What You Should Know About Starting a Family Business

As a business law attorney and a business owner, I understand that opportunistic entrepreneurs always have their eyes open for the next “big thing.” They come across a business idea, invest a great deal of money and time into building the idea into a business, then sell the new venture to a larger company for a significant profit—often rather quickly. Other business-oriented individuals are looking for something quite different. They prefer to begin with an idea, build a foundation, grow the idea, and create a sustainable company that can be passed down to future generations of their own family.

Family-owned businesses are different from publicly owned companies and other corporate entities in several ways. In many cases, the secrets to success can be found within these differences.

Understanding the Numbers

Depending on the study or survey, the exact numbers may vary, but business experts generally say that only about one in three family businesses survives after being passed down to the second generation. Approximately 15 percent or less survive through three generations, and only 5 percent make through four. With such percentages being the norm, one could be forgiven for thinking that a family business is a dangerous proposition.

While the numbers may seem bleak, they are a little misleading. A recent study from Yale University found that the average lifespan for an S&P 500 company was 67 years—but that was 100 years ago. Today, the average is around 15 years. A separate study found the average lifespan of such a company to be about 10 years. Neither number, however, represents a full generation of ownership as far as most businesses are concerned, which makes starting a family business seem less risky.

Personal Investment and Decision-Making

The two primary differences between family businesses and most publicly traded companies are personal investment and patience. Both factors are significant in most family-run companies. Most family businesses—at least initially—rely on capital provided by family members rather than outside investors who are most interested in relatively fast profitability. This allows the family members working within the business to make decisions aimed at creating sustainability first rather than maximizing profits right away.

Even hiring and retention concerns are often different in a family-owned business. While not true in every case, of course, a person who is hired by a large corporation or a publicly traded company may quickly start to feel like an unimportant part of a faceless machine. A person hired to join a family business, by comparison, is often more likely to become personally invested in the success of the company. Working side-by-side with the company’s owners—a reality that is far more common within family businesses compared to publicly-traded companies—tends to generate loyalty that can be rather rare in the business world as a whole.

Do You Have a Family Business Idea? A DuPage County Business Lawyer Can Help

If you have a business concept that your descendants would be proud to carry on into the decades ahead, contact an experienced Naperville business law attorney. At the Gierach Law Firm, we offer the skilled guidance you need to take your idea and turn it into a sustainable, profitable business. Call 630-756-1160 for a confidential consultation today.

Sources:

Time

Harvard Business Review

BBC News