By Hunter Hoffmann
Family businesses come in different shapes and sizes – from startups to those passed down by families for generations – and they play a huge role in the economy. These businesses make up 90 percent of all business enterprises in North America. But, it increasingly looks like these businesses might be in danger of extinction.
Not living the legacy
68 percent of U.S.-based small business owners planning to exit their businesses this year will close their doors completely upon retirement according to Hiscox’s sixth annual DNA of an Entrepreneur report. This, combined with only five percent actually planning to keep their business in the family, could signal an accelerated end of the family business.
Family-owned businesses account for 60 percent of U.S. employment, but the number of businesses that are passed down from one generation to the next one is small overall. Only 30 percent of family businesses last two generations, only 12 percent make it to a third generation, and just three percent reach the fourth generation (Family Business Institute). The short lifespan of these institutions could pose a major threat on the stability of the U.S. economy.
Not succession planning
Why are family businesses dying? The most immediate reason is a lack of succession planning. If a business owner can’t develop a realistic succession plan, the business is too dependent on the owner and that’s a big risk. Businesses that require the founder for success often fail when the owner ages due to lack of institutional knowledge. Succession planning is critical if the business is going to outlive the owner, but the majority of family business owners haven’t done it (PwC’s 2014 Family Business Survey).
The wide range of opportunities available to younger generations also plays a factor. Today, young graduates have opportunities that go well beyond the businesses in their family, or hometown. E-commerce, social media and crowdfunding make it much easier than it was in the past for entrepreneurial millennials to start their own new business based on their own dreams, not their parents’.
Plan for the Future
The good news is we still have a way to take family businesses off the endangered species list. Small business owners that lack an understanding of how to pick and groom a successor can get the help they need. There are a lot of programs for family business owners that can help them start thinking about succession planning while they’re still at the top of their careers. Education and support from local and national business development organizations like the SBA and SBDC can help these successful businesses last longer and do more to keep the economy stable and growing.
Hunter Hoffmann is Head of US Communications at Hiscox Small Business Insurance and is responsible for media relations, social media, internal communications, content marketing and executive messaging. Hunter lives in New York City with his wife and two sons – Walker and Otis. In his spare time, he moonlights as Chief Marketing Officer and deliveryman for Junior’s Fresh, a fresh baby and toddler food delivery service and pre-school meal provider in New York City founded by his wife, Michelle. Follow him at @HiscoxSmallBiz.