Economic Development, Higher Education, and Small Business & Startups

Family Business survey reveals strength and longevity

August 29, 2014
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A survey conducted in collaboration by two West Michigan universities reveals the stabilizing force of family-owned businesses in the region. 

The Family Owned Business Institute of the Seidman College of Business at Grand Valley State University and the Haworth College of Business at Western Michigan University announced Sept. 2 key findings from a study launched in 2013 to explore the magnitude, composition and health of West Michigan family-owned businesses. 

Joseph Horak, director of the Family Owned Business Institute, said family businesses have become an increasingly important area of study in business programs as studies indicate the role they play in the regional, national and global economy. 

“We have been finding out they are a very significant type of business, both in our economy here in the United States and even more so in different economies around the world,” said Horak. 

“Fifty-seven percent of the U.S. GDP is contributed by family-owned businesses; globally, it is between 70 and 90 percent. So what we’ve found is, family-owned business is actually our majority — the predominant form of businesses.” 

Surveys were sent to family-owned businesses in 28 counties in West Michigan, including Allegan, Antrim, Barry, Benzie, Berrien, Charlevoix, Grand Traverse, Ionia, Kalamazoo, Mason, Muskegon, Ottawa, Van Buren and Kent. Of the 690 businesses in the database, 156 companies, or 23 percent, completed the survey. 

Key findings from the Family Business Survey included the stabilizing force of family-owned businesses in an economy, and the unique sample of such businesses in West Michigan. 

The survey noted when owners anticipated a downturn in economic activity or reduced earnings, 86 percent of family-owned businesses would reduce or not take a distribution, while 58 percent of respondents said employees would take a reduced salary or not take a salary before letting an employee go.

Although the organizations may not grow as quickly in an economic upturn, Horak said family-owned businesses serve a unique function that can be beneficial for communities.

“Family-owned businesses are the ballast of the economy. They take on less debt and they are risk averse, so in an upturn they are conservative. … Because they have less debt, in a downturn they can function differently,” said Horak. “They are less likely to go under. So they are this ballast, this stabilizing force in the economy.”

Typically, the survival rate of a family-owned business declines with longevity, as only 30 percent of businesses survive from the first generation to the second generation of family ownership, 14 percent continue to run from the second to third generation, and fewer than 5 percent transition into the fourth generation, according to the press release. 

With 15 percent of businesses responding to the survey in the third generation of ownership, and 11 percent in the fourth generation, Horak said the composition of the sample was surprising and represents West Michigan family-owned businesses.

“One of the problems with family-owned businesses is they have a horrible survival rate,” said Horak. “There are a lot of reasons why, but what we found in our sample is in West Michigan we have some really old family-owned businesses. The average age was 49 years, the average firm age is 50 years, and 11 percent of the businesses in our sample have been in existence for over a century. The oldest in the sample was 155 years old.” 

Other findings highlighted a need for future workshops and programs to support family-owned businesses in various business operations such as succession planning, emergency succession planning and estate planning, according to the press release. 

Only 20 percent of responding businesses reported having a written succession plan in place. 

One of the goals of the survey is to collect information regarding the businesses in the region to provide support, resources and tools to ensure local family business longevity, according to the press release.

Launched in partnership with Laurel Ofstein, assistant professor of management at WMU, the Family Business Survey is a collaborative effort between GVSU and WMU to explore family-owned businesses and the economic impact they can have in a region. 

“At Grand Valley, we try to partner and work with other universities and collaborate,” said Horak. “(Ofstein) has some expertise in the area, and we wanted to work with her. We’ve been collaborating with her for the last couple of years and we plan on continuing our collaboration with Western moving forward.”

A smaller pilot study was conducted last year in partnership with WMU, and Horak anticipates conducting an economic and philanthropic impact study of local family businesses later this year to combine with the survey for the Journal of Family Business Strategy. 

“The whole philanthropic part is another reason why I am passionate about studying family-owned businesses,” said Horak. 

“I think they have done so much for our community. They don’t just provide these long-term stable jobs — the ballast, but they also, I think, do some pretty important philanthropy that makes this a great community to live in.” 

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