Why family businesses fail

24 Apr, '08

For an enterprise to survive, they need to get the best there is and trust them, even if they are from outside their gene-poolGoogle this and you will find that the common denominator is that no matter how big a family gets, if they just depend on their own gene-pool, they are bound to fail. In the larger scheme of things, families – even good ones – can and do produce morons.

They fail, because they disregard everyone’s advice and put those morons in places of authority – just because they are family members.

The second reason you will find in your search, is that because they stuff their kith and kin in their boards so much that they dilute their board’s effectively, resulting in weak infrastructure that directly affects decision making.

Those who survive, on the other hand, are inevitably led by those who have the required cojones to stand up to familial and peer pressures and follow their longer term vision resolutely, without succumbing to mediocre decisions made for momentary or egotistical gains.

You will find that those people have no fear in sharing their authority and trusting even “outsiders” to run their show based on ability, rather than proximity of blood-lines.

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Comments (12)

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  1. Yousif says:

    Mahmood, its funny that you are talking about this…what about a family-run country then? This was in the news today, keep in mind how old one of them is…

  2. Yousif says:

    for some reason it didn’t link, just look at the first page of al-wasat, about the EDB

  3. mahmood says:

    I was talking generally of course. I was thinking of the future of my empire and how it may be handed and handled by my moronic offspring.

  4. Finlandi says:

    Mahmood, the reason FB’s fail is because of lack of planning, i am a major in family business and from what i see businesses fail to recognize the importance of succession planning and education planning. believe it or not succession planning and the succession process should start about 10 years before the succession is actually carried out.

    as for FB education planning there is no need for me to explain its importance to you but i must emphasis the fact that it should start at a very early age and that the next generation grow with the business.

    i am going to be come a fully qualified FB consultant with an Msc, i plan on coming back to Bahrain when im done with my studies and hopefully businesses will recognize the need for consultants like me in the future.

    -Finlandi

  5. ammaro says:

    donald trump is a perfect candidate for doing business the ‘right way’. he doesn’t blindly hand over business to his offspring, but instead pushes them to prove themselves before giving them any sort of power in his empire.

    as for comment #1…

    Haha!!!! Oh well…

  6. Bahrainiac says:

    Comment # 2 kind of sets the tone, eh? 😕

  7. Anonny says:

    Ammaro,

    Donald Trump has not been a success story all the way though, has he?

    Compare him to the Rothchilds, who have been successful for generations, and even share credit for the creation of modern information-sharing and intelligence gathering entities. They kept money, knowledge and power strictly in the family and became rich and powerful on an international scale as a result.

  8. heraish says:

    One solution for the unemployed youth with degrees is to set up venture capital type institutions where different buisness plans can be looked at, evaluated and funded. As for those without degrees they should be encouraged to pursue them through stipends etc.

  9. Well … I think it is very nice to keep it in the family.

    But I agree that some families produce real dumb asses but think about it this way, he is a dumb ass with the best schooling which not going to make him a dumb ass anymore is it?

    Dress a donkey up, he stays a donkey but at least he looks nice.

    But it is not true in all case I’ve seen family business that are so smart and have a great future.

  10. Redbelt says:

    As a consultant I see many companies. And the family ones are the worst internally managed.
    Employees are often demoralized (because they will never amount to anything) and overworked. Accountability is poor and somehow things just get done.
    I believe a family business can be done as long as they stay away from Managment and stay in the Board of Directors. This way they have full control and get the absolute best for the job. Not to mention less micro managment.

  11. Austin Enwemasor says:

    I am PhD student reasearching why family businesses fail using Africa and particularly West Africa as a test case. I will be glad to have full text and all the mails exchange on this area and it will be a great reading for my Literature Review.

    Thanks

    Austin Enwemasor

  12. Austin,

    I’d check into the history of Mrs. Astor in Boston who decided that since her ballroom held only four hundred dancers, then there were only four hundred couple in the charmed circle of the power elite. In the last century, those families have all declined.

    You might read ibn Khaldoun’s Muqqadima to understand why such fortunes dissipate.

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