The Family-Owned Business - Analysis of Their Success and Longevity

Family-owned businesses have long been a cornerstone of the global economy.

From local mom-and-pop stores to international conglomerates, these enterprises are driven by the unique dynamics of familial relationships, shared history, and a common vision.

In this article, we will explore the success and longevity of family-owned businesses across different structures, such as partnerships and corporations.

Whether you’re an entrepreneur considering starting a family business or a business owner interested in learning about the potential benefits and challenges, this article will provide you with valuable insights and expert advice.

Success Rates of Family-Owned Businesses

Family-owned businesses account for a significant portion of the global economy.

According to Family Business Magazine, **family-owned businesses generate approximately 70% of the GDP in the United States and 50-80% of GDP in other countries.

They also account for 60% of total employment in the US**.

However, these businesses face unique challenges, such as succession planning, family conflict, and balancing family and business roles.

Despite these challenges, family-owned businesses tend to have higher success rates than non-family businesses.

A study by Harvard Business School found that family-owned businesses outperformed non-family businesses in terms of profitability, growth, and survival rates.

According to a survey by PwC, 88% of family-owned businesses believe they will still be in operation in five years, and 69% believe they will still be operating in ten years.

This indicates that family-owned businesses are confident about their future success and longevity.

Another study conducted by the National Bureau of Economic Research found that family-owned firms are more stable during economic downturns, as they tend to focus on long-term growth rather than short-term gains.

A report by Credit Suisse found that family-owned businesses outperform non-family-owned businesses in terms of stock market returns.

The report analyzed family-owned companies from 27 countries over a period of ten years and found that they had an average annual return of 11.6%, compared to 6.4% for non-family-owned firms.

Furthermore, a study by the Global Family Business Index found that the top 500 family-owned businesses generate more revenue than the combined GDP of many countries, including Switzerland, Sweden, and Norway.

The combined revenue of these top 500 family-owned businesses was $7.2 trillion in 2020.

Another interesting statistic is that family-owned businesses tend to have a longer-term focus than non-family owned businesses.

A report by Ernst & Young found that 81% of family business owners prioritize long-term growth over short-term profits.

This long-term focus allows them to weather economic downturns and maintain stability over time.

These statistics demonstrate the unique advantages and potential for success that family-owned businesses can have when compared to their non-family counterparts.

Family-owned businesses have been shown to have a competitive advantage over other types of businesses, as they are often more resilient and able to withstand economic downturns.

Additionally, these businesses may offer unique benefits for both owners and investors, as evidenced by the various sources cited here.

Longevity of Family-Owned Businesses

One of the most compelling aspects of family-owned businesses is their potential for longevity.

According to a survey by EY, 67% of family-owned businesses plan to pass the business on to the next generation.

However, the reality is that only about 30% of family businesses make it to the second generation, and just 12% make it to the third generation, as reported by the Family Business Institute.

Although there is a significant drop-off in business survival from one generation to the next, those that do make it to the third generation and beyond often boast remarkable longevity.

For example, the world’s oldest family-owned business, Japanese construction company Kongo Gumi, was founded in 578 AD and remained family-owned until 2006.

According to a study by the Center for Family Business at the University of St. Gallen in Switzerland, family-owned businesses in Switzerland have an average lifespan of 55 years, compared to just 12 years for non-family businesses.

Similarly, a study by Credit Suisse found that family-owned businesses tend to have longer lifespans than non-family firms, with an average age of 24 years compared to 15 years.

A study conducted by The Conway Center for Family Business found that the average lifespan of family-owned businesses in the United States is 24 years, while non-family businesses last an average of only 8 years.

Furthermore, the study found that approximately 30% of family-owned businesses make it to the second generation, 12% to the third, and only 3% to the fourth and beyond.

Another survey conducted by PwC found that family-owned businesses in Europe have an average lifespan of 60 years, compared to just 12 years for non-family businesses.

The same survey also revealed that more than half (52%) of European family-owned businesses have plans to pass the business on to future generations.

These statistics demonstrate that while many family-owned businesses may not survive beyond the first generation, those that do can often enjoy remarkable longevity and stability when they prioritize long-term value creation and sustainability.

Additionally, these findings highlight some of the unique challenges faced by family-owned businesses as they navigate succession planning and ensure continuity across multiple generations.

5 Major Factors Influencing Family-Owned Businesses

Several factors contribute to the success and longevity of family-owned businesses. Some of the most critical factors include:

1. Succession planning:

Establishing a clear and effective succession plan is crucial for the continued success and longevity of a family-owned business.

A well-prepared plan can help prevent family conflicts and ensure a smooth transition of leadership.

2. Balancing family and business:

Striking the right balance between family and business roles can be challenging, but it is essential for maintaining harmony and fostering growth.

Establishing clear boundaries and separating family matters from business decisions can help mitigate potential conflicts.

3. Adaptability:

Family-owned businesses need to be adaptable in a rapidly changing world.

Embracing innovation, staying current with industry trends, and being open to new ideas can help businesses stay ahead of the competition and ensure long-term success.

4. Professional management:

While family members often play essential roles in the business, bringing in professional managers with relevant expertise can help drive growth and bring fresh perspectives to the company.

5. Shared vision and values:

A shared vision and strong family values can serve as the foundation for a successful family-owned business.

Ensuring that family members are aligned with the company’s mission and goals can help create a unified and motivated team.

Key Lessons

Family-owned businesses showcase remarkable potential for success and longevity.

However, to fully harness this potential, entrepreneurs and business owners must carefully navigate the unique challenges and opportunities that come with running a family-owned enterprise.

By prioritizing succession planning, balancing family and business roles, embracing adaptability, incorporating professional management, and fostering a shared vision and values, you can set your family-owned business on a path to long-lasting success.

Are you ready to take your family-owned business to new heights?

Explore our resources and consulting services and unlock your business’s full potential today!