Family business owners face a dilemma when it comes to passing leadership on to the next generation. According to the Exit Planning Institute, only about 30 percent of family businesses transition successfully to the second generation.

That percentage dwindles to 12 percent for the third generation and 4 percent for the fourth and beyond. With so much at stake, acknowledging the business and family implications of leadership change is crucial.

Today, the stakes are higher than ever, largely thanks to rapid technological advancements. The new generation often sees vast opportunities in harnessing artificial intelligence (AI) to streamline operations, analyze customer data, and gain competitive advantages in a global marketplace.

Yet the older generation — already wary of major shifts — may resist AI adoption, fearing that technology alone cannot replace decades of experience and relational insights. This tension can stall progress and jeopardize the company’s future.

Familiar Family Friction

When a company is primed to evolve, leadership must adapt — or cede control. Otherwise, both family and business can suffer severe damage. A large part of this challenge is emotional: the company is more than a source of income; it’s an integral part of the founder’s identity. Letting go can feel like losing a lifelong purpose.

Yet ignoring the next generation’s desire to integrate new tech — like AI-driven marketing automation, sales forecasting, or operational analytics — can frustrate the very people who have the energy and insights to ensure the business thrives.

Take Kate is the second-in-command at her father’s promotional goods company in Agawam. Kate’s father had often claimed he was ready to step away. She spent months preparing a buyout agreement that reflected his wishes and carefully detailed how she intended to modernize operations, automate inventory management, and augment the empty-cart, follow-up software for their e-commerce platform.

But at the eleventh hour, her father reneged. “He kept saying he wasn’t emotionally ready to give up his baby,” Kate recalls. “After all his talk about wanting to retire, he realized that once the papers were signed, he’d lose control of day-to-day decisions — especially our push to incorporate artificial intelligence into nearly every aspect of the business.”

Many owners will empathize with that feeling. Letting go of something that has defined you for decades is no small task. But if business owners cannot relinquish or share the rein, when necessary, they risk depriving the next generation — and the company — of fresh ideas.

Owners must decide: What’s more critical, holding onto your sense of identity or giving your family and business the best chance to adapt and grow? Holding onto control for too long may mean giving the next generation an obligation, instead of an opportunity.

The Inevitable Exit

Regardless of timing, every owner will eventually exit their business. The question is whether you’ll plan for it and position the company to thrive — or leave matters to chance. For heirs who want to push ahead with AI-driven strategies or new market expansions, having an owner stuck in Stage 1 or 2 of the business lifecycle can feel like a burden rather than a gift.

Understanding these growth stages can help you see when to realign business and family roles.

Stage 1

•  A founder-centric structure where everyone reports directly to the owner.
• The main challenge is survival and establishing the company as a “real business.”
• Decisions are made informally, mainly based on the founder’s personal knowledge or intuition.

Stage 2

Stage 3

• New divisions or product lines operate almost like independent organizations.
• Multiple management layers, including general managers and specialized teams.

To move from one stage to the next, a company must address growth-related strains — ideally during a slower period when everyone can regroup and implement new systems. For instance, if the next generation wants to invest in AI-driven customer relationship management (CRM) platforms, pivot to data analytics for more precise forecasting, or deploy chatbots for service inquiries, the company will need time to budget, train staff, and align workflows with these changes.

Often, it’s the next generation that is primed to advance the company to the next stage. To do so, they must be given control of the project — which may mean they have the opportunity to buy (not be given) equity in the company.

Balancing Two Transitions

Complicating matters is the fact that family and corporate transitions rarely line up perfectly. Perhaps the business is ready to leap into Stage 3, but the family is still grappling with who inherits what — or whether the founder is genuinely prepared to retire. This mismatch can create a precarious bridge to cross.

While older owners may argue, “If it ain’t broke, don’t fix it,” younger family members worry about being left behind by competitors who have embraced new technology.

However, there can be significant advantages when family and corporate transitions happen simultaneously. Consider Bruce, who started a small-motor repair shop in Melrose, decades ago. He gradually expanded, selling both new and used motorcycles and accessories. By the time Bruce was in his 70s, the business had stable sales but little growth. He had always planned to retain control until his passing, then leave the company to his son, Ron — who was already nearing retirement age himself!

Ron saw a market on the cusp of transformation, with the rise of online sales and the potential for new showrooms that could be AI-monitored and stocked based on real-time data. While Bruce was content with the status quo, Ron recognized that younger consumers — accustomed to instant online purchases — wanted more digital resources and automation. After some challenging discussions and a few compromises, Bruce finally stepped aside.

Ron launched two additional showrooms, implemented an AI-driven marketing strategy to target regional customers, and consolidated core operations at the original location. Thanks to AI marketing tools targeting ideal prospective customers, the management team now had the capacity to analyze real-time data and delegate specialized tasks efficiently. Intelligent inventory management reduced warehouse costs and directly increasing profits.

These changes never would have happened had Bruce refused to relinquish his role. The successful business transition only occurred because the family transition happened in tandem with a technological overhaul.

A Proper, Timely Transition

The most important takeaway is that, as an owner, the best thing you can do for your family and your business is to facilitate a smooth handoff. That means acknowledging your emotional attachment but still giving your successors room to implement the innovations — like AI — that will carry the enterprise forward.

If you do, your company gains renewed life and a competitive edge. You also help your family avoid prolonged, painful power struggles that erode relationships and bottom lines. A robust plan ensures that your life’s work remains relevant and your family’s entrepreneurial legacy continues to adapt, thrive and grow.

 

It is never easy to reconcile old and new. Yet successful transitions are possible when the founder’s passion is complemented by the next generation’s fresh ideas — especially around artificial intelligence. Change is inevitable, but the right mindset can lead to a new, more prosperous beginning for your family business.

This article first appeared in the Berkshire Eagle on January 17, 2025.