[UA] Re: Out of business

[Mattias Östklint]

Reasons for this? Results of this?

http://www.businessweek.com/smallbiz/content/apr2007/sb20070416_589621.htm?campaign_id=rss_topEmailedStories

(text below)

The world's oldest continuously operating family business ended its 
impressive run last year. Japanese temple builder Kongo Gumi, in operation 
under the founders' descendants since 578, succumbed to excess debt and an 
unfavorable business climate in 2006. 
How do you make a family business last for 14 centuries? Kongo Gumi's case 
suggests that it's a good idea to operate in a stable industry. Few 
industries could be less flighty than Buddhist temple construction. The 
belief system has survived for thousands of years and has many millions of 
adherents. With this firm foundation, Kongo had survived some tumultuous 
times, notably the 19th century Meiji restoration when it lost government 
subsidies and began building commercial buildings for the first time. But 
temple construction had until recently been a reliable mainstay, 
contributing 80% of Kongo Gumi's $67.6 million in 2004 revenues. 
Keys to Success
Kongo Gumi also boasted some internal positives that enabled it to survive 
for centuries. Its last president, Masakazu Kongo, was the 40th member of 
the family to lead the company. He has cited the company's flexibility in 
selecting leaders as a key factor in its longevity. Specifically, rather 
than always handing reins to the oldest son, Kongo Gumi chose the son who 
best exhibited the health, responsibility, and talent for the job. 
Furthermore, it wasn't always a son. The 38th Kongo to lead the company 
was Masakazu's grandmother. 
Another factor that contributed to Kongo Gumi's extended existence was the 
practice of sons-in-law taking the family name when they joined the family 
firm. This common Japanese practice allowed the company to continue under 
the same name, even when there were no sons in a given generation. 
So if you want your family business to last a long time, the story of 
Kongo Gumi says you should mingle elements of conservatism and 
flexibility—stay in the same business for more than a millennium and vary 
from the principle of primogeniture as needed to preserve the company. The 
combination allowed Kongo Gumi to survive some notable hard times, such as 
when it switched temporarily to crafting coffins during World War II. 
Burst Bubble
The circumstances of Kongo Gumi's demise also offer some lessons. Despite 
its incredible history, it was a set of ordinary circumstances that 
brought Kongo Gumi down at last. Two factors were primarily responsible. 
First, during the 1980s bubble economy in Japan, the company borrowed 
heavily to invest in real estate. After the bubble burst in the 1992-93 
recession, the assets secured by Kongo Gumi's debt shrank in value. 
Second, social changes in Japan brought about declining contributions to 
temples. As a result, demand for Kongo Gumi's temple-building services 
dropped sharply beginning in 1998. 
By 2004, revenues were down 35%. Masakazu Kongo laid off employees and 
tightened budgets. But in 2006, the end arrived. The company's borrowings 
had ballooned to $343 million and it was no longer possible to service the 
debt. In January, the company's assets were acquired by Takamatsu, a large 
Japanese construction company, and it was absorbed into a subsidiary. 
To sum up the lessons of Kongo Gumi's long tenure and ultimate failure: 
Pick a stable industry and create flexible succession policies. To avoid a 
similar demise, evolve as business conditions require, but don't get 
carried away with temporary enthusiasms and sacrifice financial stability 
for what looks like an opportunity. These lessons are somewhat 
contradictory and paradoxical, to be sure. But if sustained success came 
easy, then all family businesses would have a 1,428-year run.

Mattias


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