Family-run businesses are in many respects the backbone of American business. They are typically the most stable of small businesses, with a much lower failure rate than other small business models. Some of the largest and most successful companies in America are family-owned and operated businesses. Yet 70% of family-run businesses don’t make it to the second generation, and a full 90% never make it to the 3rd generation. Not new statistics, to be sure, but appalling just the same.
So why the high failure rate? Most experts chalk it up to poor succession planning, as if a plan would somehow make it all better. While we are strong advocates of planning, we know that no plan will correct fundamental weaknesses in a business unless its managers recognize and address those weaknesses. So in this article we take a slightly different approach to defining what is needed. We’re going to go out on a limb and be specific about some of the problems we’ve seen that prevent many family owned businesses from realizing (very much of) their real potential.
Please understand, we are not saying that all family-run businesses are fundamentally flawed, because they’re not. What we’ve observed, however, is that those that do have problems are often emotionally unwilling to acknowledge them or, having acknowledged them, are unwilling to make the hard decisions necessary to fix them. While far better than the 90+ percent average failure rate of small businesses as a whole, this is still a pretty dismal record given the advantages such businesses typically have: loyalty, strong family support systems, management continuity, long training periods for the next wave of managers, love and affection, etc.
So here are the problems that we often see. If you’re the founder of a family-run business trying to groom a son or daughter to succeed you, we don’t ask you to accept our list as your own; simply consider the possibility that some of these pitfalls may apply to your company. For example:
Stop by here next week for the continuation of this post, including some suggested solutions.
As always, I welcome your comments and feedback.