Why do family businesses fail?

February 22 2016
Executive Education INCAE

Only in the United States 90% of corporations are family businessesSmall ideas that were born within the family nucleus and that were taking shape until occupying, for example, a place in the prestigious ranking of the Fortune 500.

For Latin America it is estimated that this percentage is quite similar; in reality, the trend is the same all over the world. However, studies reveal that around 70% of these companies fail to make it through the transition to the second generation family; while only 4% survive the shift to the fourth generation.

Abrupt transitions of command between parents and children, power disputes or simply lack of interest of future generations to keep the business afloat are part of the threats that derive in these statistics.

This generational change, however, is as necessary as it is inevitable, but that is where legality, cordiality and commitment become vital to avoid or at least mitigate these threatening failure rates.

Keys to surviving change
In addition to the risks and threats that every company faces, there are seven keys that mark the fate of most family corporations:
1. Next Generation Capability
2. The senior generation staying in control
3. Conflicts between siblings
4. Disinterested and scattered cousins
5. Economic freedom
6. Limited capital
7. Business challenges

"A family business, in managerial matters, should be managed practically the same as a non-family business, in almost everything. Where the key is in how we are going to manage the family-business relationship"

Excerpt from the webinar "The sustainability of a family business", given by the Ph.D. Esteban R. Brenes, Academic Director of the Family Business program of INCAE Business Schoool.

Subscribe to our blog