Beating the Odds: Naperville Business Lawyer on the Long-Term Health of Family Businesses

family business, Naperville business law attorneyMany entrepreneurs are constantly looking for “the next big thing.” They find an idea or startup opportunity, invest time and resources into the project, then sell the new company for a substantial profit relatively quickly. Other would-be business owners are in the market for something completely different. They would rather start with a business concept, cultivate it, and maintain profitability with the intention of keeping the company under the control of family members for the foreseeable future. As a business law attorney in Naperville, I have helped countless clients with their family business concerns at every stage of development. Family-owned and operated businesses are much different than publicly-traded entities in many ways, and the keys to success often lie directly in those differences.

Scary But Misleading Statistics

While the exact percentages are often debatable, it is a commonly-held belief that only about a third of family businesses survive being passed down to a second generation. About 10 to 15 percent make it through a third generation, and 5 percent or less through the fourth. Not very promising statistics, are they? With no context, it would certainly seem that starting a family business is a long-term gamble.

But compare those numbers to the typical longevity of a publicly-traded company. According to a Yale University study, the average lifespan of a company listed on the S&P 500 was 67 years about a century ago, but is now just 15 years. Another study—this one from the Santa Fe Institute in New Mexico—puts the number closer to 10 years. Either way, 10 to 15 years is not even a full generation by most standards, making family businesses seem like less of a risky proposition.

Long-Term Decision-Making

There are two major factors that set family businesses apart from most publicly traded companies: personal investment and patience. Each plays a significant role in various aspects of a family-owned businesses operations, and often work closely together. Family businesses, at least in their early years, are usually fueled by capital owned by family members, not outside investors demanding immediate returns and profitability. Ownership is often more focused on the company’s sustainable health than on maximizing revenues immediately.

Even employment decisions are affected by a family business philosophy. There are exceptions, of course, but a person who goes to work for a publicly-traded company may feel like an afterthought in a cold, faceless corporation. By joining a family business, on the other hand, an employee is more likely share in the company’s vision and values and work hard with a personal attachment. Working directly with ownership—which is much more common in a family-owned company—creates loyalty not often found in the business world.

Thinking About Starting a Business?

If you have considered building a family business that your children and grandchildren would be proud carry into the future, contact an experienced Naperville business attorney. At The Gierach Law Firm, we can provide the guidance you need to transform your idea into a profitable, sustainable business venture. Call 630-756-1160 to schedule an initial consultation with our knowledgeable team today.

 

Sources:

Harvard Business Review

BBC.com

Time