.

This is an interesting wrinkle because startups are rarely (if ever) listed at inception; this means they must enjoy some degree of success before being listed. It's not clear to me whether the researchers included this non-listed period in their "lifespan" analysis although I suspect not. By "lifespan", the researchers probably mean: "Lifespan as a publicly-listed company".

For example, Facebook existed for years before finally "going public" in 2012. So is Facebook about 15-years old or just 6-years old? From the perspective of this research, it's the latter.

From an investment management perspective, this focus makes sense. Pension funds represent the largest pool of potential clients for investment management firms, and although their risk profiles vary, they are largely risk-averse. Since a company must be more-or-less established before being listed, this is a primary area of activity for such investment firms.

Also, how do the researchers define "listed"? If a company is dropped by a primary exchange, yet continues to be traded by smaller, regional exchanges, is it still "listed"? What if the company changes its name (and security identifiers), is that end of its original lifespan and the beginning of a new one? And with all the mergers-and-acquisitions activity, does a company "live on" under the new owners? And when a company "spins off" a portion of its business, does the spin-off's lifespan under the former parent company still count?

There are a lot of questions about this research, many of which can't be answered until it's available. It may have value from business-management, entrepreneurial, and investment perspectives but what about the rest of us? The closing paragraph is interesting on its own:

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"While society is often concerned to see businesses fail, sometimes it may be better for a company to die to free up resources and allow people to go on and do something else, rather than persist with uncertainty and stagnation," Josefy said. "Apparent failure of one entity may actually be the precursor to success of another."
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I'm about to finish my 27th year with my current firm and would not have found this job if my previous employer had not gone under. There is often opportunity in failure.
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2 Comments On This Entry

From my experience, it's because shareholders are dicks.

Used to work for an engineering firm that had offices all over the Eastern half of the U.S. The CEO was far more afraid of the shareholders than us engineers. When we had quarterly meetings, all we heard from the CEO was what the shareholders wanted. But what did they really want? A minimum of a 15% return, consistently, regardless of the world's economy or whether they had to screw over employees.

Got laid off in '08 a month after being told that that no more layoffs were coming (so I made financial decisions based on that). The only company I've worked for since that had shareholders, only the employees could own stock.
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Companies, especially those that are publicly listed, must put shareholder financial interests first; it’s a fiduciary responsibility to the owners/investors. (Just look at the innumerable class-action litigation settlements of the last few decades to see why.) That said, I think employees are a company’s greatest asset; they (we) are the ones who make the company successful and thereby an attractive investment. Not all companies are good at reaching or maintaining that critical employee/investor balance but I think those that do have a better chance at success.

(BTW, when a company goes under, unpaid employees are first in line as creditors.)

I’m sorry that you experienced such difficulty in ’08; that was a very tough time. Also, if your CEO was trying to motivate employees with the expectations of shareholders, then it sounds like he or she was simply not a good leader, lacking in people-management skills. Finally, I completely agree that making employees stakeholders is an excellent way to engender drive and loyalty, and to put profits in the pockets of those doing the work.
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