How Many Family Businesses Make It To The Second Generation?

Many business owners wonder, “How many family businesses make it to the second generation?” The answer turns out to be complicated. It depends on what you mean by “make it.” 

Here is what we know about  how many family businesses survive the second generation.

John Ward of Northwestern University’s Kellogg School studied this issue. He published his findings in 1987 in his book Keeping the Family Business Healthy. His team researched 200 randomly selected Illinois manufacturers listed in annual publications from 1924 to 1984.

Ward presented the data on the first page of his book as follows:

“Only 13% of successful family businesses last through three generations [emphasis added]. Less than two-thirds survive the second generation.”

However, this information is now 35 years old. AND it is from a study done in the Midwest. 

Here in Arizona (and other western US states), there is more of a trend to build up a business and sell it. If you ask a professional how to plan for your business’s future, they will more likely refer you to an “exit planner.” (That’s a euphemism for a business broker.) 

Arizona has been a state since 1912. However, there are very few businesses here owned by the second generation.

Why Do So Few Families Continue Their Family Businesses?

One reason why so few family businesses continue past the first generation is because of the high costs associated with running a business. In addition, many people feel uncomfortable taking over an existing business when they haven’t had any previous experience doing so.

Is There Anything You Can Do About It?

If you’re interested in keeping your business in the family, talk to someone who has helped others do the same thing.

At How To Create A Legacy, we have successfully helped several families keep their businesses in the family. We can help you create a 50 or 100 year plan for your family and the business. 

We will help you build the communication channels so your family can work together. We will also help you consider whether your children or grandchildren have the necessary skills and knowledge to take over the business. 

How Can You Help Your Children Succeed In Running A Successful Business?

There are several ways you can help your children succeed in running a successful business. First, make sure they understand how businesses work. This includes understanding what makes a good product or service, how to market products or services effectively, and how to manage employees.

Sometimes the hardest part of this process is creating systems so you (the business owner) feel comfortable letting go of control. We can help you with this.

If you’re ready to plan for your business to go to the second generation, book a strategy session

About the Authors

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Founding attorney Paul Deloughery has been an attorney since 1998, became a Certified Family Wealth Advisor. He is also the founder of Sudden Wealth Protection Law, PLC and co-founder of How to Create a Legacy, LLC.

Michael Zolno has an MBA and MA in research psychology and almost 40 years’ experience as a consultant. He is also a co-founder of How to Create a Legacy, LLC.

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