Essay One

Family Business Beyond Generations

As the old adage goes, blood runs thicker than water. But in a family business, blood ties often

turn out to be a double-edged sword. A family business is most commonly defined as a business where

both the owners and management of the firm are family members. For many years, family businesses

have played an important role in the economy of the United States, making up between 80-95 percent

of all incorporated businesses, contributing almost 50 percent of the total gross domestic product and

accounts for 85 percent of private sector employment.1 However, despite their potential, family

businesses do not perform as well as they should. Statistics show that about 67 percent of family

businesses do not succeed beyond the founding generation, and a mere 12 percent make it to the third

generation.2 For all that, there are still a good number of successful corporations such as Wal-Mart and

McDonald’s who started as family start-ups, but have continued to be successful till today, and this

could be attributed mainly to the fact these companies moved from being wholly family managed, to

employing professional managers and executives to run the firm. Therefore it could be argued that as

family businesses grow, family business leaders must be willing, in order for the business to continue

remaining competitive and profitable, to move from a family-first management system towards a

management-first professional management.

However, many traditionalistic business leaders of today still hold that keeping a family-first

management system for the business, is ideal for the family and the business in the long term. A key

reason for this standpoint, are the benefits of having an overlapping management system within the

business. In a family business setting, daily interactions between family members, owners and

management facilitate informal and prompt decision making, which allow for lower administrative

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Poza, Ernesto....