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3 Reasons Family Businesses Fail

Only three out of ten family businesses are successfully transferred to the second generation.

Worst still, just one survives till the third generation.


Well, apart from the ton of other problems businesses face generally, family-run businesses are particularly susceptible to a myriad of particular challenges that make it difficult for them to succeed.

In this article, you’d learn about three of these reasons and how to overcome them in your business.

Three (3) Reasons Family Businesses Fail

1. Failure To Separate Family From Business

Running a family business does not mean you should mix family affairs with that of the business.

This is a top reason for the failure of many family-run businesses.

Because members of the family are also members of the business, the lines between family and business become blurred.

The finances of the business are used as though it’s the personal account of the family.

Employment is done based on blood and relationship instead of merit and the value the individual can bring to the business.

Most prominent, here, are cases where the founder of the business who doubles as the head of the family employees his or her children with little or no qualification or even desire to top management positions simply because they’re his or kids.

And as you can imagine, it would be difficult for any business to survive such.

To avoid the resultant failure as a result of integrating family and business, the business owner and founder must introduce structure into the business right from the beginning.

He or she must institute proper corporate governance, and policies to hinder such activities.

2. Poor Succession Planning

Many family businesses die after their founders die. 70% of them fail before they are transferred to the second generation because of poor succession planning.

This problem rests squarely with the business founders who fail to institute a succession plan to help their business continue operations after they die, or retire.

And the result? Family conflicts are fuelled by their desire to take over the business, which many family businesses don’t survive.

Another mistake here is that sometimes founders erroneously give the business out to a family member as an inheritance, even when they are unqualified to run it.

This eventually leads to the death of the business.

To avoid such an ugly scenario, founders of family businesses must make the creation of a succession plan a top priority.

Such a plan must detail out how the business must continue in his or her absence, the successor or how to choose one, etc.

The founder must understand that it is better to leave the family business under the ownership of the business but run by the most qualified candidate (whether a family member or not) than to leave it to be run to the ground by an unqualified member of the family.

3. Failure To Seek Professional Help

Family businesses often find it difficult to hire external help. Especially for management roles.

The belief, by many of them, that such roles are reserved for family members and relations is one of the reasons they fail.

It restricts their access to talent to the relations of the family who may not be best qualified to bring value to the business.

This makes it difficult for the family business to grow, and remain competitive.

A family business is first a business, it must be run as such for it to succeed.

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