For many American family-run businesses, it’s a common belief to assume that one day, the kids will take care of upholding the legacy. Yet, as modern customs begin to influence otherwise, that traditional view is no longer maintainable.
In an instance like the famous Follett story, when the bloodline is expected to take over, the family business can risk a number of dangerous consequences. After leaving a billion-dollar brand behind, the Follett family sold their name to a group of private investors—a decision that perfectly exemplifies a familiar trend amongst everyday family empires in America.
While 90% of businesses in the United States are family owned or controlled, says Nav, parents have always been quick to nominate their children as the next natural successor when it comes time to step away. It’s a normal philosophy under the “American dream,” where following the bloodline will, without question, result in utmost success.
As one expert argues, however, resorting to tradition might be the business’ greatest downfall.
“Keeping a business in the family doesn’t guarantee the founder’s legacy, it can actually put it at risk. Follett is an excellent example, which supplied nearly half of America’s college course materials; after more than a century of family leadership, it ultimately sold to private investors to secure its future,” Ankit Shrivastava said, Founder & Managing Partner of Enventure, a U.S.–India private equity firm supporting founder-led businesses with generational planning.
When entrepreneurs only look within the family, businesses are left on the line, where loss of revenue is at its highest, and stalled growth causes major devastation.
“Research shows that unprepared heirs often drive companies to the brink of failure, with 33% of family businesses admitting they employ someone purely because of their last name. Inheriting a name does not equal inheriting the capability to lead, and the cost of getting it wrong can be devastating, both financially and culturally,” Ankit added.
As the job market expands rapidly, more opportunities are allowing the next generation to forge their own path. Real-time data proves that young adults are drawn to sectors in technology, healthcare, and data analytics, where specifically 73% of them desire permanent flexible work alternatives. Pursuing a career in entrepreneurship requires hands-on involvement at all times—a responsibility that is becoming unfavored in the workforce today.
While it is apparent that family succession is an age-old tale, what American entrepreneurs need now is a strategic plan that encompasses all parts of the business instead. By implementing a smart succession strategy, family-run entities will start to see the advantages firsthand.
Here is what a progressive succession plan might look like:
- Identification and assessment: This means being able to recognize the players who make up the entire work ecosystem. By identifying their skillsets and assessing their talents, this can help determine who might be a good fit for the next potential successor.
- Development: It’s important to always provide high-quality training, mentorship, and experience. By doing so, you’re teaching valuable skills that will support whomever is chosen as the leader next.
- Timeline: Always ensure you are defining a clear timeline for when you aim to depart and transition ownership. While it typically takes around 3-5 years for a succession plan to officially roll out, plan ahead so that you don’t run into sudden needs later on.
- Consult others: Your succession plan does not have to be created alone. As you start your strategy, lean on colleagues, experts, and other leaders to identify what might be the best option for your long-term vision.
Just like Follet demonstrates, sometimes keeping the business “in the line” is more degrading than it is fulfilling. While family founders once believed the kids were the best candidate to take the torch, reality has a different narrative in mind.
So the next time you sit down with your kid, try giving them the autonomy to speak up. Chances are they are ready to tackle their own future separate from your dream.
