Re-thinking Family Firm “Failure”

A synopsis of the FFI Practitioner post, Evolutionin Thinking About Generational Transition in Family Enterprises:

 Dr. Pramodita Sharma, Sanders Professor for Family Business at the School of Business Administration, University of Vermont, writes that the commonly used 30-13-3 statistic (referring to the devolving chances of family enterprises succeeding to the next generation) is no longer serving the field of family enterprise because of its inaccuracy and constraint on the reality of family businesses today. Sharma cites a number of reasons why: enterprising families run an 3 to 4 firms in a generation; families are more likely to manage a portfolio or enterprises, either parallel or sequentially; exiting a firm by selling it, going public or closing can be considered successful rather than failed; firms may continue over generations but become controlled by another family or families; and a controlling family may become governing investors rather operational leaders.

                  

Looking at firm survival over time is different than assessing the longevity of a family enterprise (Colli, 2012, as cited by Sharma). The ‘oldest family firm’ lists are focused on family survival over time, whereas the longevity of a family enterprise focusses on the ventures they create or destroy as they work to create value and wealth over generations. She points out that “both the creative destruction of firms and pruning of the enterprising family are integral parts of longevity of an enterprising family” (Lambrecht & Lievens, 2008; Schumpeter, 1954), and that efforts are now more focused on understanding the common practices in family enterprises that survive in the face of time and adversity. One size does not fit all, and the cavalier use of the word ‘success’ has not sufficiently captured the complexity and heterogeneity of family enterprise successes (Gersick & Feliu, 2014; Long and Chrisman, 2014; Stewart et al., 2012).

She poses two important questions which should be considered when thinking about generational transition and would help to lead the way to deeper conversations:

1. What is being transitioned – a firm, enterprise, entrepreneurial spirit, or company name?

2. Why is the transition important?