reasons of family business failures

REASONS OF

FAMILY BUSINESS’ FAILURES

Family Business

‘‘Give him a living, but never discuss the Family business with him."

Don Vito Corleone to Tom

Outline

What is the importance of family businesses?

Why do family businesses fail? What are the main reasons?

Family Businesses

According to researches; 65-80% of businesses around the world are family business.

Family Businesses

0102030405060708090

100

Italy Turkey USA Mexico England Australia

% of Family Businesses

Surviving Through Generation

0

10

20

30

40

50

60

70

80

90

100

1st Generation 2nd Generation 3rd Generation

Why do businesses fail?

Poor management Insufficient Capital Location Overexpansion …

Family Business’ Failures

Family business failures were not often the result of market or macro enviromental forces. Family business’ failure reasons generally occurs from family and management issues.

Young Members’ Behaviors

Dont change their behaviors (during transition period)

Disagree with new rules Parents try to take control Restrain young members’ activities

Old Members’ Behaviors Parents can not recognize that

second or third generation members are old enough

Parents do not show any respect and they fail to pass authority

Parents do not want to be out of game

Parents see their children as their competitors

Deciding who will be involved in family business

If more than one candidate, parents have to choose right family member for right position. They have to decide who will be in, who will be out.

Parents force children to involve in family business. They do not pay attention what their children want to do

Employing Children

Employing children according to sex and age status

Oldest son for most important and critical position

Daughter for basic or not so important position

Ignoring abilities and management skills

Keep Family in Peace

Ignoring children fails Being away from arguing

important cases about family

Communicating or Solving Problems via Third Parties

Damages relationships between family members

Fraternal Fightings and Estate Conflicts

In 2003, twenty biggest and famous Turkish family businesses were failed. According to researches, the biggest two reasons were fraternal fightings(%43) and estate conflicts(%19).

Conflicts between family members in and out of the business and with non-family members

Institutionalization (getting a corporate identity)

First generation or the founder generally becomes disagree with institutionalization

They do not want to loose control They do not want to see external

people in company

Lack of Succession Planning

Next generation lacks essantial skills, experience

Next generation have not been well prepared for job

Unfair Promote or Assignment

Makes other employees disappointed

Decreases their willingness Ignoring experience, skills,

abilities, and education Damages corporate identity

Insufficient Business Volume / Job Duties

Study Case – Ali Sabancı

References http://www.milliyet.com/2004/05/13/isy

asami/ais.html

http://capital.com.tr/haber.aspx?HBR_KOD=4454

http://www.haber3.com/haber.php?haber_id=232028

http://view.fdu.edu/default.aspx?id=2337

References http://blog.tootoo.com/en/ninetown/

post/688 http://www.tuta.hut.fi/studies/

Courses_and_schedules/Isib/TU-91.148/Family_Business_Rulebook.pdf.com

http://www.enetrust.com/Communications/PressReleases/PressReleases2004/2004_09_16.asp

http://www.robbinex.com/family.shtml

References

http://www.trinvest.com/nshow.php?newsId=514&pageId=7&categoryId=45

http://boston.bizjournals.com/boston/stories/2002/09/16/smallb3.html

http://www.forbesconferences.com/?page=event&eventID=107

References Arguden, Yılmaz (2002). Aile

Şirketlerinde Kuşak Değişimi http://www.kobitek.com/makale.php?id=122

Lea, James (2004). Planning could

avoid many family business failures http://www.bizjournals.com/triad/stories/2004/05/17/smallb3.html

Thank you for your attention