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Family business
How to build a successful multigenerational family enterprise
Survival is one thing, but prospering is another. Here are five principles that help the most successful family businesses thrive, generation after generation.
Rapid read:
- Think beyond the business. The most successful multigenerational families view themselves as an entrepreneurial ecosystem, not a single company. They actively manage a portfolio of business, financial, philanthropic, and heritage assets while engaging future generations around a shared legacy and purpose.
- Protect socioemotional wealth as fiercely as financial capital. Enduring families make decisions that preserve values, identity, family unity, and long-term stewardship, even when doing so means forgoing attractive growth opportunities or external investment.
- Build for continuity through meritocracy, innovation, and governance. Prosperity across generations depends on rewarding capability over entitlement, balancing tradition with reinvention, and establishing robust governance structures that support communication, succession, conflict resolution, and long-term family cohesion.
Not every family enterprise becomes multigenerational, but those that do are often considered survivors. They are profoundly resilient, forward-looking, and able to fortify themselves against not one, but often several, unprecedented and catastrophic events, from fire, floods, and natural disasters to social uprisings and world wars. To survive, they are also forced to navigate centrifugal forces such as geometric family expansion, mortality, and succession, which all stand to jeopardize the survival of the family enterprise.
But creating prosperity means more than simply surviving. It requires energy, entrepreneurship, and devotion – qualities that go beyond preserving financial capital and instead focus on sustaining the socioemotional wealth of the family – their values, legacy, and purpose.
In this article, leaning on insights from The Family Business Book we offer the five lessons we can learn from truly successful, multigenerational families.
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1 – Don’t think of yourself as a business
Enterprising families need a new perspective. Rather than seeing themselves as a standalone family business, they need to step back and look at the entrepreneurial family galaxy where their business (or businesses) are planets that exist within a broader ecosystem. This ecosystem consists of various different structures and entities that entrepreneurial families create to take care of their assets: from family offices to take care of financial assets to foundations to take care of philanthropy.
Family museums, which take care of historical, heritage, and passion assets, are one of several new and interactive ways that successful families are engaging the next generation, allowing them to tangibly interact with memories and philosophies that guide family decision-making. It is this shift in mentality that creates the foundation of a robust, resilient, and future-looking organization – one that basks in creativity and innovation.
To sustain generations, families must preserve their financial assets.
2 – Allow socioemotional wealth to guide your decisions
To sustain generations, families must preserve their financial assets. However, to survive as a family, they must also carefully preserve their socioemotional wealth – a layer of non-economic utilities that sit above assets under management, including family values, culture, and purpose.
Truly multigenerational families allow socioemotional wealth to guide their decision-making philosophy, rather than acting to generate financial capital alone. In practice, this means creating jobs in the family ecosystem for the next generation of family members, building mechanisms that preserve family harmony, and maintaining control of the business (oftentimes at the expense of growth) as well as a strong identity link between the family and the business.
One of the most common themes found among high-performing family firms is that they do not make decisions that risk the socioemotional wealth of the family. Whether related to succession or an internationalization decision, this layer of wealth must be preserved above all else.
To offer some examples, we present two case studies of families who did just this and thrived.
- We worked with a family owning a medium-sized manufacturing business in Italy that operated in an extremely saturated market. They were presented with a unique opportunity to expand and internationalize in Latin America, which, from a financial and market viewpoint, made a lot of sense. After several serious discussions, the matriarch declined the offer. She simply did not like the idea of her children traveling back and forth between Europe and Latin America and prioritized the family’s emotional closeness and, ultimately, their socioemotional wealth over financial gain.
- Similarly, we worked with a medium-sized coffee maker, also in Italy, which was 100% owned by the family. A Chinese firm offered to sell the coffee in huge volumes on a third-party e-commerce platform in Asia in exchange for 2% of the shares. The decision tree was this: grow exponentially and expand, but at the cost of having outside ownership for the first time. While 2% would not offer any controlling stake, it would mean inviting an external person to sit around their owners’ table every time they made a decision. They declined the offer in the interest of preserving their socioemotional wealth.
Driving generational success
Family business programs
For generations, IMD has been guiding family enterprises to success, equipping leaders with the skills and strategies to navigate these complexities with confidence.
Explore programs3 – Prioritize meritocracy over nepotism
Family enterprises have a distinct set of idiosyncrasies compared to their non-family counterparts. One of the most obvious is that they comprise a range of family members, both those who are competent and energized to learn and those who are not. This is a delicate balance.
On the one hand, family leaders need aligned, engaged, and educated members in the family periphery who not only serve as potential successors but also contribute to decision-making and, at the very least, raise the next generation of family members with the knowledge and values that have been imparted to them. This requires carefully curated governance mechanisms such as family councils and events such as retreats and family days to encourage family togetherness.
On the other hand, not every family member should play an active or decision-making role in the family, and this is where families must build a values-based and merit-centered environment, where merit, competency, and alignment are at the heart of every internal hiring decision made.
To continue to promote this system, excellence and loyalty should be rewarded and incentivized through long-term incentive plans such as co-investing opportunities as well as public displays of appreciation in the wider family ecosystem.
Innovation is widely recognized as a critical strategic driver for ensuring a firm’s survival and long-term success.
4 – Innovation must run as deep as tradition
A critical component of socioemotional wealth is understanding, respecting, and honoring family traditions, but tradition and innovation are not mutually exclusive. Innovation is widely recognized as a critical strategic driver for ensuring a firm’s survival and long-term success. Without it, firms – family or otherwise – face stagnation and decline; too much, however, can cause a loss of identity, which is crucial for legacy building and wealth preservation in family businesses. Innovation must run in a family’s DNA, and our research into successful multigenerational families demonstrates that there is a paradox between tradition and innovation that is vital to maintaining an innovative culture and breaking the tension between the two realms. Rather than seeing the past and future as opposing or colliding forces, families must leverage their past to pave the way for their future.
5 – Governance means more to multigenerational families than an AGM
Governance does not simply refer to board meetings, family control mechanisms, and constitutions. It is about understanding and managing the complexity of the family and business systems and how frequently they can overlap for the wrong reasons. This is a very emotional environment filled with positive feelings of love, directed towards those we share blood ties with. However, there are also negative emotions such as jealousy and hate – especially in the context of succession or entrepreneurship.
Successful multigenerational families do not pretend that these feelings do not exist. Instead, they create mechanisms that support open communication. These mechanisms include family councils, family assemblies, family meetings, succession planning processes, family employment policies, conflict resolution procedures, codes of conduct, shared family values, and protocols that define the interface between family governance and business governance, including interactions between the family council and the board of directors.
These mechanisms help families manage the emotional complexity inherent in family businesses, particularly during periods of succession and entrepreneurial transition, while preserving both family cohesion and business continuity.
Family members must learn how to interact and communicate with one another, which can only be achieved through an effective design of family governance. Moreover, it is critical to design the interface between the governance of the family and the governance of the business.
Survival does not equate to prosperity
A family enterprise can survive for generations and still become irrelevant, divided, or devoid of purpose. Longevity, on its own, is not an achievement. The real challenge is to build a family that can reinvent itself without losing the identity that holds it together.
When families stop treating the business as the family’s only asset, instead thinking of their family galaxy and protecting socioemotional wealth as deliberately as financial capital, they begin to reason differently, with a broader decision-making playground. Ultimately, they must make change part of their legacy, and the most successful multigenerational families do this while being guided by love.
Families must also prioritize meritocracy, allow innovation to challenge tradition rather than threaten it, and treat governance as the infrastructure that allows a family to navigate its most difficult conversations. Just as important, families must be willing to recognize when they need help and to welcome the support of the right advisors early on – before tensions harden into conflict – so that open communication is preserved and relationships are given the time and space to develop across generations, safeguarding the family and its businesses alike.
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