Top 2 Reasons a Family Business will survive

Family businesses are often thought of as ma and pop stores, but this is far from the facts. I remember my surprise at learning the true number of family businesses in Canada and America.
McKinsey has released the results of family business research and it is well worth a read. According to McKinsey, the two top reasons for family business being able to survive is first of all - bringing in professional management and, second, having family stay committed to the concept of family legacy. No surprise there but bringing in professional management is still such a difficult barrier to pass for too many family businesses.
Here is the McKinsey article summary:


Definition of family businesses: a family owns a significant share and can influence important decisions, particularly the election of the chairman and CEO.
As family businesses expand from their entrepreneurial beginnings, they face unique performance and governance challenges. The generations that follow the founder, for example, may insist on running the company even though they are not suited for the job. And as the number of family shareholders increases exponentially generation by generation, with few actually working in the business, the commitment to carry on as owners can’t be taken for granted. Indeed, less than 30 percent of family businesses survive into the third generation of family ownership. Those that do, however, tend to perform well over time compared with their corporate peers, according to recent McKinsey research. Their performance suggests that they have a story of interest not only to family businesses around the world, of various sizes and in various stages of development, but also to companies with other forms of ownership.

Read more.
Jacoline Loewen, author of Money Magnet, How to attract private equity to your business

3 comments:

Thomas Adair said...

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When one looks outside the box(inventor), goes against the group(thinks for self), said they found(developed) something that is supposed to be impossible(airplanes), they were once killed. Now these people are called bad names and delegated to be unheard, and ignored group.

The ultimate business solution. The ability to cut the cost of any business expense, or just plain invest.

I developed multiple arbitrages that enable me to trade(not invest) in the financial markets, without risk(The Holy Grail to Investing), or arbitrage that anyone can do. Over 30% a year.

Thomas Adair
thomasadair@live.com

Alex Todd said...

These findings are consistent with my hypothesis in a comment to a Harvard Law Blog posting "Governance Problems in Closely-Held Corporations" (see http://blogs.law.harvard.edu/corpgov/2010/01/21/governance-problems-in-closely-held-corporations/):

“I wonder to what extent these findings might be due to a tendency by widely held companies to externalize costs. I suspect that closely held firms (especially family businesses) tend more toward sustainable business practices and therefore choose to internalize more costs.”

J. B. Loewen said...

Interesting comment, Todd. That is a whole new area of analysis and actually, very powerful. Sometimes this sort of nugget gets missed by everyone.