It’s often said that fewer than 30% of family businesses survive to the second generation, and only about 10% make it to the third generation. (For this, a “generation” is about 25 years.) Surprisingly, even though these numbers sound low, family businesses actually do better than many small to medium-sized businesses overall.
According to Statistics Canada, 96% of small businesses survive their first year. By the second year, 85% remain, and after five years, about 70% are still operating. That means roughly 30% of small businesses fail within just five years, which is only one-fifth of a generation.
How do family businesses compare to large companies?
In 1996, the Dow Jones Industrial Average (DJIA) celebrated its 100th anniversary. The 30 companies on this list are some of the largest and best-capitalised in the US. Yet, only one company from the original 1896 list was still on the DJIA in 1996.
If we consider 25 years as one generation, then 100 years would be four generations. Earlier, we noted that about 30% of family businesses survive to the second generation, and only 10% survive to the third. Starting with 30 companies, we would expect only one company to still be in existence after 100 years.
As shown in the diagram above, our prediction is correct. The one company from the 1896 DJIA still listed in 1996 was General Electric — widely regarded as one of the best-managed companies in the world. This shows that the survival rates of large companies and family businesses are roughly the same.
What makes family businesses unique?
Family businesses have some clear advantages. They usually have a close-knit management team, strong family values, loyal customers, flexible employees, and a long-term focus on profitability. These factors make family businesses quite resilient.
However, family businesses also face challenges similar to other companies — plus some unique ones. The key to success is recognizing these challenges early and creating strategies to manage them.
Common challenges include:
Handling family dynamics like jealousy, competition, and entitlement
Balancing fairness between family members who own the business and those who manage it
Ensuring family members are qualified and credible employees or managers
Managing conflicts between personal goals and business goals
Passing control smoothly from one generation to the next
Attracting and retaining key non-family employees
So, what are you waiting for?
Start planning now to build a lasting legacy that your family can enjoy for generations to come.
REAL HR Inc. delivers practical, flexible HR support for small businesses. Based in Calgary, we tailor solutions to fit your team and culture.
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