For founders, one of their greatest hopes after years of building a company is to see their children or the next generation take up the baton of leadership and ownership of the company. However, in some real-world cases, the next generation chooses to pursue careers elsewhere or start their own businesses, separate from their parents’ company. Why does this happen? This article examines two issues that often pose challenges in leadership succession within family businesses: a lack of clarity and certainty.
Some Members of the Next Generation Choose to Start New Businesses or Work Outside the Family Business
The desire for the family business to be continued by one’s own descendants is an ideal scenario for many entrepreneurs. However, this transition does not always go smoothly. It is common to find cases where the next generation prefers to pursue opportunities in other industries rather than manage the existing legacy.
There is a gap between the expectations of founders—who are weary from building the business—and the interests of the next generation. Although working outside the family business can provide valuable experience for the company’s long-term sustainability, a child’s decision not to join the family business yet presents a unique challenge for the founder of a family business.
The Importance of Clarity in Business Structure
Based on Fidelitas Advisors’ experience in supporting family businesses in Indonesia over the past two decades or so, one of the factors causing children to be reluctant to continue the family business is a lack of clarity.
Many children are reluctant to join because they lack clarity regarding the role they will play. Without a clear job description and boundaries between family matters and professional responsibilities, the next generation often hesitates to enter the family business.
Ensuring Certainty for the Future
In addition to clarity, the second crucial factor is certainty. The next generation needs certainty regarding their career paths and future rights. Typically, the succession process consists only of a verbal promise that the family business will eventually be owned by the next generation. While this is a positive step, it is not sufficient to provide certainty to the next generation. Without a concrete, written plan, the next generation tends to seek employment and build their careers outside the family business.
Based on our experience advising family businesses, a lack of clarity and certainty are two of the many reasons why children are unwilling to take over the company[1]
David Bingei, Fidelitas Advisors
Attracting the next generation back to the family business requires more than just an emotional appeal. As a founder, it’s important to start building a system that provides clarity on roles and certainty about the future. At the very least, with clarity on their roles and certainty regarding their future, the children will have a solid foundation and good reasons to work in the family business.
