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What do the companies in these three groups have in common?
Group A: American Motors, Brown Shoe, Studebaker, Collins Radio, Detroit Steel, Zenith Electronics, and National Sugar Refining.
Group B: Boeing, Campbell Soup, General Motors, Kellogg, Procter and Gamble, Deere, IBM and Whirlpool.
Group C: Facebook, eBay, Home Depot, Microsoft, Office Depot and Target.
All of the companies in Group A were in the Fortune 500 in 1955, but not in 2014.
All of the companies in Group B were in the Fortune 500 in both 1955 and 2014.
All of the companies in Group C were in the Fortune 500 in 2014, but not 1955.
Comparing the Fortune 500 companies in 1955 to the Fortune 500 in 2014, there are only 61 companies that appear in both lists. In other words, only 12.2% of the Fortune 500 companies in 1955 were still on the list 59 years later in 2014, and almost 88% of the companies from 1955 have either gone bankrupt, merged, or still exist but have fallen from the top Fortune 500 companies (ranked by total revenues). Most of the companies on the list in 1955 are unrecognizable, forgotten companies today (e.g. Armstrong Rubber, Cone Mills, Hines Lumber, Pacific Vegetable Oil, and Riegel Textile).
Economic Lesson: That’s a lot of churning and creative destruction, and it’s probably safe to say that almost all of today’s Fortune 500 companies will be replaced by new companies in new industries over the next 59 years, and for that we should be thankful. The constant turnover in the Fortune 500 is a positive sign of the dynamism and innovation that characterizes a vibrant consumer-oriented market economy, and that dynamic turnover is speeding up in today’s hyper-competitive global economy. Steven Denning pointed out a few years ago in Forbes that fifty years ago, the life expectancy of a firm in the Fortune 500 was around 75 years. Today, it’s less than 15 years and declining all the time.
In the end, the creative destruction that results in a constantly changing group of Fortune 500 companies is driven by the endless pursuit of sales and profits that can only come from serving customers with low prices, high quality and great service. If we think of a company’s annual sales revenues as the number of “dollar votes” it gets every year from providing goods and services to consumers, we can then appreciate that the Fortune companies represent the 500 companies that have generated the greatest votes of confidence from us as consumers – like Walmart (#1 at $476B in “dollar votes”), ExxonMobil (#3 at $407B), Apple (#5 at $171B) and Ford (#8 at $147B).
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