America is a highly individualistic culture compared to the rest of the world, yet when it comes to America’s bottom line (and our global bottom line), family businesses seem to be contributing the most.
How many family-owned businesses exist in the United States?
With 5.5 million family businesses1 in the United States, the estimated impact of family businesses on the global GDP is over 70 percent, according to Tharawat Magazine.2 Their influence on the American economy is just as impressive, contributing 57 percent of the GDP and employing 63 percent of the workforce. This translates to 98 million people who are hired by family-owned businesses in America (Family Enterprise USA, 2011).
How many family-owned businesses fail?
As impressive as these statistics are, “70 percent of family-owned businesses fail or are sold before the second generation gets a chance to take over,” according to Harvard Business Review.3 Of the 30 percent that are passed on to the second generation, only 12 percent continue to see the third generation.
As our Tips in 20 expert speakers shared about their experience working in their family businesses, we learned that although the reasons why family-owned businesses fail can be diverse, there are steps to help families not only do what is right for their business, but also do what is right for their family.
#1: Have Boundaries
A lack of boundaries will lead to burnout, especially in business. In a family business, the amount of work that needs to get done can be daunting and it will be tempting to take work home with you. Doing this can be taxing on your family and, again, can lead to professional burnout as you overwork yourself.4
“I would have set very firm boundaries on the outset that we talk about business at work, and at family gatherings, that stuff stays at work.” Mary Lyons, with The Wealth Woman, said about her family’s former business Personal Economics Group.
Having clear work/life boundaries will help keep your business afloat and your family healthy.
Whether you are the first generation starting a family business or the second or third generation getting to be a part of something that took years to build, you have the privilege of getting to work alongside people you love (hopefully). While that is an exciting thing, the reality is that working with family is also not easy. There will most certainly be conflict, misunderstandings, and “taking work home” will be difficult not to do.
With family, one of the temptations can be to not communicate. It is important to put everything in writing and to resist the urge to assume that family members know what is expected of them. Success takes intentional communication, not assumption.
“My advice to everybody who’s thinking about starting a family-owned business is get your documents upfront. Have an understanding, have an agreement – not just verbal, but have it on paper. That way all parties involved are on the same page,” Stacey Huff, co-owner of T-Grip Graphics and Signs said.
#3: Seek Outside Counsel
Whether it’s for financial guidance, leadership coaching, or conflict management, it is always helpful to get an outside perspective to avoid the mistake of misunderstanding your family members in business matters. Doing this will help family members make wiser decisions and also help them be more aware of where they might be wrong.
“My advice would be, seek outside counsel. I think it is very easy when you are used to dealing with someone and you have a pattern of behavior to think that you understand the dynamics of what’s happening in a situation,” Lyons said.
When Kelly Smith, Owner and CEO of All Tech Electric, took over the company from her father, she learned that running the company the same way her father did was not working for her and that seeking outside advice from other family businesses would have helped.
“I thought going into a family business, my dad has been successful in this for fifteen years, I should do exactly what he’s doing and I didn’t take enough time upfront to really understand that I should evaluate my strengths,” Smith said. “Instead, I was trying to do what he was doing and that’s not fit for me, and it took me awhile to figure that out.”
#4: Be intentional with the next generation
Unlike many other companies, family-owned businesses need to think about their succession plan. This is something that can be a huge obstacle for many first generation family members looking to pass on their business to a second or third generation. Planning often helps first generation family members be more intentional in investing in the next generation.
“Family-owned businesses need to have a succession plan in place that not only addresses the future leadership of the company, but also structures the passing of ownership interests to the next generations,” Greg Kish, Attorney at Kish Manktelow & Bailey, PC, said.
As mentioned earlier, only 30 percent of family businesses last to the second generation. One of the reasons for this is simply a lack of calling to want to be involved in the family business. While it is never easy for a second generation family member to tell their founding family members that they do not want to continue in their footsteps, it is an important step for the individual to take and it is important for the company to have a plan in place in case that happens.
“I realized, through the act of running the company, which was kind of nice because I got to have trial run, that my passion was actually not in running it,” Mary Lyons said. “It wasn’t too long into that – two years to be exact – that I had to tell my dad that I don’t want to buyout the company, which put a big wrinkle in the succession plan.”
While this changed the succession plan for Mary’s father, it was the best thing for the business and definitely the best thing for Mary. Someone else who had the calling for running the business could take Mary’s position, and Mary could then work at what she was most passionate about.
For Tre Black, he found himself interested in learning about investing at a very early age. When it came time for him to decide whether to work for his parents’ company On-Target Supplies and Logistics to help with investments, it was something he felt called to do.
“I can remember it like it was yesterday. I was about 30-31 years old and I woke up one day and decided what kind of life did I really want to live,” Black said. “Did I want to be committed to the future of OnTarget and did I want to be committed to the people that made it work for so long? I was committed and decided that was going to be my life.”
Tre Black went on to share about the magic of entrepreneurship he saw in his parents and the impact it made on the lives around them. Family businesses are entrepreneurship in action. Regardless of whether a family business makes it to that 12 percent, the magic of pursuing what you love with the people you love is what the American dream is all about.