At Results, we’ve spent more than 30 years helping family enterprises navigate these turning points. We’ve also heard the familiar saying: “Most family businesses don’t make it past the third generation.” The truth, however, is more nuanced than that.
In this article, we share practical steps to help your own business thrive for generations to come. These lessons apply not just to family enterprises, but to any organization navigating leadership transitions and long-term growth.
The Third-Generation Myth in Family Business
The idea that most family businesses fail by the third generation has been repeated for decades. While many families do struggle to maintain growth over time, others continue to prosper long after the founder’s era. The difference often comes down to preparation, communication, and adaptability.
At Results, we’ve seen that longevity stems from clarity of leadership, values, and decision-making. By the time a company reaches its third generation, ownership has often expanded, the family has grown more diverse, and personal priorities can begin to diverge. That complexity makes it harder to stay aligned on what matters most.
Without a shared vision and defined governance, even a strong company can lose direction. Families sometimes discover that what once worked under a single founder doesn’t translate to a larger, multigenerational structure. This transition is a normal phase in the evolution of a family enterprise. Recognizing the need for structure early helps prevent conflict and confusion later.
Common Reasons Family Businesses Struggle by the Third Generation
Passing a business to the next generation is one of the most difficult transitions any organization can face. Ownership expands, expectations change, and informal systems that once worked smoothly start to break down.
Here are some of the most common challenges we see:
- Unclear succession planning: Leadership transitions can become rushed when there’s no clear process. The next generation may lack the experience or confidence needed to lead effectively, creating uncertainty for employees and customers alike.
- Governance breakdowns: As more family members get involved, decision-making becomes less centralized. Without formal governance, like a family charter, board, or shared decision-making process, disagreements can grow into roadblocks.
- Cultural drift: Every generation interprets the business differently. The founder’s purpose, whether rooted in service, innovation, or independence, can fade over time. Restoring that shared sense of purpose helps reconnect the business to its identity.
- Market stagnation: Companies that rely solely on legacy success often struggle to evolve with customer needs or industry changes. Innovation becomes essential to long-term relevance.
- Emotional barriers: Many families avoid hard conversations about leadership, ownership, or performance. Protecting harmony feels easier in the short term, but avoidance often leads to resentment and unclear expectations.
These issues are natural growing pains that come with scale and time. The key is to approach them proactively rather than reactively.
How Results Supports Successful Family Business Transitions
The challenges facing third-generation businesses are complex, but they can be addressed with structure, foresight, and the right support. At Results, we partner with family enterprises to strengthen the four pillars that sustain growth across generations:
1. Vision
A clear vision unites the family and the business around a shared future. We help organizations define where they’re headed financially, strategically, and personally so every generation can see its role in that future. This alignment brings focus and direction to both day-to-day operations and long-term planning.
2. Culture
Culture is the heartbeat of any business. It carries the founder’s values, work ethic, and relationships that built trust over decades. As generations change, we help families identify and preserve those cultural strengths while creating space for new ideas and leadership styles. A strong culture provides stability during transitions and builds confidence throughout the organization.
3. Strategy
A well-defined strategy ensures the business can grow without losing its foundation. We work with families to clarify goals, roles, and responsibilities so that everyone moves in the same direction. Through strategy sessions and facilitation, we help uncover misalignments that may be slowing growth and replace them with clear, actionable plans.
4. Succession Planning
Succession planning is an ongoing process. We guide families in preparing future leaders early, establishing governance structures, and defining expectations long before a transition occurs. Whether that involves leadership development, mentorship, or involving trusted non-family executives, our goal is to create smooth handoffs that protect both relationships and results.
When these four pillars work together, families gain confidence in their path forward. Leadership transitions become moments of renewal rather than uncertainty. The business evolves while staying grounded in its purpose and values.
We’ve seen this transformation play out many times: family businesses that once felt divided or directionless rediscover their momentum once the right systems and conversations are in place. The process strengthens not only the company but also the family’s relationships with one another.
Unleashing the Potential of Your Organization
The “three-generation rule” may be a well-known saying, but it doesn’t have to determine the future of your business. While many third generation family businesses face challenges, those that prioritize vision, culture, strategy, and planning continue to grow and adapt long after the founder steps down.
With the right structure, families can protect what makes their business unique while empowering new generations to lead with clarity and confidence. For families ready to plan their next chapter, Results provides the tools, guidance, and perspective to turn transition into a lasting legacy.
Looking for more guidance to ensure your company's long-term success? Connect with us or consider attending one of our upcoming leadership events.