Who Really Causes Family Businesses to Fail?

You’ve probably heard the stats: 

• Only about 30% of family-owned businesses make it to the second generation.
• Roughly 12% last to the third. 

• Just 3% survive into the fourth and beyond. 

Why does the survival rate drop so sharply? 

On the Powered by Instinct podcast, Amy Bruske and Sara B. Stern tackled this question head-on. Both know family business from the inside out—Bruske as coauthor of Business is Business: Reality Checks for Family-Owned Companies, and Stern as a family business consultant specializing in succession. 

When Stern was asked which generation kills the business, her response surprised even her: 

“I paused for a second and I actually surprised myself with my answer,” she said. “My answer was, it’s the first. If the first generation creates a business that is not being run thoughtfully or they’re not really looking at the skills of their team, and if the skill is growing with the size of the company? It’s almost like having a sports team where half the people have injuries and then you, the coach, hand over this injured team for the second quarter that’s already behind. And then when the third coach comes in and you’re 50 points down. How are you ever going to catch up? But we blame it on the third generation.” 

Bruske added: 

“It’s almost just a given that that next generation is going to come in and they don’t have passion for it. Or the business isn’t using their strengths well.” 

Stern agreed. 

“It’s about the next generation truly understanding their skills and abilities and what gives them energy. And that’s what I love so much about Kolbe. It gives you that understanding of what will give you energy versus take your energy. Lots of founders are absolutely in a role that gives them energy and often that does not include firing people or making good processes. It doesn’t include those things that are really hard to do that actually hurt the business if you don’t take care of it. And if you give that business, with all of those issues, to the next generation and say, do it like I did? It just gets further behind.” 

Where Founders Go Wrong 

Most first-generation leaders pour themselves into the business, but they don’t always: 

• Harness their own and employees’ natural strengths. 

• Build processes that scale. 

• Balance family loyalty with fair treatment of nonfamily employees. 

Without that clarity, they hand off a struggling organization and expect the next generation to carry it. 

What Can Change the Pattern 

Family businesses succeed when leaders align roles and responsibilities with natural strengths. That means: 

• Clarity: Know what gives you and others energy—and where you’ll burn out if forced to operate against instinct. 

• Commitment: Place the right people in roles they can commit to fully, not just those handed down by tradition. 

• Collaboration: Create space for family and nonfamily employees to complement each other instead of competing. 

As Bruske put it: 

“Really make sure that the person that’s there is there because they were the right person to run the business. And if there isn’t that person, don’t force it on your family. Taking over a company because of guilt is a huge challenge and that’s not fair to do to anyone that’s coming in future generations. 

I’ve talked to way too many second, third, fourth generation family business owners who, when I ask them, why do you own the business? Their answer is because. And that answer does not get you through the hard days. It maybe didn’t even really get you through the good days.” 

The Bottom Line 

The problem isn’t lazy heirs or disinterested successors. It starts earlier. Family businesses fail when the first generation doesn’t build with strengths in mind. Sustainable success comes when founders and successors do more in a way that feels natural — aligning their roles with how they’re wired to act, and collaborating with others who bring balance.