Business Analysts Remain Divided Over the Reasons Behind the Declining Average Lifespan GMAT Reading Comprehension

Reading Passage Question

Business analysts remain divided over the reasons behind the declining average lifespan of publicly traded companies. In 1960, companies had a 50% chance of lasting at least twenty years and an 80% chance of lasting at least ten years. In contrast, companies founded in 2000 had only a 50% chance of companies lasting at least 10 years. Some business analysts point to structural changes in the economy to explain this change. As larger, older businesses failed because of recessions or changing consumer tastes, the market was left open to an influx of smaller companies. However, these businesses were left with a host of problems, such as a lack of institutional knowledge, which led to uncertainty and decreased the probability of company survival. Further, the removal of once-stable forces within the marketplace led to instability that made it more difficult for newer companies to survive for more than a few years past their initial public offerings.

However, a growing number of analysts contend that modern companies are purposefully built to encourage shorter business lifespans. They explain this trend in the context of the growing belief that certain businesses should be “built for acquisition.” Such businesses, they maintain, are built to last only until the product the company produces proves to be a success. Once the product or technology is successful, larger companies acquire the technology, and the start-up dissolves. This theory is built on the belief that many modern start-ups tend to be centered around a single technology or suite of technologies rather than their long-term uses.

‘Business analysts remain divided over the reasons behind the declining average lifespan’ is a GMAT reading comprehension passage with answers. Candidates need a strong knowledge of English GMAT reading comprehension.

This GMAT Reading Comprehension consists of 7 comprehension questions. The GMAT Reading Comprehension questions are designed for the purpose of testing candidates’ abilities in understanding, analyzing, and applying information or concepts. Candidates can actively prepare with the help of GMAT Reading Comprehension Practice Questions.

Questions and Solutions

1. According to the passage, a company built to produce a single piece of technology may

1. pivot to longer-term uses of that technology as the company ages
2. be acquired by a larger company after the technology has been proven to work.
3. have a slightly longer lifespan than a business that was built for acquisition.
4. require less institutional knowledge in order to be successful than a traditional company would.
5. be victims of unstable marketplaces and be unable to survive as long as traditional companies might.

2. The author is primarily concerned with

1. It is important for business analysts to come to a consensus about the drivers of declining company lifespan
2. It is important to increase the average company lifespan in order to increase marketplace stability and institutional knowledge.
3. The failure of older companies may lead to greater instability within once-stable industries.
4. In order for startups to survive once they become public, they should focus on long term growth rather than technological innovation.
5. Eliminating uncertainty within the marketplace will not decrease the problem of declining company lifespans

3. According to the passage, a business analyst who believed that structural economic changes led to decreased company lifespans would also agree that

1. Shorter company lifespans might be a good thing, since it encourages greater innovation within the technology sector.
2. Lack of institutional knowledge following economic instability is the primary reason for declining company lifespans.
3. New businesses often fail due to changing consumer tastes or recessions rather than competition.
4. Many of the new companies that were created after older companies collapsed during recessions were left with an unstable marketplace.
5. Uncertainty in the marketplace invariably leads to decreased probability of company survival

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