family business fail in the second generation - so what?

January 31, 2009 3:36 AM

Family businesses don't survive to the second generation very often and even less to the third, who cares? How many non-family businesses survive that long anyway.

There is loads of research about why family businesses end and what should be done to help then continue.

I'm looking for statistics on the longevity of family business and non family businesses.

Anyone got some ideas?

posted by trashcan to education (6 comments total)

Have you looked at the Family Firm Institute's Surveys and Perspectives page?
posted by Mike1024 at 5:04 AM on January 31

Not relevant maybe but here's the longest running family business.
posted by sully75 at 5:20 AM on January 31

The distinction between "family" and "non-family" business is somewhat artificial, as most major corporations in existence today can trace their origins to what could be described as a "family business". Lloyd's of London started as an informal meeting place in Edward Lloyd's coffeehouse in the 1680s. Barclays started as a banking partnership between John Freame and Thomas Gould in 1690, but took its current name when Freame's son-in-law, James Barclay, became a partner. GE? Started with Edison tinkering in his garage. Ford Motor Company? Family controlled for 100 years. The Walt Disney Company? Originally a partnership between Walt and Roy Disney. Wal-Mart? Started with Walton's Five and Dime. DuPont? Founded in 1802 by an expatriate Frenchman and his family to supply the American military with gunpowder. The Trump Organization is basically Donald Trump's personal holding company. All of these could be described as "family businesses" under at least some definition at some point in their history, even though most people wouldn't call them that today regardless of the definition.

The point is that "non-family" businesses weren't necessarily started by a bunch of investors saying "We have a lot of money, let's start a business from scratch." That's not to say that it doesn't happen. Home Depot is an example of exactly that, as are most modern oil companies and GM. But many businesses trace their origins to one or two entrepreneurs who happened to succeed.

So how are you going to define "family business"? When does a "family business" become a "non-family business"? Is it size? Corporate ownership? Structure? Acquisitions? Until you have a clear idea of what you're looking for, statistics, even if you can get them, will be meaningless.
posted by valkyryn at 7:22 AM on January 31

sully75 may have the longets extant family business, but they still have a way to go to beat the record. A temple-building family business in Japan recently shut up shop after 1400 years.
posted by Jakey at 9:07 AM on January 31

the family business has many different academic definitions; for the purpose of my research I am looking at businesses which have a family with an ownership and controlling interest and an intention for a succession process to the next generation.
posted by trashcan at 3:11 AM on February 1

Good statistics are near impossible to find. Government databases do not collect business ownership data based on related parties.

In answer to your question why so many family firms fail to make it to the second generation --get ready for a long list. But the biggest problem lies in gifting stock. When founders deny the suceeding generation the critical step of risking their own capital to authenticate their ownership of the family firm, the seeds of wealth destruction are planted. Family that receive control of a family firm through gifting, fail to drive innovation --its hard to change a gift. The temptation is to maintin the gift-- I call these owners - curators -- like you find at museums. Business thrives on creative destruction -- the constant sale and re-investment in what the market wants. Gen II family businesses are hard-wired to atrophy as they pursue the self destructing goal of their own longevity. In my book, Every Family Business, I show how families can pursue a vastly different legacy other than their business. Wealth crystalized to fund the unique and highly personal goals and aspirations of the succeeding generation is the only sustainable legacy worth pursuing. A Business ia a temporary organizations always moving toward obselence -- the key to familiy businesses is driving their finality at the top of the business cycle. This takes dicipline self awareness but most of all a fundamental belief that everything in the natural world has a beginning, middle and end. Advisors that pander to a business owner's natural inclination to perpetuate their business will destroy wealth and family relationships with blinding speed.
posted by Familybusinessauthor at 7:41 PM on February 16 [1 favorite has favorites]