During my journey to obtain my Doctorate at DePaul University and while shaping my dissertation on the life cycles of family business, I thought it would be helpful to share some interesting information that I come across. All the information I share will be information I wish I knew or misconceptions I had as the CEO of a family business.
In a study titled Attributions for Family Business Failure: The Heir’s Perspective(1). The authors surveyed 749 heirs of businesses that failed between generation one and generation two. The study had 92.9% of businesses with greater than 50 employees and 90% of the businesses noted they were experiencing growth greater than 5%.
As I began to read this study I expected to see succession planning or product life cycles being the primary reasons for failure. However, on a scale of 1-10 this is what the respondents noted, 10 being a primary influencer for business failure.
Top 3 factors provided:
The founder did not have an adequate estate plan in place – 9.64
The founder did not adequately prepare for the transfer of the business – 9.49
They needed to raise funds to pay estate taxes – 9.38
Other factors of note:
Conflicts between family members within the business – 6.88
Not properly prepared for taking over the business – 4.92
Competition for the products of the business was intensifying – 2.11
When this study was conducted in 1996 the estate tax exemptions were significantly lower, however I think the take away from the study is still relevant for most family businesses: get your financial house in order; create competent succession; and be proactive in family matters.
If you are a family business that would like assistance navigating the tumultuous waters of family business management, please feel free to reach out at [email protected] for a risk free consultation.
(1) File, K.M., & Prince, R.A. 1996. Attributions for family business failure: The heir’s perspective. Family Business Review, vol. 9, no 2, p. 171-184.