Family businesses form the backbone of the U.S. economy, and while they face the same threats as other types of companies, some of the bigger issues come from within. One of the bigger problems is business owners who operate under the delusional assumption that they’ll live forever and neglect to create defined succession plans.
The most recent data from family and entrepreneurial business magazine Tharawat shows that family-owned businesses in the United States contribute $7.7 trillion annually to the U.S. GDP, representing a significant portion of the country’s economic output. This translates to roughly 54% of the private sector GDP. Yet, despite their success, many of these businesses have struggled to solve the immortality issue, leading to a hackneyed and contentious succession when needed.
The Denial of Mortality
Many family business owners postpone succession planning, even failing to do so at all. This isn’t simply procrastination—it’s a profound psychological barrier. Contemplating one’s eventual demise requires confronting one’s own mortality, something many find deeply uncomfortable. The business becomes an extension of identity, making the thought of stepping away feel like a partial death even before physical death occurs.
Sometimes it’s about denial. We talked to a family business COO a few years ago who bemoaned that his CEO Dad refused to make a plan for the future even though he was aging and rarely at work anymore. The COO complained that all of the 20 years of work running the company would be for naught if something happened to his Father because there was simply no existing succession plan. He said, “My Dad thinks he’s going to work forever, but when he dies, everything will be passed on to his third and much younger wife, who I have no doubt will dissolve the company upon his passing.”
The Cost of Avoidance
This succession plan avoidance creates cascading problems:
- Leadership vacuums when owners pass away or become incapacitated unexpectedly
- Family conflicts erupting over unclear inheritance structures
- Loss of institutional knowledge without proper transfer procedures
- Tax complications that could have been minimized with advance planning
- Declining business performance during chaotic transitions
- Key employees depart over fear of leadership instability
Why Succession Planning Gets Delayed
Beyond mortality denial, several factors contribute to succession planning delays:
- Difficulty choosing among children – Parents often struggle with the perceived favoritism of selecting one child over others
- Reluctance to relinquish control – After decades of decision-making authority, the prospect of letting go feels threatening
- Fear of conflict – Discussions about succession inevitably raise sensitive issues about competence, fairness, and family dynamics.
- Lack of suitable successors – Sometimes, owners delay because they genuinely don’t see capable leaders within the family.
Breaking the Cycle
Successful family businesses approach succession as a process, not an event. The most effective transitions involve:
- Starting conversations early. As a general rule of thumb, at least five years before the intended retirement
- Developing next-generation leadership gradually through increasing responsibility
- Creating formal governance structures separate from family relationships
- Engaging neutral third parties like advisors or board members to mediate difficult decisions
- Documenting institutional knowledge systematically
The Ultimate Legacy
Perhaps the greatest irony is that owners undermine the legacy they hoped to build by failing to plan for succession. A business collapsing after the founder’s departure isn’t a lasting achievement.
The most meaningful legacy isn’t just creating a successful business but ensuring it thrives across generations. This requires facing mortality squarely and making decisions today that acknowledge tomorrow’s inevitable changes.
For family business owners, the most profound act of leadership may be preparing for a time when they no longer lead.
We’ve Been There and Can Help
Paletz Advisor counsels family businesses about their succession plans. CEO Matt Paletz has been through this. After a lengthy and complicated succession transition with his law firm’s original founder, his Mother. Matt was able to navigate that transition with multiple lessons learned successfully. With the experience gained from working with other transitioning companies, Paletz Advisor has become a go-to resource for those businesses dealing with succession questions and issues.
For advice or questions, contact us at info@paletzadvisor.com.