The Importance of Family Businesses in America

Family businesses are the most influential factor in the health of the U.S. economy and they are the ONLY solution to our difficult economic times.

This statement might surprise many people but consider the statistics. According to Family Business Review Magazine (Summer 1996) family businesses comprise 80% of all business enterprises in North America. They account for 60% of total U.S. employment, 78% of all new jobs, 65% of wages paid (Financial Planning Magazine, Nov 1999) and 34% of these companies are listed on the Standard & Poor’s 500 Index. With those stats as a backdrop, it’s not surprising that nearly 40% of family businesses in America will be passing the reigns to the next generation over the next five years according to Business Week Magazine (August 11, 2003).
Yet the most incredible statistic by far was the one postulated by Robert Avery at Cornell University in his paper, “The Ten Trillion Dollar Question: A Philanthropic Gameplan.” Avery noted that by 2050, virtually all closely held and family owned businesses will lose their primary owner to death or retirement. Approximately $10.4 trillion of net worth will be transferred by the year 2040, with $4.8 trillion in the next 20 years.

The plain fact is that family businesses are in trouble because succession plans are quite obviously less and less effective. This is primarily due to what I call the “motive gap” between generations. According to an article appearing in the Boston Globe on May 4, 2003, only 40% of family owned businesses survive to the second generation, 12% to the third, and 3% to the fourth. It s also a known fact that these companies are most successful when run by a family member. Family members have the passion, drive and purest motives to run the company in a way consistent with the founding member. While some of these companies will be successfully sold to those outside the family, these statistics represent a disturbing trend and concern for the future of family businesses and the American economy in general!