How to build a sustainable business
I first found this book during a course on strategic thinking. Held at a delightful seaside resort in Denmark. One of the sessions included a film of Arie De Geus. De Geus was head of strategy for the oil giant Royal Dutch Shell in the 1970s. During this time he adopted scenario planning as a standard. He described his experiences during the oil shock of 1974. When the price per barrel quadrupled almost overnight. He was able to pull a plan for a similar scenario off the shelf. And help his CEO respond faster and better to the crisis. It transformed Shell’s standing.
I was stunned. Here was a man who had thought the unthinkable. And planned for it. Remember this is long before Black Swans became a thing. Before PC technology disrupted the world. Amazing. I had to know more. When I returned home I went to a bookstore (yes this is before Amazon as well). And found a slim volume written by the Dutchman.
The Living Company became my favourite business book. It is a classic in my opinion. Although not as well known as some of the works I have written about. And there is a twist. The message goes against one of the big founding myths of the startup world. It is about survival and sustainability. Not growth and fabulous valuations.
What Is The Living Company
During and after his time at Shell De Geus studied some of the world’s largest companies. He started from a unique perspective. The average lifespan of a multinational is just 40 -50 years. Less than a human being. For example between 1970 and 1983, one-third of the Fortune 500 ceased to exist. Bust or taken over.
He wrote an article for the Harvard Business Review called the Learning Organisation. And then published The Living Company. Both have a single theme. What makes the survivors different?
Long Term Business — Elephants Not Unicorns
The startup world today is like stock markets since the tulip mania of the 1600s. It exalts the short term. The highest valuation or the most money raised today. Not yesterday and not tomorrow. We have even coined a word to describe these winners. The unicorns. Yet the role models are Google, Apple, and maybe Amazon. These look more like Elephants. Enormous, successful, and long-lived. Page, Brin, Job, and Bezos did not start a business for the short term. They wanted to change the world.
I believe there is far too much attention paid to funding and valuation. We live in a day trading kind of world. Startups are still high risk. Those that survive even for 20 years will build a real business. When the boom ends the companies left standing will not be just those that have raised the most money.
If your aim is to be in that group, you can learn from The Living Company.
4 Lessons To Build Your Own Business
The book is not that long. But it is rich in examples and thought-provoking angles. In the end, there are 4 core lessons:
Sensitivity. Learn and adapt to the environment. Including markets, regulation, and social expectations. Every startup needs to begin this way. You will not get off the ground if you don’t understand the market. Retaining that sensory perception and allowing to determine business strategy is a different matter. Pivots are a part of sensitivity. Over the longer term, a company needs to keep listening. And be ready to undertake a total transformation. The digital revolution is going to find out many established organizations. It will destroy those who are not able to change in response to a new environment. There are also cautionary tales within tech. Look at the challenges facing Microsoft. It has been slow to react to the growth of mobile and the cloud.
Identity. Great companies are communities with their own culture, personality, rituals, and traditions. This emerges. It cannot be set from the top. I have seen great business dying a slow death. Because consultants and CEOs demand strategic change. And declare victory as the house of cards falls around them. Startups need to understand their own culture. This is a collective thing. It is not just the choice of the founders. But in the early days, you can influence it. In ways that will not be possible once you start to scale. At all times you need to nurture and value your identity. Even including the parts that frustrate. Whatever the size of your business, the one tool you have which can impact identity is hiring and firing. I worked for many leaders during my time in business. the single most successful did not change strategy. Or organization. Or goals. He looked at the top 100 people. He fired the 5 who were the worst fit. (note not the worst performing). And hired 5 new people. In less than a year performance improved by 20%. As a startup, hire people. Check experience and qualifications. And pick those you want as part of the team. Nowhere is this more true than when hiring sales teams.
Tolerance. Long-lasting companies work with their stakeholders. Governments, suppliers, customers, shareholders, teams, partners, communities, unions. Everyone and every group. They adapt to the ecology that surrounds them. Remember we are talking multinationals here. Tolerance also requires a decentralized approach. The ecology is different in different countries, markets, or communities. Startups need to empower people to build and sustain relationships. It is great to be data-driven. But numbers do not answer every question. Command and control deliver short-term results. It does not make a business sticky or sustainable. The ecosystem is not just something you give back to. It is the life force that sustains you. This may prove the biggest challenge to today’s tech giants.
Conservative Financing. This is definitely not part of today’s startup culture. In reality, every entrepreneur needs to take some financial risk. But the long-term financial strategy is not to keep multiplying that risk. Over time the high financial risk will expose any company. The goal of the investment is to get your company from nothing to a stable sustainable base. Becoming self-financing is the object. Not reaching for an even higher valuation. Massive injections of funds to sustain cash and profit negative growth can only last so long. This is a statement of the obvious but it seems forgotten. The memory will return fast when the current investment cycle turns.
Read the book and learn. There is something of value on every single one of its 238 pages.
Start Your Own Business — Become An Impala
There is another lesson from The Living Company. Most founders are not starting the next Google. Or even a short-term unicorn. So what. Mobile and digital are changing the way we work and do business forever. We are going to shift from a corporate-dominated economy to a more diverse and fragmented structure. The future will be about making a living not just having a job.
The impala is the most common antelope in southern Africa. Around 150,000 in the Kruger National Park alone. Yet each individual is a beautiful, fragile survivor. And the species succeeds in large cooperative herds.
This is the future we need to build. Not just start your own business. Help create large numbers of long-term, sustainable businesses. None enormous. Working together to create communities and economies that help everyone live a better life.