Companies often survive only by transforming themselves along the way
By Len Boselovic
Pittsburgh Post-Gazette
PITTSBURGH (AP) — Here’s how hard it is for a business to survive 50 years: only about 36 percent of them make it to their 10th birthday, and about 21 percent make it to their 20th anniversary, according to the U.S. Bureau of Labor Statistics.
There are many reasons why so few companies last. They expand too quickly or invest in the wrong things. Customers do not provide the needed cash flow. Investors refuse to fund them. They fail to anticipate changes in markets and technology. A visionary founder retires or dies and no one has been groomed to take his or her place.
“It’s hard enough for most startups to survive the first five years, much less 50 years,” said Robert Morris University management professor Marcel Minutolo. “Making it 50 years is a pretty impressive feat.”
Many of today’s most-talked-about companies have a long way to go before they will mark that achievement. Ride-hailing app makers Lyft (2012) and Uber (2009) are less than 10 years old. Twitter (2006) just turned 10. Facebook (2004), Google (1998) and Netflix (1997) are less than 20 years old. Online retailers eBay and Amazon (1995) are less than 25 years old.
Microsoft, the granddaddy of them all, is nine years away from turning 50.
Pittsburgh has several prominent companies that passed the 50-year marker long before many of today’s hot companies were launched. They survived only because they transformed themselves along the way.
Pittsburgh Trust and Savings Co. was founded in 1852 and weathered financial calamities such as the Panic of 1907 and the Great Depression. A 1983 merger with cross state banker Provident National led to the creation of a bank known today as PNC Financial Services Group.
T. Mellon & Sons Bank came along in 1869, only to be combined in 2007 with Alexander Hamilton’s Bank of New York to form BNY Mellon.
Pittsburgh Plate Glass was founded in 1883. After transforming into a global paint and coatings provider, PPG’s glass business accounted for only 7 percent of the company’s $15.3 billion in sales last year.
The Pittsburgh Reduction Company was started on Smallman Street in 1888. Charles Martin Hall’s and Alfred E. Hunt’s venture grew into Alcoa, which last month split into two companies: a new Alcoa that still produces aluminum; and Arconic, which supplies engineered metals parts to the aerospace, automotive and other industries.
“Growth is not an inevitable process for a firm. Many firms may speed up the process of failure by trying to grow,” said Oliver Hahl, who teaches organization behavior and theory strategy at Carnegie Mellon University.
Hahl said even if a company is savvy enough to realize where markets are headed, getting there is no sure thing. He cited Kodak’s huge, early investment in digital photography, which failed because Kodak believed customers would use digital photography the same way they used film.
“Because they were still kind of in their film world, they had a really hard time,” Hahl said.
He said successful companies balance two functions: exploiting — generating as much profit as they can while demand for a new product is strong; and exploring — doing the research and product development necessary to bring the next big thing to market.
Having a great idea is often not enough, said John Prescott, who teaches strategy and other subjects at the University of Pittsburgh.
“Entrepreneurs have ideas, but not necessarily the managerial skills that makes businesses run on an ongoing basis,” he said.
Maintaining those managerial skills when a CEO leaves, dies or retires is a challenge for all businesses, but especially for those owned by families. In addition to succession planning, Minutolo at Robert Morris said family-owned businesses sometimes fail to bring in outside expertise when a problem demands it. They also can hesitate to lay off workers because of the close connection they have with them. Either mistake can be fatal, he said.
That helps explain why only a third of family-owned businesses survive into the second generation and only 12 percent make it to the third, according to the Family Business Institute.
Dealing with the ups and downs of business and economic cycles is another challenge. Bryan Routledge, who teaches finance at Carnegie Mellon University, said many businesses have a hard time determining if the latest downturn is just another recession or a sea change that will radically change their markets or the way they operate. Having to do all this “deep visionary thinking while revenue is dropping ... is really nerve wracking,” he said.
“You have to figure out whether this is a short-term crisis or a long-term crisis and what to do about it,” he said.
Globalization and technology are two other trends that can make surviving harder, according to Rich Lunak, president and CEO of Innovation Works, which has invested in more than 300 technology startups in the Pittsburgh region.
Lunak said companies’ product development efforts must be more focused and intense because product life cycles are getting shorter. Moreover, consumers aren’t as loyal to brands as they once were and improved logistics means companies are more often competing with rivals from around the world, he said.
“In many cases, it’s not good enough for businesses to stand out among their local peers,”Lunak said.
Minutolo said Pittsburgh is blessed with a strong crop of companies, public and private, that have reached or exceeded the 50-year milestone.
He credits some of the success to the assistance that businesses, including family-owned ventures, can receive from small business and entrepreneurial centers at local colleges and universities and from organizations such as Innovation Works. Loyalty to hometown companies is another reason.
“Pittsburgh is a city that really supports Pittsburgh businesses. I think that may be the reason why many of our publicly traded companies were able to start, grow, and do well here,” Minutolo said.
