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Six evolutionary principles to keep your company going forever
Martin Reeves did a splendid TED talk about how to make a company last 100 years (and also a related HBR article). It's not a new subject, for example being very well covered in Collins and Porras' excellent book, 'Built to Last' that studied 100+ year old companies.
Reeves also looked at long-lasting companies and compared them with biological principles that are found in all kinds of flora and fauna, from the immune system onwards. He found that the average company lasts 30 years, and that any company has a 32% chance of having five years or less left before they collapse, are taken over, or otherwise disappear. In biology, six principles of complex systems have evolved over millions of years and Reeves found evidence of these in the more successful companies (and absence in those who failed).
Here are some thoughts and notes about his six principles.
Redundancy, the idea of having more than you actually need, is anathema for many companies. Imagine having a second manufacturing plant, all set up ready to go in case the first one catches fire. While this might be a bit far, the principle of having a backup for critical parts of the operation can be very useful for those unexpected times when important bits break, get lost, damaged and so on. The trick here, of course, is finding which bits where redundancy is a useful hedge, which means finding weak points in the chain, where a feasible but unlikely scenario would cause huge problems. This includes people. So, for example, you might consider employing a second specialist who also knows the key formula for your magic potions.
Diversity helps redundancy and also principles such as adaptability. For example, it is so easy for companies to end up employing 'people like me', who fit the corporate culture. More difficult is to employ people who might challenge you, and who do not automatically follow the company line. Reeves suggests diversity in people, ideas and in endeavours, even if these cost more in the short term. As with redundancy, a longer-term perspective is essential if the six principles are to be understood and taken seriously.
Modularity is the principle of breaking things into quite parts, and then building the system out of these 'lego blocks', a key principle of which is to have clearly defined inputs and outputs, and internal design which can vary. The idea is that if one module fails, you can always rebuild a plug-compatible alternative without messing up the rest of the system. Complex companies are often not built like this, and are more like a house of cards where pulling out one card can make the whole edifice collapse. Modularity can reduce flexibility, but it makes the whole system more robust.
Adaptability is important, particularly in changing times, where today's skills and assets may become tomorrow's liabilities. Being able to adapt includes being multi-skilled, with people who have changed careers and worked in very different situations, including failures.
Prudence is a founding principle that is broken surprisingly often. It has long been a common approach to business for significant loans to be taken out when the future looks rosy and growth is a significant focus. However, servicing that debt can kill a company when things take a turn for the worse. The principle of prudence can be applied in all kinds of ways, as can the other principles. Spend money where it is needed, but not on unnecessary luxuries.
Embeddedness is the final idea, where parts are built closely into the overall system, even while sustaining modularity. When something is closely connected, as opposed to being distant or taking a long time to work, the whole system can move as a single machine rather than a sloppy set of vaguely interconnected elements.
To utilize these, it is essential that you understand your company as a system, not just a hierarchy, departments or other traditional view. You must also be very serious about the long term, being ready to make short term sacrifices in order to sustain long term survival.
These principles may also make sense within your personal life. For example by learning different skills so you can be adaptable, while being prudent in the face of the ever-present potential of losing your job if you work for a company that does not wholly embrace the six principles.
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