By Steve McGuire
Every couple of years, a new headline crops up in business media predicting the death of family business because of retirement crises, lack of succession plans or commercial hubris. Fortunately, the executive director of the Northeastern University Center for Family Business disagrees.
Ted Clark, who also serves as the executive professor of Entrepreneurship and Innovation at Northeastern, says that the current state of family business is more akin to a Johnny Winter tune than Linkin Park’s greatest hit.
“Still alive and well,” says Clark. “Every now and then, I know it’s kind of hard to tell, but I’m still alive and well. That’s family business.”
Clark attributes the current downward perception of family business to increased attention on the life cycles of small business.
“A lot of smaller businesses have failed in, say, the past ten years, which is just mapping the trends,” says Clark. “A lot of them happen to be family business, but some of the negative statistics are that family businesses don’t make it to the second or third generation so they fail.”
According to a report from the US Trust and the University of Virginia, only one in three family-owned business survives to the next generation of family members. In 2008, Joseph Atrachan, PhD., wrote in the Family Business Review that 30 percent of family businesses make the successful transition into the second generation, 12 percent successfully make it to the third generation and just 3 percent survive beyond the third generation.
Clark says that these statistics are indicative of any business, not just family businesses.
“Part of the natural process of business is that [cycle of] going in and coming out,” Clark says. “There’s new ones starting up behind it.”
The generational framework behind this narrative can also be misleading.
“The statistics are that less than 70 percent get to the second generation,” says Clark. “That means a business that’s been around for twenty-something years. It’s been very successful for twenty years, but ‘they’ say that not getting to the second generation is a failure, so it gets kind of misinterpreted that they don’t do well when, in reality, they do very well.”
According to Clark, family businesses are “the most enduring of all businesses out there” and for good reason. Clark says companies that operate on venture capital, for instance, must build an exit strategy into their longterm structure in order to “extract their investment.”
“With a family business, the good news is that family is there to take the business over so that the founders can stay in the business longer or as long as they want. … There’s this great advantage to family business that you don’t have to exit unless you really want to.”
When it comes to picking an area of the country to begin, Clark says that family businesses looking for longevity might have a leg up in New England because of the lack of major metropolitan areas.
“Avoid the cities. … The value of the real estate gets so high that, if you own it, the second or third generation may want to sell the land to cash out. … If you see businesses that are in more urban or rural areas, where real estate doesn’t drive the cost of the business as much, they’ll last longer.”
A 2016 report by CityLab claimed that neighboring Vermont, New Hampshire and Maine were among the highest rural populations by percentage in the country.
Clark’s other tidbit of advice for longevity?
“Be a leader in a niche.”
Leaders of Massachusetts family businesses attribute their longstanding successes to atypical customer service.
Scott Ghelfi, the owner and operator of Ghelfi’s Candies on Cape Cod, points to the personal attention he and his employees pay to their customers as the harbinger of his success. Ghelfi’s Candies is the most current in a long line of confectioners owned by Scott’s family.
“Our customer service, we stress above all else. We’re willing to go above and beyond for customers,” says Ghelfi. “When I was a young kid and my parents owned the business, that is what they stressed: outstanding customer service. That’s our mantra.”
Rick Fougere runs J&R Graphics in Hanover, Mass., a printing company started by his parents in the family garage. According to Fougere, the family business model allows his company to be more flexible and more accommodating than a non-family business would be because the work is a labor of love. The product is more than just paper; the product is people.
“Service your customers. Under promise and over deliver. Always try to exceed an expectation. Don’t lie. Tell them the truth, but try to be more of a business partner than just another vendor.”
Clark agrees that the personal element of the business may be the model’s greatest strength.
“One of the advantages that family businesses have over non-family businesses is that they can make that personal connection, people to people. When you position your family business with family members and the history of family over time, it can create a persona that people can relate to.”
Clark also believes that the future of family business in the United States is only becoming rosier thanks to increased technological implementation. The perception that subsequent generations may be disinterested in taking over the family business or may be poorly equipped to take on such endeavors could quickly become a thing of the past.
“I think that online is a huge asset to them,” says Clark. “With technology and the younger generations’ proficiency with technology as it changes, it creates huge opportunities for the next generation to participate in the business in a new way that they perhaps hadn’t had in the past. It gives the next generation the opportunity to come in and provide some real value and change to an older business.”
For Clark, the last word on family businesses is success.
“When they work well, you can’t beat them,” says Clark. “They’re the most powerful form of business on the planet.”