4 Reasons Family Businesses Fail - and How to Avoid Them

Updated: Oct 27, 2020

Family Business
Avoid the Common Reasons Family Businesses Fail

Family Business

It's a well documented fact that family business face many unique challenges and are therefore susceptible to premature failure.

Like all businesses, a family business faces the external challenges of a competitive marketplace, the unpredictability of the global economy and finding the skilled labour that they need. Just to name a few.

But these external challenges pale in comparison to the lethal effect of the internal business challenges that family businesses face.

Here are 4 reasons that lead to the failure of a family business.

1. Lack of Trust

You wouldn't think that a lack of trust would be a reason for failure in a family business. With many or all of the employees coming from the same family, or extended family, one may think that maintaining trust is a foregone conclusion. But its not.

In fact, a lack of trust among family members, is one of the primary failure points in a family business.


Communication. Communication. Communication.

Create opportunities for family members to participate and contribute to planning and strategy sessions. Keep others informed. When you don't do these things, people start to guess and assume things (that are often incorrect), and trust breaks down.

2. Lack of Shared Purpose

Even within a family unit, a lack of shared vision is common. Generation 1 and Generation 2, often hold different values and purpose for the family business.


One can't assume that everyone in the family business knows what the purpose of the business is. Why the family business exists, who it serves, what standards the business will follow should all be discussed, established and communicated to everyone consistently. Then each family member should have regular opportunities to contribute to the shared purpose of the business.

3. Control over Care

In a family business, the drive to control the family business often pulls the family away from the care of the family business.


Establish clear areas of responsibility for each family member so that everyone knows who is doing what and who is responsible for what. By outlining roles in detail, family members will know what areas of business management apply to them and those that don't.

4. Friendly Hypocrisy

Family members avoid meaningful conversations and avoid conflict rather than work through problems within the family. This practice of 'sweeping things under the rug' to avoid conflict in the hope of protecting a family relationship often has the opposite effect. The avoidance of difficult issues and the continuation of underlying problems serve to erode trust and communication between family members.


Create standardized methods of communicating within the family business. Hire a consultant or facilitator to chair family business meetings so that business hierarchy or family dynamics can be minimized, encouraging more open and honest communication.

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