Built to Last- Are family owned businesses an endangered species?
How an Advisory Board can help family owned businesses thrive into the future.
Are family owned businesses an endangered species?
According to National Geographic, a species is considered to be endangered if it suffers from a 50-70% population decline. In Australia, the rates of business ownership continue to increase….but are the businesses being created today going to be owned and operated by future generations?
The statistics on survival rates for family owned businesses are sobering. It’s reported that:
- more than 30% of all family-owned businesses survive into the second generation;
- 12% percent will still be viable into the third generation; and
- only 3% of all family businesses are still operating at the fourth-generation level and beyond.
Unfortunately, there are many factors that can put family owned businesses at risk. Often, it is the family dynamics themselves that are a problem.
The Bankwest Future of Business Report found that less than 20% of family owned businesses have a documented charter that governs the business. Many family owned businesses are relying on trust and relationships, rather than good governance, to run their business.
An advisory board is a game-changer for how your business makes decisions and sets strategy to move from family-run to next level.
An Advisory board can be an appropriate and respectful way to support family owned businesses to not only survive but thrive for future generations. Tapping into the insights and experience of independent advisors means that business owners can make informed decisions about the future growth and succession planning strategies.
Many successful family owned businesses have been built off the hard work and relentless focus of the business owner, their family and employees. Often, the owner is the primary decision maker. Over time this may not be the best strategy for the health of the business or the family.
In publicly owned companies, the average CEO tenure is roughly six years. This means that every few years, the business is re-energised with new thinking and experience. It also means that effective succession planning becomes embedded in organisational practise.
By contrast, family owned businesses can have the same leader for 20- 25 years. While this provides a certain stability and focus, it can also leave the business less prepared to respond to changes in technology, consumer behaviour or even business models. It can also be more difficult for the next generation of leaders to grow, develop and establish their own leadership and decision-making skills.
Succession Planning in Focus
Succession planning in business is generally not done very well. Overall, 65% of business owners identify internal succession planning as a significant issue for their organisation.
For a family business, an advisory board is much more than simply another sounding board; it’s a pathway to a sound decision-making framework to explore options for the future.
With a mass exodus in mature markets of baby boomers forecast in the next ten years, it is likely that we will witness many owners not realising the value of their business and placing jobs and their own financial security at risk. In order to address this properly, owners must step back and carefully evaluate their options. Accessing the insight and advice of an independent Advisory Board can help this process. For a family business, an advisory board is much more than simply another sounding board; it’s a pathway to a sound decision-making framework to explore options for the future.
Different Businesses – Different Needs
Business succession issues are broad, complex and need to be understood prior to choosing the right model for succession to take place. Succession planning is not something that can be done by template. There is no one perfect answer as to how things should be done since every business and situation is unique. A well-designed Advisory Board can help maintain internal confidence and create a strong foundation to support the business to explore options for succession plans.
Read our popular article “Are we there yet? Knowing when to implement an Advisory Board.”
Are you considering an Advisory Board to support your family owned business? Access our complimentary Advisor Concierge service to connect you with independent Certified Chairs and Approved Advisors.