Lawrence Nicholson | Family-owned business facts and myths

The long and storied history of family-owned businesses, FOBs, comes with facts, myths and old tales, many of which are not easily disaggregated or detangled. In many instances, myths are quoted as facts and facts are pushed aside as myths.

Many of the statistics and proclamations being bandied about have given credence to the one of the laws of propaganda attributed to Nazi Joseph Goebbels: “Repeat a lie often enough and it becomes the truth”. In the quest to understand and to optimise the benefits of FOBs, it is important to try and separate facts from myths.

Space will allow the delineation and the attempt to debunk four of the common myths, which, if left untouched, could impede the progress and standing of FOBs. The list below is a mix of facts and myths linked to FOBs, and I wonder how many persons could correctly identify which is which, before completing the reading of this article.

1. Family businesses do not survive beyond three generations;

2. Over 70 per cent of micro, small and medium enterprises in the English-speaking Caribbean are FOBs;

3. Family businesses are the purview of particular race/ethnic groups;

4. A large percentage of the world’s wealth is created by family-owned businesses;

5. Family businesses are internally focused and do not benefit the economy over the long run;

6. Over 70 per cent of businesses worldwide are categorised as FOBs;

7. On average, the level of education among family members is lower than non-family members in FOBs;

8. In many countries, family businesses outperform non-family businesses.

If you ticked even numbers as facts and the others as myths, then welcome on board, as we try to dispense many of the myths associated with FOBs. Space will allow the coverage of only two of the most common myths in Jamaica.

Survival

Family businesses do not survive beyond three generations: This has become one of the most common and repeated myths of FOBs, especially when reference is made to the longevity of FOBs. The refrain is that FOBs are not sustainable since they do not survive beyond three generations. The FOBs literature refers to this as the ‘three generation myth’.

The ‘30-13-3’ statistic is a familiar reference at FOB conferences – that is, only 30 per cent of FOBs make it beyond the first generation, 13 per cent beyond the second, and a low 3.0 per cent beyond the third. This statistic is grounded in a single 1980s study on the manufacturing companies in Illinois, United States, by John Ward, one of the pioneers in family business research; this notwithstanding the caution by Ward on the limitations in the study and that the results may not reflect all family businesses.

Unfortunately, a misreading of the findings seems to have inserted ‘all family businesses’. The three-generation reference describes the so-called propensity of FOBs to fail by the time the third generation takes charge of the businesses.

Versions of this sentiment across the globe, depending on the country or region, include ‘shirtsleeves to shirtsleeves’; ‘rich father; noble son; poor grandson’; ‘clogs to clogs in three generations’; ‘rice paddies to rice paddies in three generations’; ‘the father buys, the son builds, the grandchild sells, and his son begs’.

This myth has become pervasive and a self-fulfilling prophecy for many FOBs, leading to many entrepreneurs being wary of engaging family in their businesses, sometimes missing out on the best available talents for the FOB. This is unfortunate since many FOBs have survived beyond three generations, and beyond the life of many non-family businesses.

Furthermore, even if FOBs fail to survive the third generation, studies have shown that the wealth created during the life of the businesses does not always disappear as suggested by the three-generation characterisation.

Ethnicity

Family businesses are the purview of particular race/ethnic groups: Data collected on FOBs, since 2004 and up to 2012, shows that this is a common myth that seems to be engrained in the psyche of many Jamaicans. In fact, in my many discussions among vendors in the Coronation Market, in my fortnightly ‘conversation with vendors’, there is the notion that certain businesses are the purview of a set of ethnic groups.

This myth continues to get both legs and wings, and if not cauterised could seriously impede the contribution of many who form part of the major ethnic group in Jamaica.

Capturing the sentiments of this myth is the conclusion from research in 1994 on entrepreneurship in Trinidad & Tobago:

Typically, the business prowess of the Chinese is attributed to: the esprit de corps of the family, in groups cooperation, diligence, frugality, an unwavering singleness of purpose and a willingness to postpone immediate gratification for future security.

Is one to interpret this to mean that there are embedded qualities in one ethnic group, which are missing from others? Unfortunately, this is a myth that is being perpetuated, and if not cauterised could be a barrier to the increase of FOBs among certain groups.

This is a call to help in dispensing the myths associated with FOBs.

More anon.

Lawrence Nicholson, PhD, is senior lecturer at the Mona School of Business & Management, University of the West Indies, and a director of the RJRGLEANER Communications Group. lawrence.n.08@gmail.com