Surprising reasons owners exit family businesses

Surprising reasons owners exit family businesses

Executive Summary:

Only about a third of family businesses make it to a second generation beyond the founder.  Conventional wisdom says that these firms falter because the owners didn’t have a succession plan, or the new generation was not equipped to assume leadership. However, sometimes the owners themselves decide to pull the plug, and in our research we found that family business conflict can be a major factor behind the exit.

The owner’s impact on a family firm is irrefutable.  Owner-managers can establish and sustain entrepreneurial values (Sorenson, 2015); have an impact on both devotion and performance in their firms (Kidwell & Kloepfer, 2018); and help the firm manage conflict (Sorenson, 1999). If they leave before the next leaders are ready to take over, the firm can go down with them.

We sought to take a deeper look at the factors that influence owner-managers’ job satisfaction and intentions to stay with the business. We studied 155 owner/managers of family firms that were in business between 1997 and 2002. Through telephone interviews and written surveys, we looked at how seven variables influenced two outcomes: owner satisfaction, and owner intention to stay or leave the firm.

Three of the seven variables focused on the owners themselves: age, past experience with other businesses, and whether the owner was a founder or non-founder. The other four variables looked at firm characteristics: whether it had a succession plan in place; the degree of conflict; profitability and size. We considered the impact of each of these seven factors on the owner’s “satisfaction” and “intention to leave or stay” separately.

The upshot: profitable and larger firms make owners more likely to stay; conflict can drive them away.

Our findings

  • In the job satisfaction category, an owner’s age and prior experience had no impact. However, being the founder or co-founder did make an owner more satisfied.
  • Profitable firms made an owner more satisfied; conflict made owners less satisfied.
  • Firm size and succession planning had no impact on owner satisfaction.
  • In the “intentions to exit” category, age was the only owner characteristic that had an impact. Prior experience and being a founder or co-founder did not have an impact.
  • Firm characteristics had a bigger impact on whether an owner intended to stay or leave. Bigger and more profitable firms made owners more likely to stay, and conflict made them more likely to leave.  Succession planning had no impact on whether they stayed or left.

The Takeaway

The major implications for owners from this study are that a firm's characteristics have a bigger impact than the owners’ characteristics on whether a family firm makes it to the next generation. And while much research has focused on succession planning to ensure a successful handoff to a new generation, our research suggests that other strategies ought to be considered. 

For example, we found that low profitability and high conflict made owners less satisfied and more likely to leave. This means that owners, researchers and consultants should focus on helping family firms become more profitable, ensuring that owners stay happy and that they don’t leave before the new leadership is ready. They might also focus on helping the firm grow, which has been found to increase the owner’s willingness to stay, and on promoting management practices such as collaboration to reduce conflict (Sorenson, 1999).

Finally, owner-managers focusing time on living a healthy lifestyle might also help curb some of the effects of aging and facilitate a smoother transition.

Additional Search Terms: Family Business Satisfaction, Intentions to Exit, Succession Planning

Read Full Article

James Hoffman
James Hoffman
Professor / Marketing Mangement, and Supply Chain / University of Texas at El Paso
View Profile
Ritch Sorenson
Ritch Sorenson
Opus Chair in Family Business / School of Entrepreneurship / University of St. Thomas
View Profile
Keith Brigham
Keith Brigham
Director and Professor / Division of Entrepreneurship and Economic Development / University of Oklahoma
View Profile

Cite this Article
DOI: 10.32617/423-5e1f1e28f22a5
Hoffman, James, undefined, and undefined. "Surprising reasons owners exit family businesses." FamilyBusiness.org. 15 Jan. 2020. Web 4 Mar. 2024 <https://familybusiness.org/content/surprising-reasons-owners-exit-family-businesses>.
Hoffman, James J., Sorenson, R., & Brigham, K. (2020, January 15). Surprising reasons owners exit family businesses. FamilyBusiness.org. Retrieved March 4, 2024, from https://familybusiness.org/content/surprising-reasons-owners-exit-family-businesses