logo
WHY SOME AND NOT ALL FAMILY BUSINESSESS ARE IN THE PINK OF HELATH?

WHY SOME AND NOT ALL FAMILY BUSINESSESS ARE IN THE PINK OF HELATH?

There is a famous cliché, which is quoted frequently and seems to have been accepted as a universal truth: The first generation builds, the second generation consolidates, and the third generation destroys the family business. A very common statistic on family business suggests that only 30% of family firms are able to succeed to the second generation of the family, with the number decreasing to 13% for the third generation and a mere 3% for the fourth generation. This last number suggests that fewer than 1 in 30 entrepreneurs could aspire to keep their firms healthy and family controlled by the 4th generation, 60-80 years later.

However, while accusing family businesses of such a short life span it is often conveniently forgotten that longevity is a difficult objective to achieve for any business. For example, a study on entrepreneurial failures suggest that 60% of all young firms disappear five years after their founding. An interesting statistic though, that came out through a number of performance studies concluded that the long-term performance of family-controlled firms has been superior to comparable samples of publicly-owned firms.

The reason?

Clear and well defined family values, trust, networks and innovation which formed the bedrock for success in family firms. By designing and implementing governance structures to face ownership and succession roadblocks,the longevity of a family business can be further ensured.

Researchers Habbershon and Pistrui asserted that to ensure longevity,family businesses must encourage an entrepreneurial spirit to help the family-run enterprises survive in the face of competition from larger corporates. Because at the end of the day, it is not one business that is the family’s focus, but rather the family’s own success and survival that matters – whatever form that may ultimately take. Thus, unlike other business models, family enterprises would be able to effectively evolve every generation and this evolution would be built into the business model.

For a truly entrepreneurial family, this ensures that the business is always in touch with current technologies, society, and business ethics, without having to try too hard. Each new generation would bring in their own knowledge and expertise, even if this means an evolution of the business that might be conventionally seen as ‘exiting’. In order for the business to succeed, the family might notice that they need to offer different things to the market at different times – closing a clothing factory to open a shoe store is not the failure of the clothing factory, but the evolution of the family’s wealth creation.

Family businesses cannot be removed from the family itself. Ultimately, the family is interested in their own survival and longevity as their ultimate goal, not the success of one single business interest. Being dogmatic can be the downfall of a small business – it is innovation and an astute eye for what the market needs at any given time and the flexibility to move on that need that allows a family-owned enterprise to succeed and survive across generations.

BLURBS

  • A study on entrepreneurial failures suggest that 60% of all young firms disappear five years after their founding
  • Ultimately, the family is interested in their own survival and longevity as their ultimate goal, not the success of one single business interest
  • Being dogmatic can be the downfall of a small business