Just like humans, enterprises have their own life cycle of growth and decline, so how to properly grasp the age of business development is essential to entrepreneurs’ decision-making on business operation and innovation strategies.
Recently, I, together with Ning Lu, have published a paper titled “An Empirical Study of Labor Productivity and Enterprise Age” (Review on Industry, 2016 No.4). This paper empirically examines the relationship between enterprise age and Labor Productivity by analyzing the data of China Employer-Employee Survey 2015. A reverse U-shape non-linear relation that first rises and then falls has been found between the age and the labor productivity of manufacturing enterprises. By calculating the specific inflection point, we have located that a decade is the period when significant changes happen in labor productivity. This decade may be a golden age to increase labor productivity, or may be critical to the decline of labor productivity. For most enterprises, the overall labor productivity is on the rise in their first decade of development, but after the inflection point of a decade, the labor productivity is likely to decline gradually.
As its age increases, a company is likely to fall into the path dependence that companies tend to rely on their old methods and paths to deal with or resolve new problems due to their previous profits and experience. Once a company has followed a relatively fixed track of development, it will be difficult for it to quickly and effectively respond to the new problems in the new environment because of its organizational learning effect and the subjectivism model arising from its past problems. This is because companies are depending on their existing paths, and it hinders the further development of their production activities, resulting in the decline of their labor productivity.
A decade is an important inflection point in the development of enterprises, which vividly describes the so-called “itch of a decade”. Entrepreneurs have to make decisive and discreet judgments in such a period. Just remember, Rome is not built in a day. Even if the labor productivity has reached a very high level, attentions should also be paid to the possibility of the reverse U-shaped relationship, since the peak is the so-called starting point of the valley. The unceasing development of entrepreneurs is the only premise of the actual development of labor productivity. Therefore, entrepreneurs are actually the most hardworking people and the scarcest talents in China. Due to the “itch of a decade” summarized in the analysis, an entrepreneur should keep on innovation without stop for a day.