How to keep a family business alive for generations

Here’s a sobering fact for entrepreneurs passionate about their business creations: Most family-owned businesses lose that creative spark in subsequent generations.

The reason is that the personality traits that spur a founder to create something unique—passion, hunger, obsession and others—disappear over the years. The company either crumbles quickly or lingers on as growth sputters and the family lives off wealth accumulated by previous generations. Often, they end up pouring more and more money into the failing enterprise or treat running the business as a lifestyle choice rather than a way to bring in money.

But it’s not impossible for family businesses to keep the entrepreneurial fire burning. Some companies not only last a long time, but keep growing and evolving.

What’s their secret?

We decided to investigate that question, along with our colleague Sabine Rau from King’s College in London. We studied 21 family-owned wineries in Germany that were ready to make a generational transition. The average winery was founded 11 generations ago in the 18th century, and the oldest started passing the torch 33 generations ago in the 10th.

We interviewed the current generation’s leaders and their children, who were in the process of taking over. About half claimed to have maintained a spirit of entrepreneurship and innovation across generations, being among the first in their industry to take steps such as growing new grape varieties, introducing new products and adopting the latest production technologies.

We called the other half of the wineries “traditional.” They were stable or growing slowly, but they never claimed to be particularly entrepreneurial, and the current generation followed rather than led, only adopting new technology or entering new markets after competitors paved the way.

Our conclusion? Five factors distinguish the very entrepreneurial families from the ones that were following a well-trodden path.

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Photo: Ina Brosch