By Tom Paquin
If you look at the Fortune 500 list as a barometer of business success, you’ll see some truly behemoth mainstays, many of which have endured on the list for at least the last five years. And sure, evaluating these businesses on the sliding curve of assets and liabilities, this can provide some insight into the health of a company, and excellence is great, but what about endurance? What can we say about a business that has stood through crises, recessions, wars, governments, and natural disasters?
If you look at a list of the oldest businesses in the world, you’ll discover that the top of the list is monopolized by Japanese companies. And while many of the years are impressive—705 for the oldest hotel in the world, 862 for the oldest winery—one business stands a head (and nearly 150 years) above all the others, and that is Kongō Gumi.
What compelled me about Kongō Gumi specifically was that in a list dominated by hotels, restaurants, alcohol producers, and state-owned properties, Kongō Gumi was something different—they were a service provider. Specifically, they’re a construction company, specializing in elaborate Buddhist temples.
There is however a twist to this story: Kongō Gumi was liquidated in 2006 and sold off to Takamatsu Construction Group. It seemed incredible to me that a company that has survived for as long as Kongō Gumi could so flippantly and abruptly go the way of the dodo, but it’s yet another reminder that, in the age of empowered customers, legacy is meaningless. It’s fascinating, though, to look at what toppled a service mainstay that was incorporated more than 1200 years before the country that I am currently sitting in. The obvious answer is that pedigree is a meaningless function in the face of industrial growth, but nevertheless, when a company of unrivaled pedigree collapses in an industry about which you study, there are certain to be some lessons to take away.
To consider those lessons, let’s look at some of the main reasons why Kongō Gumi was driven to acquisition.
Insolvency
If you look at the available evidence regarding the collapse of the business, this, in its simples terms, is what dealt the final blow. Unregulated lending derived from the Japanese economic bubble of the 1980s weighed down companies like Kongō Gumi with excess debt. Exacerbated by a lagging economy in the early 21st century, the business was no longer capable of standing on its own.
There are of course many positive and valuable reasons for businesses to take on debt—personnel attraction, research and development, or expansion—but this can serve as a reminder that debt needs to be justified and leveraged across a broader business plan, rather than be a means to keep a business afloat. This is a bigger challenge in construction and real estate than in other businesses, which is well-known for solvency issues and corrupt practices. This doesn’t mean that other service industries are immune from the challenges of debt, obviously. Let’s take it a step further and think about what led to this degree of insolvency.
Product Rigidity
Kongō Gumi has a broad and detailed history of building Buddhist temples and shrines. It was the stability and consistent needs of this industry that permitted their success through the centuries. This rigidity of vision turned detailed, elaborate architecture almost into a widget factory, though each of their constructions endures as a unique and beautiful symbol in its own right. Nevertheless, the other side of that rigidity meant that when the market reached a point of saturation, there was nowhere to pivot to.
For manufacturers, product-oriented organizations, or service companies, it’s a short path to see how some product diversity could have helped to mitigate some of the fiscal problems that the business ultimately faced. We frequently talk about building new service offerings that stem out of the primary offerings of a business, and that remains a way to evolve with a changing market. Service, on a whole, can be extremely nimble when given the tools to do so.
Knowledge Hoarding
The complexity of the work that Kongō Gumi meant that apprentices needed ten years’ worth of training in order to reach a level of mastery necessary to produce work that met the expectations of the customers. While I personally admire and respect the cultural practice of rewarding expertise and excellence at a craft, it is easy to see how such a business model would struggle to scale in a modern corporate environment.
Service businesses have an opportunity to take heed of this, and consider how their skills are disseminated across their business. Most businesses don’t require the expertise that is needed to construct elaborate pagodas, so making sure that new staff have the skills they need as soon as possible is an imperative, and a comparatively easy one to manage.
In spite of it now being a totally-owned subsidiary, Takamatsu Construction Group respects and maintains the name and reputation of Kongō Gumi. In some ways, by joining the larger organization, Kongō Gumi has, in short order, been given the tools to be more nimble. Let’s hope that the beautiful structures that they create even now will endure for many more years.