Your sister is your partner. Your two teenage children help you out on weekends and school vacations. A cousin may be your successor to run the company. Your early financing came from your personal savings and credit cards.

This is the world of family businesses, which range from mom-and-pop pizza shops to huge multimillion-dollar corporations such as Wal-Mart and Cargill. In fact, family-owned or family-controlled operations employ 50 percent of American workers and are responsible for half of this country's GDP. Some 40 percent of the Fortune 500 fall under this rubric, as do between 65 and 80 percent of enterprises worldwide.

Taken as a whole, therefore, this is an extraordinarily large and varied group of businesses, united both by the element of family and by the need to deal with a slate of common problems that vary mainly in degree -- intergenerational and intragenerational relationships, for instance, as well as decisions regarding governance, succession, and the distribution of dividends and inheritances.

	Succession is the ultimate test of a family business, they say.

Among those examining these and other family business issues most closely has been HBS senior lecturer John Davis, a scholar and consultant in the field and coauthor with Kelin E. Gersick, Marion McCollom Hampton, and Ivan Lansberg of Generation to Generation: Life Cycles of the Family Business, published last year by the Harvard Business School Press. Based on more than a decade of research and consulting, their book presents a powerful and practical framework that shows how ownership, family, and business change over time as families face the effects of births, deaths, marriages, divorces, parenthood, adult-sibling relationships, and retirements.

For each of the three subsystems -- ownership, family, and business -- there is a separate developmental dimension," write the authors, with each subsystem going through its own sequence of stages. "These developmental progressions influence each other, but they are also independent. Each part changes at its own pace and according to its own sequence."

Taking the reader through each dimension of the model depicted below, the researchers note, for instance, that family businesses most frequently start with a single Controlling Owner who rarely delegates responsibility to others and who is at work most of the time. Among many matters to be given top priority at this stage by a Young Business Family, say the authors, is defining the nature of a "marital partnership" that can support and survive the all-encompassing owner- manager role.

If children become part of the picture, there comes a time ten to fifteen years later when parents begin to think about ways for them to play a more formal role in the business if they wish. Eventually, the family becomes more extended, and parents, siblings, in-laws, and, later, a generation of cousins may find themselves working together and trying to manage an intricate set of relationships as the organization continues to expand and formalize processes that were hit-or-miss during the company's early days as a start-up.

In the midst of all this activity and change, the Controlling Owner may decide that the concept of the "one-person show" doesn't work effectively any longer and that control needs to be shared among the grown children in what the model describes as a Sibling Partnership. This stage can take several forms, the researchers observe, from a straightforward reliance on primogeniture to other arrangements that make one child first among equals or that rotate leadership among all siblings for a set length of time.

But with the odds of failure so high (just a third or so of family companies survive to the next generation under the same family's control) and anxiety about change in leadership so great, only about 20 percent of family businesses in the United States opt for the Sibling Partnership stage. Even fewer grow to such an extent over three or more generations that they are governed by a Cousin Consortium made up of relatives from branches of the same family, some of whom work for the company, while others are simply stockholders. In fact, say the researchers, "in the United States, with its strong emphasis on entrepreneurship, independence, mobility, and focus on the nuclear rather than the extended family, the bulk of family firms that survive past the first generation are more likely to subdivide and recycle to Controlling Owner and Sibling Partnership stages."

Davis and his coauthors also home in on the psychological tension inherent in the Passing-the-Baton (or succession/ continuity) stage of the family development axis, which often finds the older generation in a state of denial about leaving the company and younger family members either impatient to take up the reins or willing to wait their turn until forced to take action by the likes of a catastrophic illness. "Succession is the ultimate test of a family business," they say. "Once the business has been transformed from an individual venture into a family enterprise, its continuity becomes a unifying concern."

Filling a major gap in the literature, the authors also address the challenges presented by the mature family business. According to their findings, "It is in the Maturity stage" -- a period marked by a stable or declining customer base, increased competition, and thinning margins -- "that businesses face an inevitable dilemma: renewal or dissolution. In keeping with a true life-cycle perspective, our model assumes that organizations will die if they attempt to continue indefinitely without a major renewal effort." To keep from going under, the mature family business must encourage, among other things, a new strategic focus, clear signs of commitment from family members in both management and ownership positions, and an emphasis on capital reinvestment in the firm, even at the expense of dividends.

Like other businesses, family firms -- especially those that go beyond the Controlling Owner stage -- should also pay close attention to their governance structures. The book recommends greater utilization of a board of directors that includes a significant number of outsiders who are knowledgeable not only about the business's products or services but about the family and its values. Among those who should not be at the table, it warns, are the company's lawyer, accountant, and other professionals whose positions as paid advisors may create a conflict of interest. Fixed terms for directors are also in order, so that the composition of the board can keep pace with the development of the company. Besides holding shareholders' annual meetings as a venue for electing the directors and broader family meetings as a forum for sharing information about the business, the authors suggest that family members come together periodically in a representative family council to "articulate their values, needs, and expectations vis-a-vis the company and develop policies that safeguard [their] long-term interests."

Family businesses are fraught with change and opportunities, pitfalls and satisfaction. Generation to Generation offers a remarkably broad perspective while serving as a guidebook for reconnoitering the road to success.

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