You may have heard the famous saying about family businesses, which Henry Mintzberg quotes on his TWOG (TWeet2blOG): “the first generation makes it, the second generation sustains it, the third generation blows it.” This phenomenon is sometimes referred to as the ‘Buddenbrooks effect’, after Thomas Mann’s novel, which tells the story of the decline of the business of a wealthy German family over four generations. This entrepreneur’s curse is actually quite common and, from Seagram (whose story Mintzberg recounts) to Smoby, there are countless examples of successful companies that have been brought to ruin by incompetent heirs.
Like playing Russian roulette with 5 bullets in the 6 cylinders
As the Canadian academic and author on business and management points out, it is always surprising to see how talented, often insightful, sometimes brilliant entrepreneurs are totally blinded when it comes to choosing their successors. While it is understandable that they are looking to ensure the continuity of their business and the legacy of their estate, they often make the mistake of assuming that their own children will be the best ones to take over. “This is like playing Russian roulette with 5 bullets in the 6 cylinders”, he adds.
According to some studies, entrepreneurship is a family affair, but not a matter of heredity. Entrepreneurs often have another entrepreneur in their family, be it an uncle, father-in-law or cousin, who serves as a role model. It seems to be more difficult to start a business if you come from a family of employees, where nobody has ever taken the entrepreneurial step.
On the other hand, as a study quoted by Mintzberg suggests, entrepreneurs often come from homes where the father is weak, self-effacing or even absent. “Perhaps the son becomes the surrogate father at home, strong and responsible – not bad traits for an entrepreneur.”
There are, of course, the cases of Steve Jobs, who was abandoned at birth, Luciano Benetton, who was orphaned at the age of fourteen, and Jeff Bezos, whose parents divorced when he was three.
Naturally, there are exceptions and you can find examples of entrepreneurs raised in families where fathers were present, such as Bill Gates, Bernard Arnault or Mark Zuckerberg.
However, if the rule of the absent or failing father exists, according to Mintzberg the best question to ask an entrepreneur who wants his son to take over is certainly “Was your father a great businessman?” Often not. “So what makes you think your son is?”
The best solution is certainly to choose a successor from outside one’s own descendants
Indeed, just as successful entrepreneurs are often motivated by a desire to take revenge on life, due to the material or psychological conditions of their childhood, their heirs are by definition born into a much more affluent environment, with a future all mapped out for them, which does not “necessarily bestow the ingenuity and energy necessary to run a vibrant company.”
Moreover, faced with the inability of their children to ensure their succession properly, many entrepreneurs continue to invest in their business far too long after the legal retirement age, which inevitably leads them to enter into conflict with their heirs, to the point of jeopardising the smooth running of the business.
Therefore, to avoid the entrepreneur’s curse, the best solution is certainly to choose a successor from outside one’s own descendants. Like Roman emperors, who found a clever subterfuge: they adopted their heir rather than appointing their biological son…
This review was previously published in French by Xerfi Canal.
This post gives the views of its author, not the position of ESCP Business School.
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