How to Build a Business that Lasts Forever
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Why colleges stand the test of time.
If you want your business to last 102 years or longer, just as Jack Ma envisions for Alibaba, you need to protect your company. Market crashes, global pandemics, and disruptors will come and go. They will reek havoc on your industry, and the businesses that don’t hedge against their downside will crumble.
One of the most impressive industries of the last 1000 years has been higher education. They have withstood countless economic crashes, global pandemics, and relentless competition from both the public and private sector. Part of what has helped them is an ever-flowing source of donations and students through the ideals of credentialism.
But in recent history, colleges and universities have been on a knifes edge, financially. Enrollment has been declining, so small colleges have been squeezed while they seek to maintain the same employment numbers. Colleges have cut programs, eliminated employee benefits, and done all that they can to stave off closure.
So, a black swan event like COVID-19 was a perfect storm to ruin the industry. In fact, in early 2020 Forbes predicted that 500–1000 colleges would shutter due to COVID-19.
At the same time, my research of institutions in Washington, Oregon, Idaho, and California indicated that at least 9 colleges would most likely fail in an economic crash, or a black swan event like COVID-19. But strangely, this hasn’t happened. Some colleges actually got stronger.
If anything, from this information I learned just how resilient higher education is, and what other businesses may be able to do in order to replicate their success.
Here are my top 3 takeaways:
Don’t rely on a single revenue source
Universities make money through a variety of means: tuition, conference services, government grants and contracts, campus housing, parking, sports, and many more. If a university relies too heavily on tuition, they will be too exposed against declining enrollment and will ultimately fail when the economy does.
Amazon is a great example of a business with diverse revenue streams. They make money through advertising, retail sales, subscriptions services, AWS, and others. While they started in retail sales, they were able to establish these other revenue streams to make sure that they could still be relevant if one started to fail.
Build slowly
One reason colleges and universities have been able to last is because they built slowly enough so they could establish systems of management, and safeguards against catastrophic events. a couple examples of this are Seattle Pacific University, and William & Mary. The first was established in 1891, and after 130 years, they now do about $100–150 million USD per year. William & Mary was founded in 1693 and now does around $415 million USD per year, increasing just 3.1% over the last year.
You can go faster than this. A compounding growth rate of up to 15–25% is great. This means that you are noticeably growing, but you also have the ability to build systems to deal with issues that may arise.
Build an Endowment
Arguably the most important aspect to higher educations’ resiliency is the endowment. This has helped many colleges survive when they otherwise wouldn’t have. The great thing about it is when times are good, universities can plow money into this fund and watch it grow. This can result in huge cash stores. The benefits of a large endowment mean a college could stay solvent a lot longer than expected.
Every business needs to build an endowment, or a pile of cash. This is especially important for small businesses. They need to set aside a little bit of money from every check to go toward this. From there invest it conservatively so it grows. This fund will make you more like the university, so you will be able to stay financially viable while the world is crumbling around you. Not only that, but you can stay financially viable while your world is crumbling, so you can re-strategize, or plan your exit to something else.
Ultimately, many industries are experiencing a sharp disruption. This is especially true for higher education. However, by building systems of resiliency, they have made themselves far stronger than they otherwise would be. By building these systems for other businesses, we can all have the same effect and ensure that we last as long as possible.
