Understanding The Evolution Of Multigenerational Family Businesses

Family businesses represent the oldest and most enduring business model in the world. In the UK alone, they account for over 85% of all private sector firms, employ more than 14 million people, and contribute significantly to GDP. Yet, while many are established with passion and intent, few survive beyond the founding generation.

The journey from founder-led enterprise to multigenerational family business is complex. It involves not only commercial growth but the preservation of values, the navigation of family dynamics, and the professionalisation of governance. Understanding this journey requires more than anecdote—it requires a structured lens.

Here we explore that path, from entrepreneurial foundation through the stages of development, supported by research, established frameworks, and evidence-based insights.

1. The Founder Stage: Entrepreneurial Drive and Vision

The journey begins with a single individual or a family unit launching a business based on a compelling idea, technical skill, or market opportunity. The Entrepreneurial Life Cycle (Churchill & Lewis, 1983) identifies this as the existence stage, where the business is highly dependent on the founder’s vision, energy, and decision-making.

Founders typically operate in a centralised structure, managing most functions themselves. Decision-making is rapid but often informal, and business systems are minimal. Financial capital is limited, and strategic planning is often short-term and reactive.

At this stage, the founder’s values—such as trust, work ethic, and integrity—become deeply embedded in the organisation’s culture. According to Gersick et al.’s Three-Circle Model (1997), the founder typically occupies all three circles: family, ownership, and business. This overlapping of roles creates flexibility but also the potential for future conflict if boundaries are not clearly defined early on.

2. The Sibling Partnership: Family Involvement and Role Clarity

As the business grows, more family members are brought into the fold, either through natural succession or strategic recruitment. This transition often corresponds to the survival and success stages in Churchill and Lewis’s model, where systems are formalised, leadership becomes more distributed, and operational complexity increases.

The Gersick Developmental Model outlines a key transition from a controlling owner to a sibling partnership, where multiple family members become involved as either managers, shareholders, or both.

Common challenges at this stage include:

• Role confusion: Blurred lines between familial and professional roles.

• Conflict of interest: Balancing family loyalty with business performance.

• Informal governance: Decision-making still may rely on implicit understandings rather than codified agreements.

To address these challenges, many families begin to adopt formal governance tools—family councils, shareholder agreements, and performance-based roles. Academic research by Miller and Le Breton-Miller (2006) suggests that strong governance structures are positively associated with longevity and transgenerational success.

3. Professionalisation and Institutionalisation

By the time a family business reaches the third generation, professionalisation becomes not only desirable but essential. The Business Family Competency Framework (Habbershon & Williams, 1999) suggests that competitive advantage in family businesses arises when they combine family influence with organisational excellence.

Professionalisation may include:

• Hiring non-family executives

• Introducing formal HR and financial systems

• Implementing strategic planning processes

• Creating boards with independent directors

This transition often correlates with the shift from a sibling partnership to a cousin consortium (Gersick et al., 1997), where ownership is distributed across multiple family branches. Without clear governance, shared values, and structured decision-making, this stage is particularly vulnerable to fragmentation.

4. Succession and Stewardship

Succession is frequently cited as the most significant challenge in family enterprises. It is not simply about passing on ownership or leadership but transferring stewardship—a long-term commitment to sustain the enterprise for future generations.

Stewardship Theory (Davis, Schoorman, & Donaldson, 1997) contrasts with traditional Agency Theory by arguing that family leaders are often intrinsically motivated to act in the best interest of the organisation, driven by identity, legacy, and values rather than financial incentives alone.

Effective succession planning involves:

• Early identification and development of potential successors

• Gradual leadership transition to build credibility and capability

• Alignment of generational values with business strategy

• Communication frameworks that promote transparency and inclusion

Families who frame succession as a process, rather than an event, tend to navigate this stage more successfully. The Family Enterprise Succession Model (Handler, 1994) emphasises a joint learning approach where both generations are engaged over time in redefining roles, responsibilities, and vision.

5. Legacy and Continuity

The final stage in the multigenerational journey focuses on preserving the family’s legacy while ensuring business adaptability. This is not a static endpoint, but an ongoing cycle of renewal and strategic reflection.

The concept of transgenerational entrepreneurship (Habbershon, Nordqvist, & Zellweger, 2010) captures the idea that successful family businesses are entrepreneurial not just at inception but across generations. They balance the preservation of core values with the capacity to innovate, evolve, and expand.

Family businesses that thrive in the long term tend to exhibit the following traits:

• A strong sense of shared purpose

• Clear family and business governance structures

• Open intergenerational dialogue

• A culture of innovation and adaptability

Studies by PwC and KPMG have found that multigenerational family businesses are more likely to invest in long-term R&D, adopt sustainable practices, and prioritise employee wellbeing compared to non-family counterparts—hallmarks of stewardship in action.

Building for the Future

The journey from founder to multigenerational family business is demanding and nuanced. It requires more than strategic vision; it demands emotional intelligence, long-term thinking, and a robust infrastructure to support evolving roles, expectations, and market conditions.

Academic models such as Gersick’s Three-Circle Model, Churchill & Lewis’s Business Growth Framework, and Stewardship Theory provide valuable insights into the different stages of development and the challenges family firms must overcome.

Ultimately, the family businesses that endure are those that recognise their dual identity—as both commercial enterprises and custodians of family legacy. They succeed not just by adapting to the present, but by preparing consciously, collaboratively, and strategically for the future.

Sources and Further Reading:

• Gersick, K.E., Davis, J.A., Hampton, M.M., & Lansberg, I. (1997). Generation to Generation: Life Cycles of the Family Business. Harvard Business Review Press.

  
  

• Churchill, N.C., & Lewis, V.L. (1983). The Five Stages of Small Business Growth. Harvard Business Review.

  
  

• Miller, D., & Le Breton-Miller, I. (2006). Family Governance and Firm Performance: Agency, Stewardship, and Capabilities. Family Business Review.

  
  

• Habbershon, T.G., & Williams, M.L. (1999). A Resource-Based Framework for Assessing the Strategic Advantages of Family Firms. Family Business Review.

  
  

• Handler, W.C. (1994). Succession in Family Business: A Review of the Research. Family Business Review.

  
  

• PwC Family Business Survey (latest edition)