The following guest post is by Ted Clark, executive director of the Northeastern University Center for Family Business.
There seems to be no shortage of myths about family business, but they all seem to start with one. This myth has been written and repeated so many times for so many years – by leading experts in the field, no less – that an alarming number of people accept it as fact. That myth is: Family businesses comprise 80% to 90% of all business enterprises in North America.
This is a widely pervasive myth about family business and every time I read this “statistic,” I roll my eyes. It’s just silly. Eighty to 90% of all businesses in the United States are family businesses? Eighty to 90%? It can’t be taken seriously. And yet it is.
Don’t get me wrong, I love family businesses. I love everything about them; the good and the bad. And in my opinion, there is far more good. By acknowledging that the 80% to 90% figure is a myth – and a gross overstatement of the quantity of family businesses – I do not mean to imply that family businesses are unimportant or irrelevant. Family businesses are as important now as they have ever been. What they do is important; for their families, their employees, their communities, and the economy. I firmly believe that family businesses are a vital part of the business landscape and when they work well, they are unbeatable.
What I am arguing, is that a more realistic view of family businesses – and discussing them as they truly are – will be more productive than a conversation based on unrealistic assumptions and myths.
A recent variation of the 80 to 90 percent myth is that there 5.5 million family businesses in the U.S., and that they contribute 57% of the U.S. GDP ($8.3 trillion), employ 63% of the workforce , and are responsible for 78% of all new job creation (FEUSA, 2011).
While 5.5 million family businesses seems a more plausible figure than the 80% to 90% statistic, the question here is, are these new statistics factual, or just more misinformation based on the original 80% to 90% myth?
Let’s think it through. According to statistical data from the Bureau of Labor Statistics, there are roughly 27 million businesses in the U.S. Of those 27 million businesses, 21 million (78%) have zero employees, implying that they are independent, entrepreneurial sole proprietors. Therefore, of all businesses in the U.S., roughly six million businesses (22%) have employees.
Of six million businesses with employees, would it be plausible then, that 5.5 million of them – 91% – are family businesses? Not likely.
So, if there really are 5.5 million family businesses, many of them must be small, and small to the point where they have zero employees. So, how many are small? Let’s assume that at least 50% are small. After all, they do get called “mom-and-pops” for a reason.
Following that logic, we are left with approximately 2.75 million family businesses that are of enough substance to have employees.
Extrapolating further, does it seem plausible then, that 2.75 million family businesses – approximately 10 percent of all businesses in the U.S. – could possibly generate 57% of the country’s GDP, employ 63% of its workforce, and be responsible for 78% of all new job creation? I don’t think so.
So why should we be worried about how widely these myths are perpetuated? It’s important to address the issues of these family business myths because until we understand the true situation of family businesses, we can’t possibly have an accurate understanding of their impact on the economy or the issues they face and how to address them appropriately.
The issue here is not that the 80% to 90% “statistic” overstates the importance of family businesses – their contributions to the economy are vital no matter what the actual percentage.
The problem is that we cannot provide an accurate assessment of who family businesses are, what they actually look like, or what they need to ensure continued success, if the majority of discussions we have about family business is based on flawed assumptions
If we want to accurately understand the role of family businesses and their impact to the economy – and we do – then we need to develop an accurate picture of who they really are and not do them a disservice by evaluating them with grossly inaccurate assumptions.
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