Abstract
This chapter examines the influence of firm age on the growth rates of family businesses. Based on a sample of the 500 biggest German family businesses the long-term development of each company is simulated and compound annual growth rates (CAGR) are calculated to compare the performance since the firms’ foundations. This long-term analysis indicates that family businesses can achieve growth rates independent of their age but they have to consider the impact of an aging company on the size and on other internal factors to make growth possible and secure the existence of the company over generations. Even small growth differences over years can change the company’s development tremendously with age.
Keywords
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- 1.
This chapter is based on the bachelor thesis of Maximilian Lantelme at Zeppelin University in 2012.
- 2.
The dynastic project describes the continuing existence of the family business.
- 3.
Short explanation of Gibrat’s law: growth rates are independent of firm size (original source: Gibrat, 1931). Further, see Sutton (1997) for a more comprehensive description of Gibrat’s law, its origins and database as well as its assumptions. Santarelli, Klomp, and Thurik (2006) give an overview of the empirical literature to Gibrat’s law. Some researchers, Sutton as well, also call it the Law of Proportional Effect.
- 4.
For this purpose, the following publication will be used: Stiftung Familienunternehmen (2011)—see the next chapter for more details.
- 5.
For figures that are not shown in the tables or in Chap. 8 please look at this reference.
- 6.
The definition of family business can be found on page 5 et seq. of the quoted study. It is comparable to the definition of this book and therefore the collected data can be used for the empirical analyses.
- 7.
The database includes a total of 2,835,536 companies in Germany for 2010.
- 8.
See Stiftung Familienunternehmen (2011), p. 7 for the scientific validation of the quality of the data and page 28 et seqq. for explanations of the methodology.
- 9.
Especially due to the different business models and therefore the obvious differences in the balance sheet, a comparison does not lead to the objectives of this study. For further information on the special characteristics of a bank’s balance sheet, see Scharpf (2009) for the German regulations. The M. M. Warburg & Co. Gruppe KGaA is an example of the described business. Management holding companies like the Delton AG with its sole shareholder Stefan Quandt are not considered because of the enormous financial resources right from the beginning.
- 10.
For retail and wholesale companies with their specific characteristics, especially regarding their cost structure and trade credit options, see Rudolph (2009).
- 11.
For example, Brose Fahrzeugteile GmbH & Co. KG—foundation of the retail company in 1908 and beginning of industrial production in 1919—and Merck KGaA—acquisition of the pharmacy in 1668 and start of the production and research in 1827—as well as the B. Braun Melsungen AG—beginning of the production of pharmaceutical products in 1864 compared to the opening of the pharmacy in 1839.
- 12.
For the different conditions of the founding of each family business, see the next chapter for a general approach.
- 13.
Important aspects of the entrepreneurial activities in the time after the First World War are the hyperinflation of 1923 with the following recovery of the economy and the political changes of the Weimar Republic [for a detailed explanation of the development see Kolb (2002) and Wehler (2008)—especially volume 4] as well as the Wall Street Crash of 1929 [among others see Klingaman (1990)].
- 14.
The concept of reverse extrapolation—in contrast to extrapolation—describes the development of a future formulated aim or parameter from the final point backwards to the present. The long-term analysis uses this method to examine the development process from the current parameters backwards to the parameters at the time of foundation.
- 15.
Age of the company: subtracting the year of foundation from 2010 plus one. See among others Yasuda (2005).
- 16.
For example, see Evans (1987).
- 17.
See Kieser and Woywode (2006) for their overview on the approaches of the evolutionary theory of organizations.
- 18.
The (qualitative) examination of the individual development of each firm could be part of further research.
- 19.
- 20.
See Sorensen (1998), pp. 200–202 for the reasons of the impossible experiment in the real world and its alternatives.
- 21.
- 22.
Most of the family businesses do not only operate in the German market but due to their German legal form of business they generally have the same framework for entrepreneurial activities. Moreover, several employees of the firms are also working in other countries than Germany but they are included in the data as described in the previous chapter.
- 23.
For example, see the Sto AG expanding their portfolio from cement to thermal insulation composite systems over the last 55 years or the Kirchhoff Group changing their products from needles in the early years after the foundation in 1785 to screwdrivers and waste collection vehicles in the present.
- 24.
The start value of EUR 3 Million was varied in the calculations to prove its influence on the average growth rates over the years. The results are not subject to large fluctuations when using a value of EUR 2 Million or EUR 4 Million.
- 25.
The CAGR equation changes to the following: \( CAGR\left({t}_0+3;2010\right)={\left(\frac{S(2010)}{S\left({t}_0+3\right)}\right)}^{\frac{1}{2010-\left({t}_0+3\right)+1}}-1. \)
- 26.
Therefore, the years of foundation are also based on the beginning of the industrial production if several dates are given. Otherwise, the year of foundation represents the start of the structured and organized company.
- 27.
See Maddison (2007), especially page 383. The calculation of the average rate of 1.6% is based on the five average rates (1.08%, 1.61%, 0.17%, 5.02%, 1.58%). Maddison estimates for Germany over the last 183 years between 1820 and 2003 which he divides into five time sections (1820–1970, 1870–1913, 1913–1950, 1950–1973, 1973–2003). Finally, the arithmetic mean of these five figures is 1.6%.
- 28.
The whole table of the 368 family businesses and the previously excluded companies can be found in Table 8.1.
- 29.
Their size is also comparable to the DAX companies. Again, this shows the strength of the family businesses in Germany as well as in the international context.
- 30.
The period of 10 years has been chosen due to the fact that it should be possible to consider the different generations of the family business. How many years a generation covers is discussed in science, especially in demography and sociology. Most of the studies apply a period of 25–35 years; see among others Howell (2000), as well as Weiss and Wobst (1973). Therefore, the length of one generation is set to 30 years for the calculation purposes of this book. Thus, the first generation includes all foundations after 1980 (2010 minus 30 years) and so on.
- 31.
The single tables of the age groups can be found in Table 8.2.
- 32.
The German military surrender was signed on the 7th/8th May 1945 and officially ended the Second World War in Europe. After this armistice the economic recovery started. This can possibly explain the large number of foundations. The influence of this external factor on the development of companies could be part of further research.
- 33.
The end of the First World War can be fixed on 11th November 1918 with the armistice between the Entente Powers and Germany. See Rudin (1967) for the political and national economic circumstances and development in Germany.
- 34.
A closer analysis of each firm would be necessary to examine the current generation of the family that is responsible for the company, but with the formulated assumption the change of the third to the fourth generation would be after 90 years.
- 35.
The mathematical formulation: CAGR (t 0+3; 2006) > CAGR (t 0+3; 2010).
- 36.
See Table 8.3.
- 37.
See the William Prym GmbH & Co. KG in the 16th generation as an exceptional example.
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Seibold, L.K.C., Lantelme, M., Kormann, H. (2019). Development of the 500 Biggest Family Enterprises Since Foundation. In: German Family Enterprises. Springer, Cham. https://doi.org/10.1007/978-3-030-04101-4_4
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