Can Multi-Generational Family-Owned Businesses Find Long-Term Success?

 

By John Taylor 

 

One of the most common myths about family-owned businesses, or FOBs, is that they have a significantly higher rate of failure than publicly owned companies. Many so-called experts tend to cite some version of the “three-generation rule,” which suggests that most FOBs don’t survive beyond three generations. But that perception could not be further from the truth. The data suggests that, on average, family businesses like Taylor Carpet One Floor & Home last longer than a typical public company does. 

 

 

 

Statistics show that FOBs survive through two generations 13% of the time, while publicly owned companies make it beyond two generations only 2% of the time. FOBs last more than three generations, that’s 60+ years, 3% of the time, while publicly owned companies don't even make it one percent of the time. One key factor contributing to the success of FOBs is strong family values and traditions that get passed down. These businesses often possess a deep-rooted sense of purpose, with family members being personally invested in the long-term vision. Because family members tend to have a greater commitment to the business, they’re more likely to stay with the company through economic challenges and work through conflicts. 

 

Typically, the family-first enterprise is a tremendous success in the early stages as leadership is transferred from the founder down to the second generation. The business is still growing, and the excitement about that growth keeps the partnership happy. Mentoring the younger generation and teaching them the ropes takes time. The spirit of “all for one and one for all” is so deeply ingrained that it would be embarrassing and painful for any of the partners to be cut out of the business. 

 

Like any business, however, FOBs do face some challenges that need to be addressed to keep them on the long-term success side of the statistics. As the honeymoon period fades, the partners enter a more realistic stage in which they may realize that one or more of their family members has serious shortcomings. They may be stuck with a family member who isn't as productive as another. At about the same time, spouses may begin to assert themselves. As the in-laws insist on larger roles for the spouses in the business, they may drive a wedge between the partners. 

 

 

 

If family-first businesses are to be successful, each generation must negotiate the terms of its partnership separately. The second generation must revitalize their partnership. Members of the third must reach their own understandings on decision-making authority, pay and methods of resolving conflicts. This succession planning is crucial. Transitioning leadership between generations requires clear communication, early planning and often mentorship from the current leaders to ensure a smooth transfer of responsibilities. With proper planning, multi-generational family-owned businesses can thrive across generations.