Hello, {{hc_sub_firstname | friend}}! Param here.

I just got back from Japan. The food was extraordinary, the temples humbling, and the trains run on time in ways that make you question everything you've learned to tolerate about American infrastructure. 

But here's what I couldn't stop thinking about on the flight home… Japan has more than 33,000 companies that are over 100 years old – that’s almost 40% of all companies in the world that have been in business for over 100 years!

Let that sit with you for a moment. Thirty-three thousand businesses that have survived wars, occupations, recessions, natural disasters, and the full sweep of modern history. The world's oldest continuously operating company, Kongō Gumi, was a construction firm founded in 578 CE. No, that isn’t a typo. The company operated for 1,428 years before being absorbed into a subsidiary of Takamatsu Construction Group in 2006.

The Japanese even have a word for these businesses: shinise (老舗), literally "old shop." And Japan is a country where building a shinise is not a contrarian investment thesis; it’s the default. The corporate structures Japan developed over centuries to make this possible hold some remarkable lessons for anyone thinking seriously about small business acquisitions as an alternative asset class.

During Japan's Meiji era (1868–1912 CE), as the country rapidly industrialized, wealthy families created vertically integrated conglomerates called zaibatsu, which literally translates to "wealth cliques." The structure of these zaibatsus was elegant: a family-owned holding company at the top, a captive bank providing financing below it, and industrial subsidiaries fanning out beneath – mining, shipbuilding, trading, insurance, manufacturing. Everything under one permanent roof.

The Big Four zaibatsu (Mitsubishi, Mitsui, Sumitomo, and Yasuda) eventually controlled ~23% of all Japanese corporate assets by 1945. The Mitsui family business traces its origins to the 1600s. Sumitomo began as a copper smelting operation in the early 17th century. These companies were built for generations and not just a fund cycle.

By now, you're probably thinking ‘Wait… I’ve heard this before’... and you'd be right. This is almost exactly how Berkshire Hathaway operates today – diversified subsidiaries, centralized capital allocation, decentralized operations, long-term orientation. Warren Buffett may not have invented the holding company model, but he had the vision and wisdom to recognize its potential. 

After World War II, US occupation forces dissolved the zaibatsu as part of Japan's economic democratization. Family assets were seized, holding companies were eliminated, and Article 9 of Japan's Anti-monopoly Act explicitly banned holding companies – a prohibition that would stand for 50 years.

But the DNA survived. As the Cold War intensified and Japan reorganized as a US partner, former zaibatsu companies discreetly restructured into keiretsu. These came in six major formations – Fuyo, Sanwa, DKB Group, and the three descended directly from the old zaibatsu families: Mitsubishi, Mitsui, and Sumitomo. Together they powered Japan's postwar economic miracle. But the most instructive example isn't any of the Big Six – it's Toyota.

Toyota's keiretsu tied together suppliers like Denso and Aisin in a web of cross-shareholding and coordinated production that became the model for lean manufacturing worldwide. Toyota didn't just build cars; it built an ecosystem of companies bound by shared ownership, shared financing, and a shared obligation to the group's long-term health. The result? The most efficient and durable automotive supply chain ever constructed.

That is the keiretsu principle in practice – not a conglomerate controlled by one family, but a network of companies that behave like one organism because their fates are financially intertwined. Within the keiretsu structure, the family was replaced by the bank as the center of gravity. The control was looser, but the permanence remained.

In 1997, Japan finally lifted the 50-year ban on holding companies. A new generation of conglomerates emerged – SoftBank, Rakuten – built by founder-operators rather than inherited dynasties. But the underlying logic was unchanged: diversified businesses, patient capital, and compounding over decades.

Japan's centuries of experimentation produced a few insights that translate directly to what we're trying to build at Lynnfield.

Permanence has to be the default, not the exception. Japanese companies plan in decades, whereas American private equity (PE) plans in 3–7 year fund cycles. The shinise tradition instills something deeper than strategy… it's a cultural obligation to pass the business to the next generation intact. The permanent equity model is not a new idea. It's just a minority practice in the US, where activist pressure, leveraged buyout (LBO) appetite, and public market short-termism push every business toward an exit.

The captive bank model is the original flywheel. Every zaibatsu had its own bank. The bank financed subsidiaries at preferential rates, recycled profits into new acquisitions, and provided stability during downturns. In the US, Buffett's version is Berkshire's insurance float – using premiums as permanent, low-cost capital to fund acquisitions. For smaller holding companies, the equivalent is generating enough free cash flow from existing businesses to self-fund the next acquisition without raising expensive external capital.

Cross-pollination of talent is a structural advantage. Keiretsu rotate their executives across member companies – Toyota, for instance, sends engineers to suppliers. In the US holdco world, this is the "shared services" model – operational expertise, recruiting, and financial discipline flowing across portfolio companies. These tactics were considered radical when we first started implementing them in the US, but Japan has been doing this for 150 years!

Continuity over growth – and it's more profitable. Shinise are governed by family precepts called kakun: stick to your core business, accumulate cash reserves, avoid debt, prioritize relationships over transactions. This isn't just philosophy; it produces results. Multiple studies of century-old Japanese businesses suggest that shinise companies average double the net profit margins of the national average. This suggests that patient, continuity-first businesses don't just survive longer; they're measurably more profitable than their growth-obsessed peers.

At Lynnfield, we acquire cash-flowing businesses in the $500K–$5M EBITDA range and offer co-investment opportunities to qualified investors. Join our investor list to receive deal flow as we evaluate new acquisitions. 

Continue reading the main story below ⬇️

In 2020, Warren Buffett disclosed initial stakes in five Japanese trading houses – Itochu, Marubeni, Mitsubishi, Mitsui, and Sumitomo – calling them undervalued and praising their diversified, cash-generative business models. These sogo shosha (general trading companies) invest across hundreds of businesses spanning energy, food, metals, machinery, and financial services. They are, functionally, permanent holding companies.

Buffett’s initial $6.3 billion investment has since grown to $23.5 Billion in market value. Berkshire has continued increasing its stakes, now approaching 10% in each firm. Moreover, in his 2024 annual letter to shareholders, Buffett stated his intention for Berkshire to hold these positions for “many decades” and even explicitly described the trading houses as operating "in a manner somewhat similar to Berkshire itself."

In short, the world's greatest capital allocator made a $23.5 Billion bet on the Japanese holdco model and publicly committed to holding it for half a century! 

Thanks for reading!

Japan didn't invent the concept of buying and holding businesses forever, but they certainly perfected it – building corporate structures that survived world wars, nuclear bombs, economic collapses, and 50 years of legal prohibition. For anyone exploring permanent ownership as an investment model, Japan offers both validation and humility. The model works just as well as it has for centuries, but it requires genuine commitment to permanence, disciplined capital allocation, and the patience to let compounding do its work across decades.

At Lynnfield, we're applying the same principles – permanent ownership, disciplined capital allocation, patient compounding – to cash-flowing small businesses in the US.

If any of this resonates, or if you've spent time studying Japanese business culture yourself, reply to this email. I read every response.

Talk soon,
Param

P.S: In case you’re joining us late, check out the previous editions of this newsletter.