Why Family Businesses Shut Down and How You Can Keep Yours Going

From 35 in 1950, life expectancy at birth in India has doubled to over 70 in 2025, according to a Macrotrends report. That is cause for celebration.

The survival rate of startups, in comparison, continues to flounder.

A November 2024 post on LinkedIn puts the startup failure rate in India at 90%, with 10% failing in the first year and 70% by the fifth. Only 10% survive.

A Failory.com report of January 2024 posted similar numbers.

Small and family businesses are shuttering

While “start-up” is a term of recent provenance, small and family businesses have been in existence forever. The formalization of the “start-up” phenomenon has enabled us to track and report performance, such as the 90% failure rate. It points to the herculean effort required in establishing a business and running it successfully, which, there is no reason to believe, was any easier during the untracked times.

“Established” and “successful” are reasonably subjective terms. However, a small or family business that managed to do enough to take care of people dependent on it, could be considered established and successful from the perspective of the family dependent on it.

The business and its owners have put in the hard yards, identified their niche, created a market, served customers, developed a supply chain, established a presence, physical or virtual, and made some profit. Hence, each time an established or successful business shutters, it is a collective shame.

Reasons for the shuttering of established family businesses

Success is not an entitlement. It has to be earned. Continually. Repeatedly.

Some of the reasons that force established family businesses to shut down are industry-wide and could impact any type of business. It could be a lack of access to timely funding in one case, and a reluctance to invest in new technology in another. It could be the unwillingness to let go of a gradually declining cash-cow product in one case, or unsustainable pricing offered by a larger competitor in another.

But there are some reasons unique to family businesses that often bring them to an untimely end.

Dependence on the founder

A business that becomes identified with its founder can lose its vitality once the founder passes away or is unable to tend to it. This founder may also be fearful of letting go, hindering the involvement of younger generations of the family.

Family and generational conflicts

Different people, often belonging to different generations, bring different ways of thinking to the table. A business that does not have established processes for decision-making could become immobilized owing to such conflicts. Sibling rivalry is another form of manifestation of conflict.

Successors not interested

With wider sets of opportunities becoming visible with each passing year, and information symmetry thanks to the ubiquitous internet, succeeding generations, once assumed to be the natural inheritors of the business, are having other ideas.

Inability to sell or exit

The business is often of a size that does not interest a larger competitor, or is so closely intertwined with the owner’s personality that a financial exit cannot be considered as an option. This often leaves only the option of shuttering.

Succession planning is a necessity

Many of the unique reasons for the shuttering of family businesses can be traced to the common root of succession planning failures on the part of the business and its owners.

Some of the steps you should take, specific to the interpersonal and family dynamics that are often at play in a family business:

• Involve the target owners/ inheritors at an early stage.
• Professionalize – create an organizational structure, decision-making procedures, SOPs, etc., so that the business can move out of the founder’s shadow.
• Build boundaries – between personal and professional space.
• Communicate openly – discuss plans, let people know early, even if it is bad news.
• Plan for the future – a time to hand over will come.

It is not a secret

That this is happening is widely known.

The advertisement for a workshop that assured participants that they would learn the tricks of starting an established business, or acquiring one, for free, or nearly free, was not lying.

The target is family businesses run by people who are getting old and are either not in a position to continue committing to the rigours of running a business. Shuttering is the most likely outcome for some of these.

Seek professional guidance

Despite being a well-known phenomenon, it continues to happen. However, pathways exist for a different outcome for your business in the form of professional guidance.

Ushankk handholds and guides owners of family businesses as they navigate the choppy waters of transition and succession. As an independent business that is a part of a family of businesses grown over five generations, it is uniquely equipped to guide others on survival and growth.