Two distinguished experts on the topic maintain polar opposite positions on starting a business with family.
Joachim Schwass, director of the Global Family Business Center at Lausanne-based International Institute for Management Development (IMD), cited numerous studies that show family-controlled and quoted companies create more wealth and outperform public corporations on many metrics including total returns and cash flow. In addition to that, he concluded that family-owned businesses have a greater incentive when it comes to prudent management, given the common aspiration to pass on a healthy business to the next generation.
In contrast, John Van Reenen, a unit director at the London School of Economics, believes family-controlled corporations seriously lack meritocracy in that the choice of chief executives and key leaders usually is limited to family members. Moreover, this arrangement lowers the drive of next-generation leaders to excel, tending instead to slacken off given the certainty of gaining a profitable position within the company. As a result, many family-controlled companies trend downward over time in terms of growth and innovation.
And both experts have a point. On the one hand, the list of successful family-owned and controlled companies is impressive. With names like Foxconn, Nike, Volkswagen, Samsung Electronics, and Wal-Mart gracing the top spots on the list of family-owned businesses, a powerful case could certainly be made for the viability of starting a business with family.
But the downside is equally convincing. As reported in the Harvard Business Review, 70% of family-owned businesses fail or get acquired before the second generation takes the helm.
When making your own decision about whether or not to start a business with family members, consider some of the pros and cons.