Every successful family-owned business begins with a future vision and a strategy. Families that run such companies have overcome obstacles brought on by a constantly changing market; they are dedicated, making wise choices, and working hard.
Having a successful family-owned business is complex because you should consider many aspects to improve the likelihood of success. To better comprehend the particular dynamics, stay current with new family business statistics.
How Many Family-Owned Businesses Succeed?
30% of family-owned businesses succeed, according to Harvard Business Review. A successful family-owned business takes a lot of work to establish and maintain. It also takes a lot of time, effort, and persistence to ensure that the business thrives.
Due to the significance of both tight personal and professional relationships, family-owned businesses confront particular difficulties. Few businesses can genuinely comprehend these intricacies better than those with familial links. It can be challenging, but it’s necessary to consider when aiming for success to ensure your personal life doesn’t influence crucial work decisions.
Best Practises for A Successful Family-Owned Business
Essential for both economic growth and job creation, family-owned businesses account for two-thirds of businesses around the world. What’s the secret to a successful family-run business? We’ve rounded up the best practices to ensure your family business endures through the generations.
1. Establish and Uphold Boundaries in Your Work Life
Rules and boundaries at work are essential for safeguarding the company’s interests and the well-being of its employees. The first rule is to keep business and personal life separate. Family members who struggle to maintain a healthy work-life balance risk destroying their personal bonds and going through long-term burnout.
Excessive, protracted stress resulting in emotional, bodily, and mental depletion is the root cause of burnout, and that’s detrimental to both the struggling family member and the company. Anyone emotionally or physically exhausted, overwhelmed, or depleted of all energy needs more confidence and enthusiasm.
Property Line Ownership and Management Line Ownership are two other lines that should never be crossed in a family business. Only some owners have the managerial skills necessary to run their businesses. Other owners might choose to pick a manager who is separate from their family and better suited to run the company. This restriction prevents owners from meddling in management choices.
Successful family-owned business owners are adept at striking the ideal mix. They set rules and make sure everyone abides by them.
2. Keep Lines of Communication Open
From a commercial standpoint, the family communication style might, sometimes, be the most effective practice. Successful businesses have a strategy that prioritises open, regular communication as a critical component of their company plans. They consent to converse with one another and hear what each generation says.
Making this a formal agreement and documenting everything in writing is the key to having a successful family-owned business. This method clears up any ambiguity regarding what is expected of a member. The family prefers intentional communication (IC) to assumption as a result.
3. Consult an Outside Consultant
Owners of family businesses might, sometimes, not know what is best for their firm. Therefore, successful businesses embrace the opinions of unbiased, outside consultants as needed. That might entail providing expert advice on finances, conflict resolution, coaching for leaders, internal conflicts, accredited business programs, and other topics.
4. Select the Best Workers for each Position
Choose the best candidate for each job, regardless of whether they are a family member or not. Hiring a family member is known as nepotism.
5. Prepare a Succession Plan as Soon as Possible
Your succession plan should always be created in advance. Most second and third-generation family businesses make their prenuptial agreement policy well before the subsequent generation engages. On the other hand, family-owned businesses that put off important tasks need more clarity and may conflict with other family members.
How Many Family-Owned Businesses Fail?
According to the Harvard Business Review, approximately 70% of family businesses do not survive beyond the first generation. The major reasons can be attributed to the lack of preparation and the inability to resolve interpersonal conflicts during the transition from the first to the second generation.
During a critical moment of transition, it’s highly important to give careful consideration to all involved aspects. This includes establishing governance structures, implementing decision-making procedures, and setting appropriate transition deadlines. If any of these elements are neglected or mishandled, there is a greater risk of failure for the business, both financially and operationally.
Challenges That Family-Owned Businesses Frequently Face
This part lists some of the usual obstacles even prosperous family-owned businesses face. Planning for and implementing remedies is simpler when possible issues are understood and dealt with professionally.
1. Making Succession Plans
It is common for family-owned firms to create a succession plan for how ownership and management will be transferred to the following generation. This can be a difficult procedure because it can be a struggle to balance between family members’ requirements and corporate needs.
Communication can be challenging in family-owned businesses because of the complex network of relationships they frequently have. Family members should be able to speak with each other honestly and openly about both personal and professional issues.
3. Resolving Disputes
Any business will inevitably have disagreements, but family-owned enterprises may find them to be particularly difficult due to the potential involvement of sensitive personal issues. It’s critical that family members have a procedure in place for amicably settling disputes.
4. Maintaining a Healthy Work-Life Balance
Family members may find it challenging to maintain a healthy work-life balance as a result. They sometimes conflate work and personal life. Setting boundaries between work and home and making time for family and self are crucial for family members.
How Long Does A Typical Family-Owned Business Last?
A Family-Owned Business’s average lifespan is a depressingly brief 24 years, according to the Family Business Center. In stark contrast, non-family-owned businesses can last for many generations, if not millennia.
Even though there is no one-size-fits-all explanation for why family-owned businesses frequently fail to thrive, research points to some frequent occurrences, including subpar succession planning, difficulty navigating human connections, and capital constraints resulting from scarce resources as the trend’s main drivers.
Family-Owned Businesses Statistics in Ireland
Family-owned businesses are essential to the Irish economy. According to 2020 research by the National Centre for Family Business at Dublin City University, family businesses constitute 64% of all businesses in Ireland, which amounts to over 160,700 companies. These companies provide employment to over 938,000 individuals, which is equivalent to two-thirds of the employable population in Ireland.
In Ireland, family companies account for a sizable share of the country’s economic activity. According to the Central Statistics Office, family firms earned €135 billion in revenue in 2019, accounting for 55% of total revenue in the Irish economy. The following are some important facts about family-owned businesses in Ireland:
- 90% of Irish family firms are micro-enterprises, employing one to nine employees.
- Small and medium-sized firms (employing between 10 and 249 employees) account for 8% of family-owned businesses in Ireland.
- There are 137,100 family farms in Ireland, accounting for 99.7% of all the farms currently operating.
- Apart from agriculture, Ireland has a large number of family businesses, 112,400 in the service and distribution industry, followed by 34,000 in the building and construction industry.
- Family businesses are more likely to be found in rural locations than non-family businesses.
- Compared to non-family businesses, family businesses are more likely to be export-focused.
- Family businesses are more likely to make Research and Development (R&D) investments than non-family businesses.
- Family businesses are more likely to participate in social responsibility initiatives than non-family businesses.
Family companies are essential to the Irish economy in terms of employment and economic activity. Compared to non-family businesses, they are more likely to be found in rural areas, focus on exports, invest in R&D, and participate in charitable endeavours.
Family Owned Businesses Statistics in the UK
According to Oxford Economics, 4.8 million family firms will be operating in the UK in 2020, accounting for 85.9% of all private sector companies. These companies employ 13.9 million persons, or 51.5% of all private sector employment, and they contribute £575 billion to the economy of the UK.
Most family-owned businesses are very tiny; in 2020, 75% of all family businesses were sole proprietorships with no employees, and 21% were small businesses with one to nine employees. Over 30% of all family firms in the UK are located in London and the southeast, roughly equivalent to the distribution of private sector businesses.
These projections were based in part on information gathered the year prior. Oxford Economics predicts that from 5.2 million family firms in 2019 (when these companies employed 14.2 million persons, contributed £637 billion to the economy, and generated £205 billion in tax revenues), there are fewer family businesses in 2020.
Family Owned Businesses Statistics in the USA
- Family businesses make up 78% of new jobs, creating 62% of employment and 64% of Gross domestic product (GDP).
- The American economy relies heavily on family-owned enterprises. Studies show that between 35 and 40% of Fortune, 500 companies are family-owned and operating, encompassing everything from sole proprietorships to multinational conglomerates.
- According to the US Census Bureau, 90% of all businesses in North America are family firms, which hold the majority of wealth in America.
- As per a poll published in “From Longevity of Firms to Trans-generational Entrepreneurship of Families: Introducing Family Entrepreneurial Orientation“, almost 90% of the participating families claimed that they have control over several businesses. The study suggests that these families are involved in significant entrepreneurial activities beyond their primary (i.e., largest) business.
- Small businesses, including many family-owned ones, employ around half of the total US workforce. In 2011, there were 113.4 million non-farm private sector employees, out of which 55 million were employed by small businesses that have less than 500 employees. The remaining 58.4 million employees worked for larger businesses. Around 20.2 million people worked for companies with at most 20 employees.
- Research demonstrates that family firms are less inclined to fire employees regardless of financial performance.
Benefits of Working in a Family-Owned Business
Family-owned businesses are a vital part of the global economy. These businesses offer many advantages, making them an attractive option for job seekers. Let’s outline some of the key areas where family-owned businesses excel over other businesses.
1. Shared Principles
You and your family likely have the same moral code and world view. This will boost your sense of purpose and self-worth and give your company a competitive edge.
2. Strong Commitment
Creating a family business that lasts increases your likelihood of putting in the extra time and effort required to make it successful. Your family is more likely to comprehend your need to be flexible with your job schedule.
If you and your family have strong personal ties, you are more likely to stick together during difficult times and exhibit the tenacity required for corporate success.
Stability can sometimes result in a potentially harmful incapacity to respond to change, but it also supports the long-term thinking necessary for growth and success.
5. Reduced Costs
Family members can be more eager to make financial concessions for the company’s benefit. For instance, they might postpone salaries amid a cash flow problem or accept lower salaries than they would receive elsewhere to benefit the company over the long run. If you hire immediate family members exclusively, you might also discover that you don’t require employers’ liability insurance.
Drawbacks of Working in a Family-Owned Business
Although there are several rewards for working for a family business, there are serious risks. Here are some disadvantages of working with family members:
1. Lack of Experience or Training
Some family firms would put family members in positions that they are unqualified for. This may damage the company’s prospects for growth and create a challenging work environment.
Conflict can occur in any company, but it’s vital to remember that family businesses are more vulnerable to it because employees interact with their loved ones daily. Negative emotions and resentment could disrupt corporate operations and endanger your family’s relationships.
It’s crucial to make business decisions with the interests of the company in mind rather than personal ones. When family members are involved, this can occasionally be challenging.
4. Planning for Succession
Many family business owners could find it challenging to determine who would take over the company if they were to retire. It might be difficult for the leader to decide who can prosper the company forward the most effectively while also attempting to minimise the likelihood of future conflict.
Family-owned businesses are essential to the world economy. Compared to non-family firms, family businesses have a lot of advantages, but they also have significant challenges. In the majority of nations, they contribute significantly to GDP and employ the vast majority of people. They also promote local businesses, provide jobs, and support charitable endeavours. They are a vital part of many communities.