There is research on virtually everything: business, economics, medicine, space, you name it. Research on family businesses is few and far between, and usually sketchy at best. You can’t just open the Yellow Pages, the Chamber of Commerce membership listing, nor even do a Google search on family businesses. However, PricewaterhouseCoopers has been able to compile a good database of family businesses in order to conduct research on them. The company released its first report back in 2007, the second version in 2010, and have just recently published the 2012 update.
There, is of course, other research out there. This typically comes from FFI, the governing body of professionals who interact with family businesses. From that research we have a number of statistics, the two most ominous being that more than 75 percent of all businesses are family businesses, but sadly about two-thirds fail to survive to the next generation. Thus, given the powerful market dynamic of family businesses, understanding their performance and behaviors, and how they are changing, are of vital importance.
Before looking at some data, it is important to first understand how PwC defines family businesses: “Where the majority of votes are held by the person who established or acquired the company, or their direct relatives, or where at least one member of the family is involved in the management or administration of the business.” So either you are an owner and/or work there in some influential capacity. Given this, it is important to be aware that not only is the “mom and pop” down the street a family business, but so are Wal-Mart and Ford. (In fact, it is estimated that about one-third of the Fortune 500 is family businesses.)
To begin, probably the most eye-catching statistic is that a whopping 73 percent of respondents reported sales growth in the last year. And most of these expect continued growth over the next five years.
Leveraging all three studies, PwC found the percentage of family businesses intending to sell abroad has more than doubled from 21 percent to 54 percent, with the vast majority focusing on the Americas and Asia, not Europe. Finding skilled workers is the predominant issue for family businesses, with almost 50 percent reporting this as the main issue. However, the internal challenge that has more than doubled in urgency from the 2010 study is supply-chain issues. And while “market conditions” tops the list of external issues at 68 percent, this is down from 88 percent just 2 years ago.
It is clear from this data that family businesses are not only performing well, but will be doing even better in the future.
Looking at the profile of these family businesses, 25 percent are looking to change the ownership of the business in the next five years, with more than 50 percent of these planning to transition management and ownership within the family, and about 25 percent to only pass ownership.
Staying in the family
I love this statistic: 75 percent are expecting the business to stay within the family in the next generation, but historical data tell us that only 33 percent will. Thus, more than 50 percent of family businesses expecting/hoping to pass the business on to the next generation are going to be disappointed.
However, there are signs within the data of a growing realization within family businesses: the management of the family business does not always have to stay within the family.
According to Margaret Young, the Managing Partner of the PwC Private Company Services group in the Carolinas, PwC’s work with their family business clients indicates that there is a greater recognition of the need to bring in outside talent in the future to lead the company. “Family Businesses have been struggling to manage in these down economic conditions. As such, they have become more open-minded about taking risks, encouraging innovation, and bringing outsiders into the business,” Young says. Perhaps this is why they are performing so well in this environment.
The study covers much more than can be brought to light in an article such as this. This is only the tip of the iceberg. If you are a family business, or are a professional working with family businesses, I encourage you to go to the PwC site and download the study. You can also find it on our homepage at Familybusinesscarolina.com.
Henry Hutcheson is a nationally recognized family business speaker, author and consultant in Raleigh. He can be reached at Familybusinesscarolina.com.