The (Mostly) Myth of the Multi-Generational Family Business

Multi-generational family businessesThe idea of the family enterprise is practically an article of faith when it comes to American business.

But how much of a reality is it? And do family businesses generally survive from one generation to the next?

To begin with, let’s make clear that there are many family-owned businesses in the United States.  In fact, consulting organization Family Enterprise USA estimates the figure at around 5.5 million entities.

But the average life span of a family business is fewer than 25 years, meaning that only a distinct minority of them remain in the family over time.

The stats are stark. Here’s how they break down by generations:

  • Business passed to the 2nd generation: ~40% of family owned entities
  • Business passed to the 3rd generation: ~13%
  • Business passed to the 4th generation: ~3%

When asked for their opinion, about half of the owners of family businesses stated that they would like to see the business stay in the family when the next generation comes along.

And for larger family businesses (those that employ 20 or more workers), nearly three-fourths would like this to happen.

But wishes and expectations aren’t the same … because only ~23% of these same respondents actually think that a transition to the next generation of family members is “likely” to happen.

At my company, we have some clients – perhaps 15% of our customer base — that are into their 2nd or 3rd generation as family-owned entities. But in my view, it’s highly doubtful that the next generation of family members will end up in charge at most of them.