Are family-owned small companies a dying breed? Maybe not yet — but if today's business owners don't start planning for the future, the quintessential American family business could go extinct much sooner than you think.
U.S. Census Bureau data indicate that family businesses constitute about 90 percent of North American enterprises and more than half of total U.S. employment. However, according to small business insurer Hiscox's 2014 "DNA of an Entrepreneur" report, just 5 percent of U.S. small business owners plan to keep their company in the family when they exit. Among those who plan to exit within the next year, the majority (68 percent) said they would do so by closing their businesses completely.
These statistics, while troubling for current family business employees, aren't entirely surprising: A recent survey by PricewaterhouseCoopers (PwC) found that "sticky baton syndrome" — the reluctance of small business owners to hand the company over to the next generation — affects 40 percent of family business leaders, and 73 percent have no documented succession plan in place.
Henry Hutcheson, president of consulting firm Family Business USA and author of "Dirty Little Secrets of Family Business" (Indie Books International, 2014), believes that the current generation of family business owners are nervous about their potential younger successors' lack of knowledge and experience, as well as the new ideas and changes the next generation may want to bring to the company. However, the biggest factor driving "sticky baton syndrome" is the psychological and emotional connections current leaders feel to their business, he said.
"It becomes their identity after so many years at the helm," Hutcheson told Business News Daily. "They do not know how to step back."
This stable management structure means that customers can rely on a consistent product or service and develop great long-term relationships with family businesses, said Bridget Weston Pollack, vice president of marketing and communications at business mentorship organization SCORE. The problem, however, is that the same leader — and, therefore, the same way of thinking — for so long can get a small business stuck in a rut.
"In this case, [a business] needs an injection of creative ideas to draw in new customers," Pollack said. "This is an excellent opportunity to seek an outside, objective perspective to drum up new ideas and see where improvements can be made."