Summary
Family business owners aspiring to eventually pass on their business to one or more of their children often worry that once a son or daughter starts a business of their own, they are unlikely to take over the family firm. Our recent study suggests that those worries are mostly unfounded. Instead, it reveals that early-career entrepreneurship experience makes children roughly 83 percent more likely to become successors in their parents’ firm later in life. There is a caveat, however, as their venturing activities – especially when successful – may generate attractive career options outside the family’s business that family owners need to match for their entrepreneurial children to (re)join the legacy business.
What we studied, and why it matters
Most succession conversations focus either on whether children are capable of taking over or whether they actually want to. Both questions matter, but they are usually treated separately when considering the implications of a child’s characteristics for succession outcomes. That works fine when a child’s attribute, such as their commitment to the family business, enhances both their attractiveness and willingness as successors. It is problematic though when the same attribute pulls the two sides in opposite directions.
Early-career entrepreneurship provides an interesting case in that regard. Children of business owners are disproportionately likely to start their own ventures before deciding whether to join the family firm. On the one hand, that experience builds what parents value in a successor: ownership and leadership skills, opportunity identification capabilities, and the ability to make decisions under uncertainty. On the other hand, it also exposes offspring to a self-directed career path with its own rewards, financial and otherwise. Thus, the very experience that makes them more attractive candidates to lead the family firm may also make them less willing to do so because they have created alternative attractive options. This creates a dilemma many business families recognize immediately.
In our paper, published in the Journal of Management Studies, we explore this issue: we followed more than 8,000 potential successors with and without entrepreneurial experience in Sweden and examined who ultimately took over their family business.
What we found
The first finding surprised us. Rather than appearing to disqualify children from succession, entrepreneurship experience was often associated with them being the next generation family member who eventually took over the family business. Among the potential successors we studied, those who had founded their own ventures were substantially more likely to become successors than otherwise comparable children without entrepreneurship experience.
This suggests that entrepreneurship develops capabilities families value in future successors. By running a business, next-generation family members learn to make decisions under uncertainty, identify opportunities, manage people and resources, and take responsibility for outcomes. In many ways, they are already practicing the challenges associated with ownership and leadership.
This is only part of the story, however. We found that entrepreneurial offspring were less likely to become successors when their own ventures performed particularly well. As a venture becomes more successful, walking away from a career as an entrepreneur becomes increasingly costly, both financially and personally.
At the same time, the attractiveness of the family business itself mattered. Entrepreneurial offspring who had built their ventures in fast-moving industries were considerably more likely to become successors when the family business was performing strongly. A successful family firm appears better able to convince entrepreneurial offspring that it offers a meaningful platform on which to apply the capabilities they developed elsewhere.
Our findings thus challenge the traditional view that entrepreneurship and succession are competing paths. Entrepreneurship can help prepare next-generation family members for future leadership in the family business while simultaneously exposing them to attractive alternatives outside it. Whether they ultimately see the family firm as their future depends not only on what they learn while away, but also on what opportunities they see when they look back home.
Key Takeaways and Recommendations for Family Business Owners:
1. Treat early-career entrepreneurship as part of succession planning, not a threat to it:
- Do not assume an entrepreneurial child is leaving the family business for good. The opposite can be true – and entrepreneurial children can be better equipped for becoming a successor than children who have pursued early-stage careers in other contexts.
- Keep the family firm visible as an attractive future option where entrepreneurial children can apply the entrepreneurial skills and capabilities they have gained.
- Be aware that the succession question is never only “Is my child ready?”. It is also “Does the family business still represent the most interesting opportunity to them?”
2. Watch new venture performance closely — it is the strongest signal:
- A child running a thriving venture has more to lose by taking over. Recognize this honestly, and ask what the family firm can credibly offer them in return.
- Be open to acknowledge and respect that for “entrepreneurial high-flyers” among your children, succession might not be the most desirable option.
3. Invest in the family firm’s own performance — it is a useful lever:
- A well-performing family business appears particularly effective at attracting entrepreneurial offspring who have built their experience in fast-moving and opportunity-rich environments.
- As such, fostering a family firm’s performance through acting entrepreneurially is not just good for the business itself; it directly affects whether capable and motivated next generation members choose to lead it in the future.
Impact
Family business owners and their offspring need to be aware that family business succession depends both on whether parents regard their children as attractive successors and whether offspring believe taking over is a desirable career opportunity. The practical lesson of our study is therefore simple: The children best prepared to lead a family business are often those with the strongest career alternatives. Stimulating children to gain entrepreneurial experience and build related skills therefore creates both an opportunity and a challenge for family owners. It increases the pool of capable successors, but it also raises the bar that the family business must clear if it wants to attract them back.
