How the old corporate tortoise wins the race
By Jonathan Guthrie
FT
February 15 2007 02:00
Spirits were high among a group of insolvency practitioners – sorry,
"recovery professionals" – with whom I dined last week. It was like
raving it up with a group of undertakers during a dangerous epidemic.
The corporate pallbearers expected this year to be remunerative,
thanks to higher interest rates and globalisation-fuelled
competition. "Old So-and-So went under on Tuesday," said one man,
charging our glasses. "Young Whatsisname is running out of road too,"
said his colleague, ordering another bottle.
In both business and life it is futile to ask, as the funeral service
psalmist does: "Lord, let me know mine end, and the number of my
days." But longevity calculators on the internet at least allow one to
guesstimate the length of one’s mortal coil. I, for example, have a
good chance of making it to 79. Anything else will be gravy for me
and an extra penance for my family, assuming that I grow even
crabbier.
The calculators offset negatives – a 60-a-day fag habit, for example –
against such positives as descent from a breed of Armenian shepherds
famed for living into their hundreds. Assiduous Googling failed to
uncover a similar service for company owners troubled by intimations
of corporate mortality. That left me wondering what the formula for an
elixir of eternal youth would be for a business.
Reports of the untimely demise of the typical enterprise, are, to
start with, exaggerated. A commonly heard urban myth is that "most
businesses fail in their first two years of trading". But the
Department of Trade and Industry says about 80 per cent of
VAT-registered businesses are still going after two years, falling to
70 per cent after three. If anything, the DTI numbers overestimate
failures by including the higher-earning self-employed, a proportion
of whom cancel VAT registrations every year when they take salaried
jobs.
Experian, the data company, says that only about 3 per cent of new
ventures are subject to insolvent liquidation or go into
administration in their first three years. That figure seems
improbably low, but Experian suggests that many failures are concealed
in the 200,000 yearly company dissolutions. Here, owners shut up shop
having failed to make decent profits, but avoid insolvent liquidation
or administration.
The conclusion is clear. Wannabe entrepreneurs should bravely hum the
prog rock anthem "Don’t Fear the Reaper" when detractors gloat over
their likely failure.
I can meanwhile offer some tips on corporate immortality. First, if
you owna business in Peterborough, flee. Switch off the lights, lock
up and escape while there is yet time. According to a 2004 report by
R3, which represents insolvency practitioners, the Fenland city is a
graveyard for businesses, along with tracts of the north-west.
London is the safest place to base a company, even if living in some
of its inner suburbs requires reckless courage and Kevlar
undergarments. Follow the money, in other words.
Second, you will stay in business longer the more cash you have to
waste. Experian pinpoints undercapitalisation as the main reason for
business failure.
To me, that sounds like self-justification from Dodo Plc, which would
have continued making losses even with an extra £1m to piddle into the
prevailing westerlies.
Third, both Experian and R3 emphasise the importance of a strong
market, though it is in the nature of markets to wax and wane
unpredictably. Fourth, the DTI found that finance and business
services companies survived better than hotels and restaurants.
Jaded bankers fantasising about running a little bistro in Oxford,
take note.
Some high-profile collapses reflect the obsolescence of chosen
business models. The centuries-long survival of some smaller
businesses is less remarked on. Their persistence hints at models that
are tougher than those of fly-by-nights that flourish for decades or
mere years.
Typically, survivors have niches that are hard for newcomers to
penetrate. An example is Timpsons, a 142-year-old store chain whose
staff re-sole shoes and cut keys. John Timpson, its chairman, says:
"No one else has made money out of [this] and that is a good barrier
to entry."
Niches that depend on freehold property ownership are probably the
easiest to defend. An example is the landlord of my office, Calthorpe
Estates, which is modernising the chunk of Edgbaston it has owned for
300 years. It belongs to a trust whose single beneficiary – currently
the splendidly named Sir Euan Anstruther-Gough-Calthorpe – is
determined by primogeniture. Endless division of shares in a founding
family has spelt the end for many private businesses.
The Aberdeen Shore Porters (est 1497), a haulage and storage company,
avoided the problem by structuring itself as a kind of friendly
society. Its executive titles still include "deacon", "horsemaster"
and "keybearer".
Long-lived businesses can seem quaint, like the long-lived tortoises
of the Galapagos Islands. These trundle grumpily over the rocky
terrain, snorting disgustedly at day trippers and attempting to mount
one another with a dull clonking of shells. They appear less
ridiculous when you reflect that they can outlive the average human by
70 years. There are worse things to be than a Galapagos
tortoise. Dead, for example.