It’s a most quoted statistic – “just 13% of family businesses survive the third generation” – and it has finally been challenged. It comes from a single study of US manufacturing companies in the 1980s, and for some reason it has stuck and become almost axiomatic. But it is deeply flawed. Most importantly, it never compared family businesses to non-family businesses (family businesses on average do last longer), and it also never considered the reasons why those…
A ‘family business’ is more than just a business owned and operated by a family. In addition to being a vehicle of wealth creation and entrepreneurship for the family, these businesses can bring other non-financial benefits – known as “socioemotional wealth” or “social capital” – to family members. Being part of the family enterprises brings feelings of pride, personal reward and satisfaction, and can constitute a part of family members’ identity. These additional intangibles are…
Can you have the best of both worlds? Family businesses have to tread a fine line: they must compete like any business, while also maintaining harmony amongst the family – both those who are involved in the family business and those who are not. There are a few common themes that help families maintain this balance: 1. Trust is essential, and what builds trust are good communication and transparency. Anywhere information is not provided, people…
While the family business may be delivering good returns, how much is it actually worth? Often, family members are disappointed that the market value does not reflect a large enough multiple, because they are unable to look at the business as an outsider (and potential buyer) would. The first article has some classic ‘value drivers’ expressed in terms of growth and risk reduction. What I think this is missing from this model is the most…
A common challenge for family businesses is when the rising generation have no interest in taking over. This can be especially common in sectors like manufacturing or farming which may be considered an attractive or exciting career path for younger family members to join. There are two concerns for the family members currently in control: (a) who will look after the business? (b) who will look after the customers? Both of these are important, because…
As a wealthy family, what is the most valuable thing you can give your children? One sure way to find out the answer is to ask (too often parents don’t bother). According to a Wells-Fargo survey of Millennials, more than 90% of children say they want to inherit their parents’ values, not their wealth. Some 84% want top sustain and build on their family’s legacy. This should be very heartening news for parents. In a…
Philanthropy can be a great way to engage different generations in a wealthy family, and for family members to find purpose where there is no imperative for paid employment. It’s worth keeping in mind the intergenerational differences and trends in giving so that the family giving experience can be as positive as possible. The Blackbaud Institute’s report on the next generation of American giving has some useful insights. Giving priorities differ by generations, but health,…
The essential problem family businesses must deal with is conflict of interest, which arises when people have multiple roles – in the business, as an owner, and as a family member – that can potentially conflict. Thinking about the issues of a family business in this way is a good path to mitigating the challenges they can bring. Establishing explicit rules is a good start, and this article covers several good ones: only put family…
Research has shown that in HNW families, daughters were rarely encouraged nor received support to pursue entrepreneurship education. Entrepreneurial families often prepare their daughters and sons differently for their careers. Cultural factors and their associated gender biases may result in the problem being far more pronounced. Things are changing. Some 82 per cent of women from wealthy families expect to inherit substantial wealth over the next 20 years, but 41 per cent of women are…
Research has shown that 60 per cent of failed intergenerational family wealth transition are due to problems with trust or communication. Communication isn’t important in families. It is everything. If a family cannot communicate, it cannot function as a group. It’s that simple. What does poor communication look like? An absence or lack of communication (e.g. “it’s none of their business”, “they don’t need to know”, “we know what is best for them”) is patronising, infantilising,…
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