1,400 Year old family run business dies

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

In the year 576 a family owned and operated construction company was founded to create Japanese Buddhist temples. You would think that a company claiming to be family run for 1,400 years would actually be some sort of mongrel line of craftspeople with gaps in the family history generously filled in.

Whether or not the family had really been so intact across the 1,400 years does not matter much. Starting with the Meiji period it adjusted from government subsidized temple construction (thus implying a quasi-government entity it is past) to operating in the construction of private building projects. This bloomed across the last 150 years into a 2004 top-line revenue of 67.6 million dollars. In <st1:place w:st="on">Silicon Valley</st1:place> if they were in the web 2.0 line of work and Google really liked them this would fetch a billion bucks. These are no mere craftspeople.

<o:p> </o:p>However, today the company has ended in an ignoble asset sell-off that folded the remaining bits into the giant <st1:city w:st="on"><st1:place w:st="on">Takamatsu</st1:place></st1:city>.

<o:p> </o:p>What brought them down was greed in chasing the 80s Japanese real estate bubble and they cracked under 343 million dollars of debt, and the construction business being a service business with well established competition it cannot support the debt service of such a massive debt.  

<o:p> </o:p>As an aside, it is very logical to accept that fatal mistakes were made and cast away nostalgia for the past and what we are left with is a charmingly tragic tale.

This story was passed around in the office at GoPets and DF suggested that if the family had not succumbed to greed, but had stayed with the millennia-old Buddhist family values that the company would be healthy and here today.

<o:p> </o:p>While I think that is very much true, I think a deeper question is why did the company fail in the year of 2007?  Is now a special time for humans to develop greed?  I do not think so.

<o:p> </o:p>While as you can read in the story the family had a culture of significantly wise practices they must have had some periods of bad ideas in their past.  They must have some pretty bad presidents and even their good presidents must have had some truly bad ideas.  Whole regimes, political structures, even language and culture dramatically changed even in the homogeneous Japanese society across those 1,400 years – as a Westerner it is hard fro me to comprehend even what is 1,400 years!

<o:p> </o:p>So why did that company fail now?  What is different now? Bad, but dumb luck?  Again, I do not think so.

<o:p> </o:p>It comes back to that 343m of debt.  I will assume that a construction company when well run is able to grab a clean 10% profit margin (I think if you took the time to check large publicly held construction companies financial statements that they do not achieve even 10%).  So at$ 68m a year, and a 10% margin this means that even if they had dedicated their whole profit of $7m to debt service, it would have taken them 50 years to pay off this debt.  That is crazy – no the bankers were crazy to lend the money.

<o:p> </o:p>What is special now is the speed of our world, and the raw, brutal efficiency of the global markets.  As the CEO of GoPets, an American living in <st1:city w:st="on"><st1:place w:st="on">Seoul</st1:place></st1:city>, our company is infused with this life-energy of this brave new world of a deeply networked world.  I enjoy and consume products from all over the world, I cherish my friendships and travel across many countries and I am a futurist in every sense.

<o:p> </o:p>However, this family run business represents to a symptom of the pace of change the same as lost animal species as we radically change our planet through global warming as well as other habitat destructive processes.

<o:p> </o:p>Our nature as humans are as wonderful and as terrible as ever – the whole point of studying the classics and ancient cultures is to learn more about how human nature is constant.  Yet, I argue that our tools are far, far more powerful than ever in the past.

<o:p> </o:p>WMDs, Global Warming, and way over-extended debt leverage to me are all the dark sides of these great tools of advancement that we are employing.

<o:p> </o:p>I do not argue that we should reject the rapid pace of change, nor even slow down – in fact I urge that we moves faster into nanotech, space, and the bio sciences.  What I do argue is that we as a world civilization change our value systems to accept the total cost of our actions and with that acceptance thoughtfully take strong measures to constrain the dark excesses.

<o:p> </o:p>Our DNA as a species and our biosphere as a whole did not come with a guarantee or a warranty slip.  Our way of life of air-conditioning and Chilean grapes is not right – it is a privilege that we should all value – and jointly accept the responsibilities to manage in a sustainable way of prosperity.

<o:p> </o:p>While what I say might sound nice, it is actually deeply difficult to achieve.  Economists term these problems as Travesty of the Commons scenarios.  It would be great to give everyone free access to graze their sheep in the hills and pastures around the village without having to pay for the grazing.  It sounds warm and pleasant when compared to land lords and giant agribusiness, but with shared resources without responsibility individual herdsmen will naturally over-graze and fatten their flock so that they can sell more than their neighbor.

<o:p> </o:p>We see this with forests being clear-cut, oceans over fished, financial market bubbles, and even imperial overreach.  What we must do as the world civilization is reach out and make connections with each other, understand each other and accept that our choices as consumers is the primal force determining the future.

<o:p> </o:p>Elimination of the incandescent lightbulb, adding a carbon tax to fossil fuel consumption, and adding the recycling costs into consumer electronics all need to rapidly become simple and natural policies that do not even draw debate.  We must with the same zealous pursuit of speed, seize on every opportunity to realize a sustainable way of life – this would be the path to long prosperity I believe.

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-Erik

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Originally posted on LiveJournal