Why do successful companies die?

Lately I have been obsessed with the thought why big companies fail. How can a company with high market share and a thousand workers fail? What are the main forces in play to make this happen? 

Half of today’s biggest firms will be replaced over the next 10 years.

If we look at the statistics we can see that that the average life span of a Fortune 500 company is today 20 years. (The Fortune 500 is an annual list compiled and published by Fortune magazine that ranks 500 of the largest United States corporations by total revenue for their respective fiscal years). In the 1950′s it was 60 years and by the year 2026 it is expected to be 14 years. According to some we can expect that half of today’s biggest firms will be replaced over the next 10 years. 

The above table can be found on this report: Corporate Longevity: Turbulence Ahead for Large Organizations Half of S&P 500 companies are expected to be replaced over the next 10 years, and a new survey points to organizational inertia and lack of long-term vision.

?The real reasons

So what is really happening here? If you Google the words why companies fail, you will get a bunch of reasons everything from cash flow to organizational culture. Although these reasons might be valid for smaller and start-up companies but not for a company that already has proven it itself. In my eyes there are only two real reasons why companies fail.

1. User preferences change.
2. Competitors arrive at the scene.

The underlining parameters for these two reasons are time and technology. User preferences, both consumers and businesses, change over time based on new technology. The more profound the user preference changes are the bigger the chance that new competitors will emerge.

Change is always happening

So if you today are an established company you have to be obsessed by changing user preferences. Only companies that are able to react to these changes in a meaningful way will be able to survive.

Can you react to change in a meaningful way before a competitor dethrones you?

Thousands of years until 1879 when the electricity was invented we lived like Jesus did. Electricity was a game changer and so was the Internet. Internet has had a profound change for almost all companies. Looking at these 140 years since electricity we can see an acceleration of change in technology innovation. Consider now the emerging technologies that we already have proof of such as speech recognition, virtual reality, augmented reality, internet of things, biotech, nanotechnology, artificial intelligence, 3D printers and many other. Each of these areas will generate new companies that will become big and make many of todays companies obsolete. Change is constantly happening the question is can you react to it in a meaningful way before a competitor dethrones you?