Why Family Businesses Fail: Where the 70% Figure Comes From

Why Family Businesses Fail: Where the 70% Figure Comes From

Why do family businesses fail? You have probably heard that about 70% do not make it to the second generation. By the account of Wayne Rivers, a family business adviser, that figure traces to one 1987 study of Illinois manufacturers, and it counts a sale as a failure. If you own a franchise and are weighing a sale against passing it on, that changes what the number says about you. This article shows where it came from, what it does not tell you, and the extra step a franchise adds.

Where does the "70% of family businesses fail" figure come from?

From one small study, according to Rivers. In a post titled "What's the True Family Business Survival Rate?" on the Performance Construction Advisors blog, he says the figure "actually comes from Dr. John Ward, and it was based on a group of manufacturing companies, a small group of manufacturing companies in the state of Illinois from 1987."

That gives two limits before you reach the definition. The sample was one industry in one state, and a study of Illinois manufacturers from 1987 may say little about a home services franchise, a fitness studio or a professional-services business today. The second is age. Rivers says the number has been "extrapolated across the world for all these years", through four decades of changes in financing, tax rules and franchise structures.

We are relying on Rivers's account of the study. We did not read the 1987 research itself.

Does the statistic count a sale as a failure?

Yes, by Rivers's account, and this is the limit that matters most for an owner thinking about selling. He sold The Family Business Institute in 2017 and says, "I don't own the company anymore, but we survived." Under the statistic's method, he says, that sale "would count as a failure because it's not technically a family or closely held business anymore."

A measure built that way records a sale that worked out well for everyone in the same column as a business that closed its doors. It cannot tell the two apart, so it cannot tell you whether selling is a bad outcome.

Is selling the family franchise a failure?

No. A sale can be the right outcome, and this statistic gives no evidence that it is not. That is our view, not a finding from any study.

A well-timed, well-run sale can serve the family and the business better than a transition pushed onto a successor who is not ready, not interested, or stepping in out of obligation. A forced transition rarely serves anyone well, and a sale done properly is a legitimate answer, not a consolation prize.

What do owners say they plan to do with the business?

Most owners with employees plan to sell or give the business away, and a large share of all owners have no plan or are unsure. Gallup's Pathways to Wealth Survey (Year 2), fielded September 20 to October 28, 2024 and published March 24, 2025, reports that "among employers, 74% plan to either sell/take public or give away their business," while "for nonemployer-businesses, just 35% foresee taking one of these actions." Gallup also reports that "a third of all business owners say they have no plan or are unsure about their future," and that uncertainty is more common among owners with no employees than among employers (40% against 16%).

Two qualifiers travel with those figures. The succession analysis covered 1,264 respondents, and they are small-business owners in general, not franchisees. Gallup measures what owners intend, not how their businesses turn out, so it says nothing about success or failure after a sale.

What it does show is that a sale or a handover is an ordinary plan, and that a sizeable group has not made one. In our view the practical risk is leaving the decision until circumstances make it for you.

Does a family member still need the franchisor's approval?

Plan on it. A transfer to a family member is still a transfer of the franchise, and your franchise agreement, not your family, sets the process.

Your Franchise Disclosure Document (FDD) has to say how the agreement handles this. Item 17 has a row defining a transfer by the franchisee, a row for whether the franchisor must approve it, and a row for the conditions (rows (k), (l) and (m), 16 CFR 436.5(q), read on Cornell Law School's Legal Information Institute, 2026-10-26). We found no source that exempts family transfers from approval, so read your agreement's own definition of transfer. Our article on franchisor approval covers what a franchisor checks.

If you own several units, the answer can differ unit by unit: one may go to a family member and another be sold. Ask your franchisor whether the units are reviewed together or one at a time.

How do I decide between passing the franchise on and selling it?

Start with three things you control: an honest conversation with the person who might take over, a written question to your franchisor about what it requires of a successor, and a clear idea of what the franchise is worth.

Maybe there is a successor who is ready and wants it, and nothing here argues against that. Maybe there is not. If you are also weighing leaving the system altogether, our article on getting out of a franchise agreement sets out the options. A family transfer can carry tax and legal consequences that depend on how it is structured, so bring your franchise attorney and your CPA in before you commit to a plan.

A free Opinion of Value gives you the worth side of that comparison and commits you to nothing. It is a personal valuation page with a custom video walkthrough recorded by a senior advisor, free and with no card on file. Request your free Opinion of Value when you want to know what a sale would look like next to a handover. If you decide to sell, our sell a franchise page shows how we work with owners.

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