- By Sophie Pinkoski

It’s a rare thing for family businesses to survive into the next generation. In fact, Deloitte has found that only 30% of family businesses make it to the second generation, with 12% surviving into the third generation, and only 3% into the fourth. The emotional attachment that comes with family business can be far more intense than an ordinary business company. Families depend on the business’ success both for sustained livelihood and to invest in their children’s futures. Not only this, but family businesses won't necessarily experience the same natural cycle of employees coming and going over the years. These are people they’ve known and cared for all their lives. It’s no surprise that navigating a family business together can be an emotional upheaval that leads to rising tensions. When you work with your family, you create a power structure, which can create competition between family members, vying for influence and control.

With tensions swirling, it’s important to find productive ways to maintain family harmony in and out of the business itself.

This becomes all the more imperative when it comes time for the founder to pass the business on to the next generation. Unlike regular business transition planning, a generational transition involves planning far in advance. Where a CEO transition might take a year or two of preparation, a generational transfer within a family business ought to be discussed at least 7 to 8 years in advance of retirement in order to identify an appropriate successor and provide them the leadership development training required for them to succeed in their new role.

The anticipation of an inevitable succession can create high expectations for everyone. When each individual has their own interests in mind, their relationship with one another can become fraught, especially when hopes are dashed by certain decisions made.

Here are some of the most common sources of tension within a family business and how they can be alleviated:

The founder is unable to move on––With life expectancies getting longer and longer, retirement age continues to shift. It is no longer the expectation that leaders retire around 60 to 65 years old. For this reason, founders are putting off their retirement plans with the expectation that they will have plenty of time to prepare for succession. What they fail to plan for is sudden medical emergencies that can happen at any time.

It is best to plan for business continuity while the business is going well to proactively prepare for any eventuality.

Yet a generational transfer can be difficult for a founder to wrap their head around. They’ve dedicated so much of their time and energy throughout their life on building their business, it becomes an integral part of their identity. The thought of moving on can lead to an identity crisis, where they no longer have the same sense of purpose when they shift into a less prominent role or retire completely. Preparing for retirement as early as possible is therefore essential. Having serious conversations about when they expect to retire and what they intend to do with their time helps ease them into the notion of moving on. After all, retirement isn’t, in fact, an ending, but a new beginning.

Just because you’re discussing retirement plans, doesn’t mean it has to happen right away.

Don’t just look back on everything you’ve achieved; consider the potential of what your children and grandchildren could create with the legacy you’ve built for them.

Generations get passed over the longer the senior generation maintains control––The challenge with family business is that the longer the leadership generation puts off succession planning, the more likely multiple generations will be vying for "power" at once. The founder’s children can become frustrated, having to wait to take on the mantle while their own children come of age with an eagerness to gain professional experience. The younger generation will often be seen as full of fresh new ideas toward exacting change and adapting into the future, leaving their parents’ generation overlooked. In generational hangovers like this, if the middle generation is made to wait 30 years or more for their chance to take over the business, they will find opportunities elsewhere while they’re still in their prime. Similarly, if the senior generation has no intention of teaching the next generations the ropes, they will also disengage and seek experience elsewhere.

Don’t automatically assume either generation lacks the skills to lead the business.

It’s up to the generation leading the organization to build those leadership capacities and cultivate their family’s interest in the business by integrating it into their daily lives. Involve them through mentorship, internships, shadowing, and summer jobs to familiarize them with the inner workings of the business.

Resentment forms when one person is selected over another––Not everyone is meant for an executive role. That’s the unfortunate reality when it comes to any business including a family business. That doesn’t make other roles any less valuable.

Every individual will have different skills and interests that benefit the business in unique ways.

Define each person’s roles and responsibilities according to their particular strengths. In extension, clarify the criteria for leadership selection so that everyone understands why one person is chosen to lead over others. There should be no surprises when it comes to leadership succession planning. Regular family meetings can mitigate this, as will employing an external facilitator. A facilitator can help keep an objective perspective on the best interests of the business, especially when emotions are high and certain expectations aren’t met. An outsider’s perspective can temper these strong emotions and aid in productive resolution.

Generational transition lacks proper preparation––If you fail to plan, you plan to fail. Despite this, only 40% of family businesses have a transition plan in place. In any business continuity plan, it’s important to engage the next generations to gauge who is the most interested and best suited to taking over the family business.

After all, successors aren’t born, they’re made.

It takes work to build up any individual’s skills and competencies to prepare them for leadership success. Educate the next generations so they understand what goes into leading the business. When you have regular conversations about the business and its options for the future, you can identify both the most appropriate candidate and the best options for moving the business forward. Transparent communication about business continuity plans means everyone is clear on their roles and what is expected. Most of all, it avoids any misunderstandings about where the business is headed.

Successfully transitioning a family business requires more than just passing on leadership—it demands careful planning, open communication, and a shared commitment to the future. With careful preparation, families can ensure that their business not only survives but thrives into the generations to come.

Further Reading

Transitioning Your Family Business to the Next Generation, Forbes

Transferring Power in The Family Business, Harvard Business Review

Steer Your Family Businesses Through an Unplanned Transition, Harvard Business Review

The Complexities of Family Dynamics in Transition Planning, ATB

Family Business Succession: 4 Tips for Smoother Sailing, Industry Week

Succession: Navigating the transition of a family business to the next generation, MNP

Family Business Transitions: Rising to the Challenge, Northern Trust