Could something called the Lindy Effect help to understand why family businesses often survive for so long? Possibly – but one thing is for sure, the Effect offers an intriguing explanation for why some businesses survive longer than others.
The Lindy Effect says that the observed lifespan of a non-perishable item like a business is most likely to be at its half-life. So, if a business is 100 years old, it should expect it to be around for another 100 years. And a business that has been around for 10 years should be around for another 10 years. Under the Effect, the mortality of a business actually decreases with time.
The Lindy Effect has been elaborated on by Nassim Nicholas Taleb, most famous for his 2007 book The Black Swan: The Impact of the Highly Improbable. Taleb talks about “antifragile” and the idea that things like businesses become more robust “antifragile” the longer they’ve been in existence. This robustness, in a simple explanation of Taleb’s thinking, is gained because of skin in the game.
So, from a business perspective, those with skin in the game – i.e., they lose if things go wrong – are more likely to be robust and survive longer. The owners of the business that survives for 100 years are likely to have skin in the game. That might not mean they will lose the shirt off their back immediately if the business fails, but they would still lose their reputation and eventually the wealth linked to the business will dwindle.
Taleb also talks about the time factor in the antifragile concept. “Time is equivalent to disorder and resistance to the ravages of time, that is, what we gloriously call survival, is the ability to handle disorder,” he said in an essay on the Lindy Effect. The ability for some businesses to survive time/disorder is their ability to be antifragile. And this is dependent on having skin in the game.
Source: Bain, David, March 16, 2017, http://www.famcap.com/articles/2017/3/16/viewpoint-family-businesses-and-the-lindy-effect