Everyone in a family or closely held business has heard the terrifying 30/13/3 statistic. “Only 30% of family businesses make it to the second generation,” and so on…The press on many occasions even attributes it to us here at FBI (it’s not ours!). From where did this stat come? And is it – gulp! – true?
Please watch this week as Wayne digs into the statistic, explores its origin, and tries to ascertain whether it’s applicable to contractors in today’s world.
We’d like to have your thoughts; what do you think the “survival rate” is among family and/or closely held companies? Please share with us in the comments section below. Thank you!
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I think FBI should officially conduct some research and truly look at what the “failure” rate of 3rd generation construction firms actually is. In this study, I do not believe businesses like FBI that continue on after being purchased or businesses that morph into something else and are successful are counted as failures. Maybe there is another category for that as you suggest.
My guess is the actual “don’t survive” rate would then be somewhere in the 50% range, but that may be optimistic.
I would love to know what the numbers really are! I have thought about them as well in the “to vs. through” discussion. Do third generation businesses have a 3% chance of making it “to” the third generation or “through” the third generation into the fourth? I am a third generation business owner so I would certainly love to know what odds I’m up against!
In our industry there is a lot of Private Equity money entering and buying up companies. These companies didn’t necessarily have a succession plan in place or an heir to their business so they sold. I would in no way consider that “unsuccessful.”
I’m with you; everyone wants to know the numbers, Tyler. But a good statistician would tell you that the generic odds don’t have anything to do with your individual fambiz. If you run it well, you succeed. If you don’t… If I failed to make this point, I was remiss: selling to PE or to any outsider is NOT a fambiz failure in my book. If an entrepreneur builds a business and cashes out at some point, he is hailed as having achieved the American Dream. Why should a fambiz sale be viewed any differently?
“The first generation builds the family business, the second generation lives off of it, and the third generation drives it into the ground.”
We are a second generation construction company and that statement above motivates me more than anything. Fear of failure is a powerful motivator.
Mark, fear of failure IS a powerful motivator. I’ve heard the “shirtsleeves to shirtsleeves” thing a million times; not sure I believe in it. Well run companies make it. Poorly run companies do not. I guess you make an exception to that rule in the case of sweeping macroeconomic factors (like what happened to the buggy whip industry).
You nailed it… poorly run companies do not make it. Any family owned business cannot rest on its past laurels. You need to change with the times and put your company in the best position to succeed. Don’t become a statistic. Thanks for reaching out.
You’re very welcome, Mark.
Thank you for this information. I am editor of Salisbury The Magazine in Salisbury, North Carolina. I’m writing a story for our next issue about Ralph Baker’s Shoes, a family business now entering its third generation, with all three generations working together. Mr. and Mrs. Baker take care of all the bookkeeping and paperwork, work seven half-days a week, and have no plans to retire. The store was originally open seven days a week.
I’d also lift up Cheerwine soft drink to you. It was founded in Salisbury in 1917, and is now in its FIFTH generation of family ownership.
You’re quite welcome, Susan. Love your magazine!