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Founder's Perspective

Survive and Thrive

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June 17, 2020

Bob Zapfel

Why have the initial tagline of a new company lead with "Survive"? While better than the alternative, it is not exactly an uplifting word. 

Is this focus first on survival due to the pandemic and the dramatically new environment for businesses and individuals? No. 

Why not? Because businesses are constantly fighting for survival. And obviously businesses that don't survive can't thrive long term. 

Of the initial Fortune 500 published in 1955, it's been widely noted that many of the original "500" have fallen off the list over time; in fact, in 2020 for the first time, the number of "survivors" was down to 49, less than 10% of the original group.  But the fact that companies like Douglas Aircraft (acquired by McDonnell Aircraft in 1967, which was subsequently acquired by Boeing in 1997), Sperry Corp (an equipment an electronics firm, not the current boat shoe company), and Brown Shoe were no longer members over 60 years later may not resonate today.  

Not as highly publicized, but much more interesting in my view, is that less than half of the Fortune 500 members from 2000 are still on the current list just two decades later. Sears, Enron, Compaq, Lucent and MCI, for example, were all ranked in the top 25 in 2000, and not a single one remains in the top 500 of the 2020 rankings.  

Let's look more deeply at the most recent 2020 US Fortune 500 list, just published last month. 157 of these firms, over 31% of the top tier of US public companies, generated less revenue than the year before. Again, of these "500", 54 were unprofitable. Of those profitable, 179 made less money than the year before; another 43 grew profits less than revenues and thus had an overall lower profit margin. So 55% either lost money or had declining profits or margins.

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Those companies with strong financial results, revenue growth and "better than balanced" profit growth, comprised just 165 of the firms. That's right, only one-third of the top 500 public companies in the US (as measured by Fortune), in a strong economy, grew revenue and increased profit margin in 2019.

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The survival challenge is even more pressing for smaller companies. According to the U.S. Bureau of Labor Statistics, roughly half of US small businesses survive for five years. After 10 years, the survival rate drops to approximately 30 percent. Both rates have been consistent over time. (see "What Percentage of Small Businesses Fail?", Fundera, 4/15/2020)

I'm reminded of the famous exchange in Ernest Hemingway's 1926 novel "The Sun Also Rises." Bill asks Mike "how did you go bankrupt?" and he responds "two ways ..... gradually and then suddenly." The business cycle is similar. 

 When companies are no longer growing, they are in the "gradually" stage. That stage may last a long time, as many of the still surviving 49 firms from the original 1955 Fortune 500 list are no longer consistently growing. But creative destruction in a capitalist economy is inevitable. 

 Any unexpected event, whether it be a collapse in the credit markets, a global pandemic, a dramatic shift in buyer behavior or a competitor with a dramatically new offering, can drive the shift to "suddenly." 

 Once there, creating survival time is critical (see "Business Survival Guide: Creating Survival Time" by Mike Festa) and crisp, rapid execution of liquidity enhancing actions is required. 

 One way to escape the "gradually" phase is to leverage analytics to increase customer retention and enable growth (see "How Analytics Can Help Us Thrive" by Amy Anderson). 

 In sum, all companies have to survive to thrive, and long term, survival requires growth.  

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