Lessons in Transition: Family Businesses

By Bob Rodgers, SBTDC Asheville

Note: This is the first of a two-part series. In the next article we will outline best practices to address the challenges of family business succession.

A Generational Shift Is Coming

If you’ve worked with family-owned businesses long enough, you’ve seen it: a thriving first-generation company that hits a wall once the kids take over. The sobering truth is about 70 percent of family businesses don’t make it through the second generation, and what’s even more concerning about this is a huge generational shift is about to occur. Nearly 80 percent of family business owners plan to transition ownership within the next decade. Sounds like a recipe for disaster. 

The good news is that as business counselors we can help improve the odds for success. Family businesses that develop succession plans are three times more likely to succeed in the next generation.

Why Second-Generation Transitions Fail

Let’s start by talking about why second-generation family businesses fail. The reasons aren’t usually financial or operational. They’re human.

One of the most common problems I have seen is that founders wait far too long to plan for succession. Experts recommend beginning planning for generational succession ten years before the transition. Many owners genuinely believe they’ll “figure it out later,” and later end up coming at the worst possible moment; after a health crisis, a burnout episode, or a family dispute that’s been brewing for years. Without a clear plan, families fall back on emotion instead of strategy, and that’s when decisions start to unravel.

Another challenge shows up when founders have trouble letting go. Many have poured decades of their lives into the business and understandably feel protective of how things are done. Even when a successor is named, the founder often continues to make every major decision, intentionally or not. The next generation ends up with the title but not the authority. Employees get confused about who’s really in charge, and the supposed successor never gets the chance to grow into the role.

Leadership and Readiness Gaps

There’s also the family dynamics piece, which is usually where the real “fireworks” happen. Sibling rivalries don’t magically disappear just because a business is involved; if anything, they amplify. Maybe one child has always felt overlooked, or another thinks they’re the “natural leader” even when the business disagrees. Old grievances resurface, sometimes going back decades, and the business becomes the battleground for settling them. When multiple siblings are involved without clearly defined roles, it often becomes a power struggle instead of a partnership.

I have also seen a lot of transitions fail because the successor was chosen based on fairness instead of fitness. Many founders want to treat their kids equally, which is admirable but not always good for the business. Fairness might be equal ownership, but that doesn’t mean equal leadership ability. Sometimes the person who wants the CEO title the most is the least capable of handling it. Sometimes the most capable child has no interest in running the business at all. And sometimes the new CEO should not be a family member at all. When the wrong person ends up leading, the results are predictable.

Another overlooked issue is that the next generation is rarely trained well enough. Too often, children enter leadership roles without well-rounded leadership training. Strong transitions happen when successors have real development, such as:

• Rotations through different departments
• Exposure to customers and finances
• Outside work experience
• Formal leadership training
• Mentoring from people who aren’t their parents

Training builds confidence not only for the successor, but for the employees who need to believe in them.

Preparing the Business for the Next Generation

Lastly, the business itself often hasn’t been prepared for a new generation. A first-generation founder can run a company by instinct, but the second generation needs systems, KPIs, documented processes, and modernized operations. When those aren’t in place, the successor spends their first years reinventing the wheel instead of building momentum.

Strengthening the Odds for the Next Generation

As business counselors, we can’t eliminate family dynamics, but we can shine a light on them early. We can help founders understand that good succession isn’t about replacing themselves, it’s about preparing the business to succeed without them. 

We can encourage families to talk openly long before the transition is imminent. Because when these conversations are avoided, the transition doesn’t just fail the family, it fails the business, the employees, and sometimes the whole community that depends on it. By working with family businesses we can triple their chances of passing a healthy business on to the third generation.