Longevity is in the Family - Not the Business

Longevity is in the Family - Not the Business

An oft quoted fact is the statistic that only 30% of family-owned businesses make it to the second generation, with that figure plummeting to 13% for the third generation, and eventually only 3% of family businesses making it to the fourth generation of ownership. This can seem very discouraging to any entrepreneur setting out to make a name for themselves and a legacy for his or her family. The truth though, is that these statistics are often quoted without context.

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It is true that longevity is a highly valued commodity in any business, and thus a superficial look at a family-run business that does not make it to the next generation would imply that longevity has not been achieved, but in reality, the business itself is the wrong place to look for success. In their article, "From Longevity of Firms to Transgenerational Entrepreneurship of Families: Introducing Family Entrepreneurial Orientation", published in the Family Business Review in June 2012, authors Thomas Markus Zellweger, Robert S. Nason, and Mattias Nordqvist investigate entrepreneurship of families across the generations.

Their argument focused on the limitations of focusing on the survival of family firms in relation to longevity, and that, "by shifting from firm to family level of analysis, one gains a deeper understanding of family firms' ability to create value across generations". Many family business owners are entrepreneurs, and have diverse business portfolios that include many more interests than just the one family business. While the family firm does typically tend to account for most of the family's interest, time, and effort, the authors’ study found that these families, on average, control around 3.4 companies.

Family businesses breed entrepreneurial spirit

Zellweger, Nason and Nordqvist's argument reflects the sentiment of the 2002 Family Business Review article by researchers Timothy G. Habbershon and Joseph Pistrui, Enterprising Families Domain: Family-Influenced Ownership Groups in Pursuit of Transgenerational Wealth. Habbershon and Pistrui asserted that longevity was to be attained in "sustaining wealth creation across generations", achieved through entrepreneurial enterprises and a family-as-investor mindset.

The theory is that family businesses encourage an entrepreneurial spirit, and this is how many family-run enterprises survive in the face of competition from larger corporates. At the end of the day though, it is not one business that is the family’s focus, but rather the family's own success and survival that matters – whatever form that may ultimately take. Unlike other business models, family enterprises are able to effectively evolve every generation, generally accepted as every 20–25 years – this evolution is built into the business model.

Longevity across generations

For a truly entrepreneurial family, this ensures that the business is always in touch with current technologies, society, and business ethics, without having to try too hard. Each new generation should be allowed to bring in their own knowledge and expertise, even if this means an evolution of the business that might be conventionally seen as 'exiting'. In order for the business to succeed, the family might notice that they need to offer different things to the market at different times – closing a clothing factory to open a shoe store is not the failure of the clothing factory, but the evolution of the family’s wealth creation.

Family businesses cannot be removed from the family itself. Ultimately, the family is interested in their own survival and longevity as their ultimate goal, not the success of one single business interest. Being dogmatic can be the downfall of a small business – it is innovation and an astute eye for what the market needs at any given time and the flexibility to move on that need that allows a family-owned enterprise to succeed and survive across generations.

For further reading:

  1. "From Longevity of Firms to Transgenerational Entrepreneurship of Families: Introducing Family Entrepreneurial Orientation", Family Business Review, June 2012, 25: 136-155.
  2. "Enterprising Families Domain: Family-Influenced Ownership Groups in Pursuit of Transgenerational Wealth", Family Business Review, September 2002, 15: 223-237.
  3. Lloyd Steier, "Family advantage: Why all the doom and gloom", The Practitioner, 26 February 2014.
  4. Barbara Spector, "Family business longevity examined in a new light", Family Business Magazine.
  5. Filipe Santos, "A New Perspective on the Longevity and Success of Family Firms", Insead Blogs, 17 February 2013.

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