Nature or nurture? As family businesses account for a bigger share of the world economy, and as millennials increasingly shun the corporate world for startups, the question has become more urgent.
The answer? Both.
Some entrepreneurs venture out on their own without family backing, and many family businesses fall prey to the third generation jinx.
But the most successful entrepreneurs are born into business families, but at the same time, they have also forged their own paths.
HSBC Private Bank’s Essence of Enterprise report 2016 surveyed 2,834 shareholders in private enterprises across several countries. Respondents have run or continue to run businesses having an average turnover of $6.5 million and average wealth of $4.6 million.
Entrepreneurs vary in style across regions, but “regardless of the country or culture of an entrepreneur, the one constant that cannot be ignored … is the role of family,” says HSBC. “Not only is family the main motivation for some to strive and succeed, it is also a source of direct inspiration for many others.”
In Asia and the Middle East, 56 percent of those surveyed come from family businesses, with one in three becoming successors, compared to just one in seven in the United States and Western Europe.
“In China, the figure rises to 39 percent … compared to just 8 percent in France.”
Entrepreneurs with a family business background are typically $1-million richer than peers without such, with businesses almost three times as large.
But to succeed, these successors do not rest on their elders’ efforts.
While founders usually start a business due to the autonomy that entrepreneurship bestows, successors often continue the enterprise with the added motivation of making a positive impact on society.
Founders understandably have emotional ties to the businesses they have created and often do not have defined exit plans. Those who do prioritize values, above all else, so one in five have prepared or will train family members to be successors.
More than half of next generation entrepreneurs use family assets and experience to start ventures, thus giving them an edge over peers with no family business backgrounds.
Several of the former remain in the family business, but they focus on growth, resulting in larger revenues and “70 [more] employees” on average.
Less nostalgic than founders, 44 percent of successors have an exit plan. They focus on maximizing value so they capitalize on more diverse funding sources, including bank loans, private investment, crowd funding.
In the Middle East, next generation entrepreneurs value financial stability and market influence, while those in the United States and Western Europe value independence, with intergenerational transfers less common.
In Asia, “within the confines of an established family business, the next generation … are often making their mark through business strategy: proving their ideas, consolidating their market position, diversifying business lines and expanding into international markets.”
Success
For those with no family business heritage, success is still within reach.
“The advantage gained by those with a business-owning family is principally experiential rather than financial,” says HSBC. Half the current wealth of those with a business heritage are due to their own efforts (not the family enterprise), a figure “on par with … peers” (without a family business background).
“The success of next generation entrepreneurs is down to more than just their heritage … It is their desire to challenge the status quo that sets them apart.”