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Avoid the fear of failure

Getty/iStockphoto/Koldunov Man evaluating a piece of paper on a desk in concentration.
Family business statistics don’t have to be a story of doom.

We’ve all heard the statistics—only 3% of family businesses survive through the third generation, or, more simply, “shirtsleeves to shirtsleeves in three generations.” This statistic is a bit misleading, and I don’t like how it’s used to invoke fear of failure.

First, the actual empirical research by John Ward that began this statistic is from a limited Illinois manufacturing data set in 1987—that’s almost 35 years ago! Perhaps we would get the same results today, but who really knows? And, it’s been canonized as a “30/13/3” statistic that oversimplified the research even more.

Even if you take that debatable statistic as fact, the results say that 30% of firms survive through the first generation, 13% through the second, and 3% through the third generation. That is, 3% get into the fourth generation—likely 100 years or more. That’s impressive! So maybe we shouldn’t focus on the negative connotation of “only” survive.

And how does this performance compare with public companies? Craig Aronoff, the co-founder of Family Business Consulting Group, reviewed the length of time that companies are listed on the Dow Jones Industrial Average. Only one company out of thirty, GE, was on the list for 100 years—a “survival” rate of 3%, like family business! And GE was delisted in 2018 after 111 years. While it’s not the same definition of survival, the point is, why do we consider our performance so negatively?

Perhaps most importantly, the definition of “survive” in a family business context needs reconsidered. The original research deemed a family firm not to survive if it went public, was sold, or was shut down to pursue other enterprises. We negatively jump to failure for reasons like bankruptcy or infighting, but there may be good reasons to sell or restructure or start a new business. We have helped farms partition into a new iteration for the next generations. Many continue farming but in different combinations of people and resources, maybe with a new name. Why is that a bad thing? We don’t expect Ford Motor Company to operate the same factories in the same locations with the same managers forever—why do we expect that of ourselves? Enterprising family members may be involved in several business ventures that evolve over time.

Which brings me to that pesky word “only”. There’s judgment that “only” surviving so long is failure. The reality is, every situation is different. Many of you hope your great-grandchildren will lead the business you have devoted your life to; that’s the focus of much of our work. But don’t let the statistics make you afraid. Won’t it be fun to see the many shapes and forms your family, its businesses, and the use of its trans-generational wealth may take in the future!

Davon Cook is a family business consultant at K Coe Isom. Reach Davon at [email protected].

The opinions of the author are not necessarily those of Farm Futures or Farm Progress. 

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