Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life, in Organisms, Cities, Economies, and Companies

by Geoffrey West

(13) The lengths increase systematically with resolution following a power law as indicated by the examples in the graph. (14) The slope gives the fractal dimension for the

prediction extremely well. However, if you look closely at the graphs for Boston you can see that there are two

Of the 28,853 companies that have traded on U.S. markets since 1950, 22,469 (78 percent) had died by 2009. Of these 45 percent were acquired by or merged with other companies, while only about 9 percent went bankrupt or were liquidated; 3 percent privatized, 0.5 percent underwent leveraged buyouts, 0.5 percent went through reverse acquisitions, and the remainder disappeared for “other reasons.”

Status of companies

In all cases the number of survivors falls rapidly immediately following their initial public offering, with fewer than 5 percent remaining alive after thirty years. Similarly, the mortality curves show that the number that have died reaches almost 100 percent within fifty years, with almost half of them having already disappeared in less than ten. It’s tough being a company!

Status of compnies

The half-life of U.S. publicly traded companies was found to be close to 10.5 years, meaning that half of all companies that began trading in any given year have disappeared in 10.5 years.

Half life of a company = 10.5 years

Richard Foster, who was for twenty-two years a director and senior partner of the well-known business consultants McKinsey & Company, analyzed the tenure of companies on these lists and discovered that it has been regularly decreasing over the past sixty years. For example, he found that in 1958 a company could expect to stay on the S&P 500 for about sixty-one years, whereas today it’s more like eighteen. Of the Fortune 500 companies in 1955, only sixty-one were still on the list in 2014. That’s only a 12 percent survival rate, the other 88 percent having gone bankrupt, merged, or fallen from the list because of underperformance. More poignant, perhaps, is that most of those on the list in 1955 are unrecognizable and completely forgotten today; how many remember Armstrong Rubber or Pacific Vegetable Oil?

Survival rate for Fortune 500 companies