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 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  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, 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!

It doesn’t take a genius to figure out that the root of this problem, simply said, is that sons and daughters are not interested in taking over the family business. Now this may well be attributable to other interests and passions. Certainly this is understandable but it does beg the question of WHY they may not interested or excited about learning the ropes and assuming the reigns? I can tell you that after personally working with thousands of family businesses and in may cases counseling numerous reluctant second or third generation leaders this stems from significant generational differences. These differences can easily be reconciled but often both parties (parents as well as sons and daughters) seem to be completely oblivious as to the differences. The result of generational differences are often mistaken as ineffective work habits, personality flaws or other personal characteristic or attributes. Yet more often than not simply becoming aware of the differences in generational decision making, communication and leadership styles can resolve conflict and restore trust and continued harmony in the business.

This allows the business to thrive even in difficult circumstances.