Reinventing the family business for continuity


Organisations go through stages of development as they grow. Like living organisms, scholars have theorised the organisational life-cycle with the notion that organisations are born, grow into maturity and die if no strategy is adopted to keep them alive. Living organisms are motile but companies that are well-managed can survive through multiple generations. Family business (FB) owners and managers should identify the changes that occur in their organisation as it grows or develops; changes that occur in today’s business environment are faster due to technology. An awareness of life cycle theory in the family business can foster continuity.

The Life Cycle Theory could provide a road map for identifying critical organisational transition, as well as pitfalls the organisation should seek to avoid as it grows in size and complexity. A life cycle model could provide a timetable for adding levels of management, formalising organisational procedures and systems, and revising organisational priorities. It could help FB managers to know when to ‘let go’ of cherished past strategies or practices that will hinder future growth.

This article seeks to describe the stages of a family business life cycle using the model by Lester, Panell & Carraher1, and suggest strategies to reinvent the business to the next stage of life. To reinvent is to change the business strategy so much that it appears to be entirely new. It gets to a point where some actions have to be taken in order for the business to grow from stage to stage. Lester, Panell and Carraher’s 5-stage model outlines a chronological order of a business’ life from Existence to Survival, Success, Renewal and Decline.


This is the birth stage of the business. Companies begin as ideas. In its earliest stage, a business is rarely much more than a dream or a project that its creator is testing to see if it can come to life. The variation in the details of these individual enterprises is almost unlimited. Nevertheless, whatever the industry, location, or market, start-up companies generally share two characteristics. First, their owner/managers are at the centre of everything – investing a great deal of time, energy and most of their resources. Organisational structures are minimal and informal; procedures are usually worked out as they are needed, and often modified. Most communication runs to or through the owner. Second, in most cases the company is focused on one product or service. It is hoping to find a niche where it can hang on long enough to get established for the long run.

Most, but not all, family businesses are such that control is in the hands of one owner or less typically, a married couple. Likewise, decision-making is in the hands of just a few people. The parental generation is usually under forty years old and if there are children, they are under eighteen. This stage can cover a long period for the family, from the early adult years of young entrepreneurs or successors through the teen years of their children. This includes many of the traditional family development theories: courtship, marriage, settling down, birth of first child, birth of other children, and the children’s early school years.

The challenges at this stage include the need for survival, creating a workable marriage enterprise, making initial decisions about the relationship between work and family, perhaps working with extended family, raising children and choosing an ownership structure for the next generation. Capitalisation in this stage comes mainly from family and friends which means balancing unitary control with input from key stakeholders. While the Existence stage is the first stage of the business, family business owners need to make growth decisions which consider the characteristics of the survival stage.


After weathering the uncertain years of the start-up period, a company may progress into this second stage, characterised by expansion in a number of areas (such as sales, products and number of employees), and by more formalised organisational structures and processes (such as human resources policies, differentiating marketing and sales processes, and on-site controls). At this stage, the start-up issues may not be completely resolved; the owner-manger may still be trying to raise enough capital to keep the business moving at a sustainable level and to get the company’s name out to prospective customers. The transition from start-up to formalisation may not even be noticeable or it may be abruptly marked by the opening of a new facility, hiring professional management, or introducing a new product. Usually, it is only when the owner-managers recognise that they have created a viable company and are now facing new challenges that they believe the start-up stage is behind them. In this Survival stage, the importance of both growth and complexity as measures of development becomes clear. Some companies may grow significantly and change their structure very little, whereas others way actually stay the same size or grow slowly, but go through significant restructuring for a long haul.

During this stage, the owner-manager and spouse are now typically between thirty-five and fifty-five, moving into and through middle age, and adjusting their business strategy and personal lifestyle accordingly. Most of the younger generation are now teenagers and young adults just beginning their work lives, and making their initial decisions about entering the company. The parents may already be cognisant that ownership control may ultimately move to a partnership of two or more of their offspring, who may or may not be active in the business.

The challenge at this stage is that the owner-managers find it difficult to allow the business to evolve from a founder-centred structure to a more formal hierarchy with differentiated functions. Again, managing the mid-life transition, separation and individualisation of the younger generation and facilitating a good process for initial career decision are some family-related challenges of the Survival stage. Hence, it is vital to develop a process for shared control among owners, defining the role of non-employed owners, retaining capital and controlling the functional orientation of the family.


Suddenly or gradually, a business enters yet another, sometimes final, stage. Maturity in relation to the market becomes apparent when healthy margins start to thin, when competitors multiply, when a flagship product is no longer distinguishable from others on the market or when sales plateau or drop. Every company with a successful product or service gradually finds its success harder and harder to repeat. This may happen after ten or fifteen years, or even fifty. Successful companies will recognise that the period of formalisation is coming to a close. Companies who are able to maintain adequate market share remain in the maturity stage for a very long time. In most cases, however, the organisation must adjust and renew itself, or face decline.

During this stage, two or more generations are fully involved in the family business together. The senior generation, most typically between fifty and sixty-five, is at the peak of authority in the business circle. If the business is profitable, the owner-managers can use the income for expansion and new ventures, and to fund a comfortable lifestyle to which many adults aspire at this age – home, travel, social life, recreation, and place in the community.

The members of the junior generation are now in their twenties, thirties and forties. They have made the decision, at least initially, about whether their work lives will be inside or outside the business. There may be additional owners from parent’s generation or among the siblings’ children, but they do not exercise significant ownership influence in the sibling partnership.

The problem at this stage of the cycle is ‘Red Tape’. A condition of wading through layers of organisational structure to get anything accomplished. Policies and procedures abound and hierarchy reporting is characteristic of this stage. Another problem is that mangers seek to protect what they have gained instead of targeting new territory.

The way to renew or regenerate the business is by fostering cross-generational cooperation and communication. Members of the family must be honest, open and consistent in their communication. Productive conflict management must be encouraged. Top managers at this stage should have a strategic refocus. They should do a systematic analysis to generate options for a new business or product.


A mature firm is a dinosaur, waiting for extinction! Success is just a temporary stage, and not a guaranteed final destination.  Most organisational experts purport that regeneration or renewal is essential to fend off obsolescence and decline in mature companies. This typically translates into new ventures and spin-offs, while anticipating a new direction in the market.

Some family firms hold tightly to their organisational traditions; they may modernise but they do not seek new opportunities. Still, it is relatively rare for a family firm to be completely in the mature stage for an extended time. Some portion of the company will typically begin a recycle by spinning off a new start-up venture, acquiring a subsidiary in an earlier stage, or establishing remote or foreign branches that exhibit some of the start-up characteristics.

This Renewal stage typically begins when the senior generation enters late adulthood around their sixth decade, and lasts until death. In family businesses, many of the most important issues are now directly related to the actual change in ownership and management control of the firm. What began as a marriage many decades ago has developed into a complex clan of descendants. By this stage, most families will have at least two generations of offspring; in a few families there may be as many as four. The key issues are the older generation’s disengagements from the business, the generational shift in leadership, and the implied confrontation with death. This Renewal stage must therefore address the topic of succession.

Owners and managers must be committed to the renewal of the company. This typically includes the adoption of lean management to cut costs or prevent waste in the company. While some companies resort to declaring redundancy and dismissing staff, it is preferable that management adopt innovative strategies to diversify and create new business operations. It is said that focusing on inspiring your internal stakeholders is the way to creating a high level of customer loyalty.


If renewal doesn’t take place, the business goes into decline.  Also, family businesses decline when a proper succession plan is not in place and the founder doesn’t have the capacity to continue. While health limitations are a significant cause of decline in a family business, there is a point where intellectual capacity is also exhausted. Change can be difficult and most of the time, the phrase, ‘this is how it is done’, is heard when a younger generation suggests different ways of doing business. It is important to nurture transgenerational entrepreneurship to ensure family businesses keep up with demands for innovation.

Unfortunately, the younger generation may not be interested in continuing the business. Even if they do, they often find themselves immersed in politics and power struggles. Consider the position of a third daughter of the family who has been involved in the business all her adult life.  She has worked hard and put in a lot of effort to support her father, who is the president of the business. When the father gets sick and cannot continue the business, he appoints his firstborn son, who has never been part of the business, as company president.

The father believes that the firstborn male offspring is the most appropriate successor (a custom known as primogeniture). Primogeniture is a custom where the legacy is left to the first child of the family. But primogeniture can cause power struggles when the first son doesn’t have the capacity to continue the legacy. Interestingly, decline is not collapse but a sign that the company is gasping for breath and needs to be rescued.

Conclusion: Reinvent to stay in business

So, the Renewal stage is vital. The company must be reborn before it reaches the stage of decline. As reptiles metamorphose to increase in size and strength, the organisation should also be reinvented at this stage. The head of the fish is the first to rot, so likewise, reinvention must start with the head – which means strategising at the ownership level of the business.

Ownership can be diversified to save the business. While it is not always easy for a family business to bring non-family members into ownership, adding outsiders to the board of directors is an important and worthwhile step to consider. Good corporate governance practices have been associated with business continuity.

Family businesses who have a properly functioning Board of Directors stand a better chance of growing through the business life cycle to sustainability.  Unfortunately, some family businesses form boards with family and friends, and the founders control them to their own interest. But a board must be independent and effective. Board diversity causes positive firm performance and continuity. Family businesses should reinvent by forming effective board of directors.

It is expedient to say that the number of years in business does not correlate with the stage of the business life cycle. Family business managers should not wait for a certain number of years to identify the changes that need to occur. They must take a proactive stance toward organisational life cycle changes, and recognise where the business needs to be before it falls into crisis. The business can die at any stage. Continuous improvement of business operations is critical to keep the cycle renewed.


Lester, D. L., Parnell, J. A., & Carraher, S. (2003). Organizational life cycle: A five‐stage empirical scale. The international journal of organizational analysis, 11(4), 339.

The writer is the Chief Executive Officer, Ravens Consulting Gh (Family Business Consultancy)

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