John Ward (B.A., M.B.A. and Ph.D.), a pioneer in the area of Family Enterprises and respected authority on a plethora of topics, researched Illinois manufacturing companies about fifteen years ago. His somewhat narrow sampling concluded that 30% of family businesses make it to the second generation, 10 – 15% make it to the third and 3 – 5% make it to the fourth generation.
However, I contend that the 30 – 13 – 3 ‘rule’ for family-owned business succession incorrectly illustrates reality.
Here are two reasons why it is misleading:
Spin-Off Companies. Various family members often separate a portion of the original company, continue under a new company and continue ownership within the family. I believe this new entity fits the definition of a Family Owned Business (FOB) that succeeded to the next generation.
Family Office. After a capital event, selling part or all of the Family Owned Business, the proceeds may be used to establish a Family Office to preserve the family’s core values.
Let’s look at it this way – an entrepreneurial family member wants to start a new business and seeks guidance and start up capital. Members of the Family Office are assigned to thoroughly research the opportunity. If warranted they present their findings to a Family Office committee. If approved, a new Family Owned Business is created.
Succession planning to continue a Family Owned Business into subsequent generations takes many forms. This type of ownership transfer meets the standard: members of the same FAMILY that OWN a BUSINESS.
To get a different perspective, Craig E. Aronoff, Ph.D. writes about this topic as well at http://www.thefbcg.com/Family-Business-Survival–Understanding-the-Statistics-/.