Global Courant 2023-05-20 07:11:00
What determines the long-term success of a company? Some researchers argue it’s because of the industry’s timing.
Aside from the appetite of the market, the productivity of the company, the marketing reach or other factors that determine the impact and sustainability of a company, a new study found that a company’s longevity depends on the state of the industry during the onset time – and the general environment in which it grows.
According to D. Carrington Motley, an entrepreneurship instructor at Carengie Mellon University, a company’s founding conditions may weigh more on its long-term trajectory than market changes.
“A company’s performance after environmental changes depends on its internal processes,” he said in a press release. “Environmental conditions in the formation of a company shape those processes, and they quickly become cemented and embedded in beliefs about how to operate.”
While understanding industry norms and trends has long been considered key to entrepreneurial success, Motley and fellow researchers found that social, economic and technological changes are making industry knowledge or previous experience less and less relevant. This is because teams have to adapt to developments that previously stable industries were not prepared for.
Motley and other researchers examined the performance of more than 1,000 companies, all of which were founded between 1960 and 2011. These companies specialized in a wide range of industries – from energy and utilities to agriculture – and the research team reviewed data from the Bureau of Economic Analysis to measure how active and changing different industries were when each company started. In addition, the researchers used alumni survey data to gain insight into how long companies lasted.
The research found that companies achieved the most success when changes in the market matched the conditions in which they started. But the research also found that a stabilized industrial environment can make a company less likely to succeed if the team is used to constant change.
Wesley Koo, another study co-author, said “in more predictable environments, being more aggressive can lead to better outcomes.”
This may amount to risk aversion.
“The risk of untested assumptions is lower, so continuing to use risk-averse processes yields fewer benefits and can detract from a company’s ability to respond to opportunities.”
The study found that “slower decision-making” was a key factor in a company’s long-term success.
When a company started out in a stable industry, they may be less inclined to make snap decisions when that industry begins to change rapidly, the press release said. When a company starts in a more volatile industry environment, a company is better able to adapt to constant changes.
The authors argue that entrepreneurs should regularly evaluate how their business approach is adapting to the industry while abandoning industry biases that may not reflect current changes.
