Reflections on Business

Some of the Advantages of a Family Business

By October 4, 2014 No Comments

by Frances Burks, Demand Media

The long history family members have with each other equips them to define each member’s strengths and weaknesses correctly when starting a family business. Families are more likely to assign each person to a suitable business role, which gives the business a competitive advantage over other types of companies where employees’ true talents may not be recognized.


Family members who are involved in running a business together often are more committed to its success, because they all have a stake in seeing the business prosper. Family members are often the ones who invested most of the time and money to get the business off the ground, so they’re usually motivated to do what it takes to help the business survive and grow. That deep commitment often makes family companies resilient, even when business is slow and finances are tight.

Business Performance

Family businesses have the potential to be more profitable than other types of businesses, according to Jim Lee, an economics professor at Texas A&M University in Corpus Christi. Lee spent nine years analyzing family businesses from 1992 to 2001. Lee asserts that businesses in which family members remain involved in management outperform companies that have managers with no family ties to the business. Lee noted that the family companies he studied outperformed non-family businesses in terms of revenue and employment growth, even during the 2001 recession.

Employee Relations

Families generally take better care of their employees, according to Lee. For instance, Lee indicated that family businesses have fewer layoffs, because their workers are seen as extended family members. Families also may place importance on each member’s personal needs despite their business commitments. They want their business to thrive, but “Entrepreneur” magazine writer Karen Spaeder indicated that families are likely to place the well-being of relatives involved with the company above their business obligations.

Failure Rates

Less than 30 percent of family businesses last long enough to be passed to the second generation of family members, according to a 2010 “Inc.” magazine article by Christine Lagorio, who also indicated that 10 percent of family businesses last through a family’s third generation. Nonetheless, they still may outlast many other types of businesses that aren’t family-owned. Data from the Census Bureau of the U.S. Department of Commerce indicates that seven out of 10 new businesses survive at least two years, and only about half remain open for five years.