Why potential successors strike out on their own, and how the family company can benefit.
In a family business, succession is about more than transferring ownership. Ideally, the handover is smooth and conflict-free, keeping the company in the family while preserving the values that have shaped it.
Many members of the next generation appear open to that future, as suggested in a succession-monitoring report published three years ago by the Ifo Institute.
Their openness is reflected in the figures: around 70 % of participants said they would be prepared to take on an executive role in the family business. Others could see themselves contributing in a different capacity, for example on an advisory board or in a family office.
Yet the same study points to a more complicated picture: 44 % said they could imagine starting their own business, while 23 % did not rule out selling an inherited family business.
In other words, despite their openness, many potential successors want to follow their own path. "It is becoming less common for members of entrepreneurial families to join the business right after completing their education," says Heiko Kleve of the Witten Institute for Family Business (WIFU) at the University of Witten/Herdecke. In his experience, more are choosing to start a company or pursue another career before considering a role in the family business.
The reasons vary. "Many people say: I want to build something of my own, where I can bring my ideas to life and create something that really aligns with who I am, " says Nadine Kammerlander, Head of the Family Business Institute at WHU - Otto Beisheim School of Management. Such ventures often have a strong digital or AI focus.
Others want to prove themselves, knowing that if they join the family business right away, they could face scepticism about whether they have earned their position there. "They hear things like: You're only the boss because your parents gave you the company," says Kammerlander. For many, starting a business is a way to show they can succeed as entrepreneurs in their own right, rather than simply because they are someone's son or daughter.
The Center of Excellence for Entrepreneurial Families is a joint initiative between LGT Private Banking and the WHU - Otto Beisheim School of Management. It brings academic research and practical experience together, focusing on issues relating to entrepreneurial families, succession and household finance.
Lifestyle choices can also play a role. Some next generation family members would rather live in a large city than in the rural area where their family business is based. And cities are often fertile ground for start-ups, offering easier access to networks, support programmes and funding.
Family dynamics matter too. If relationships with parents or siblings are strained, potential successors may prefer to build something of their own rather than tie their professional future to those relationships.
Changing priorities can be another factor, particularly among members of Generation Z. Julian Schenkenhofer, assistant professor at WHU, says, "Many young people today have a stronger need to find meaning in what they do and place more value on things like sustainability and flexibility at work," he says. "But there also continues to be a highly ambitious, high-achieving group for whom career and entrepreneurial success are very important."
So how should potential successors tell their parents they want to go their own way?
"The key is to start the conversation early," advises Kammerlander. "The longer a child waits, the more disappointed their parents are likely to be." Expectations can build over many years, only to be dashed later. Delaying the conversation gives parents less time to consider alternatives, such as bringing in external management, she says.
Kammerlander also advises the next generation to acknowledge what the company represents for their family. "Parents have often spent decades devoting their time and energy to the business. Their children shouldn't dismiss that, for example by making condescending remarks about how far behind the business is in terms of digitalisation," she says.
Instead, Kammerlander recommends focusing on the positive reasons for taking a different path. "It's better to say things like: I want to find out whether I can do this on my own; Maybe I can contribute to the family business in a different area; or I want to test myself before deciding whether to take on a role with the family later."
For many parents, finding out their children won't be joining the business - or at least not right away - can be disappointing. "The family and the business have evolved together, often over generations. The prospect of a break in that continuity can put a real strain on family harmony," explains Schenkenhofer.
Risk can be another concern: parents may worry about the risks of launching a start-up compared to joining the family business. But Schenkenhofer's advice is clear: "Let them do their thing. Leave the door open. Don't belittle the start-up or play one path off against the other. Avoid moralising remarks such as, You're breaking with family tradition. Talk openly and often. The key question should be: how can the family stay connected - as a family and through the business - even if its members take different paths?"
Schenkenhofer says parents should not see the launch of a start-up as their child closing the door for good. Even if their venture fails, which many do, the experience gained can be extremely valuable should they later decide to join the family business. "So the path back should remain as open as possible. In the long term, both the next generation and the business can benefit."
More broadly, attitudes towards succession are changing. Parents today tend to be more open to their children taking a detour or changing direction. At the same time, they are also more likely to ask themselves whether their children are suited to taking over; whether they have the skills, commitment and genuine desire to lead the business, says Kleve. "In the past, simply being part of the family was enough. Today, parents are more likely to say: Show us what you're made of first - and then come back and join us."
But greater scrutiny should not turn into pressure. Kleve warns parents that family pressure can backfire. It can push potential successors away even if they might have otherwise considered joining the business. "Anyone who doesn't have the option of saying no can't really say yes either." Potential successors need to make that decision for themselves, says Kleve.
Kammerlander has seen many cases in which a former student's start-up and their family's business eventually intersected. In one such example, a son whose parents own a hotel chain founded his own company to develop and sell software for hotels. In another, a daughter whose parents own several furniture shops set up an e-commerce business selling lamps online. She later integrated the start-up into her parents' company and went on to run the family business.
"There are many ways a start-up and a family business can complement each other," says Kammerlander. Striking out on their own, in other words, does not necessarily mean turning away from the family business - a point that can also help potential successors when discussing their plans with their parents. Parents are then often happy to act as mentors, drawing on their own experience to offer advice and support.
There is another advantage: starting their own company gives potential successors first-hand experience in many of the areas they may later oversee in the family business - from production to marketing. "It's a relatively low-risk way of gaining experience before potentially joining the company," says Kammerlander.
So what happens if the start-up fails? "It becomes a single line on their CV - one that few people are likely to ask about."
