Family businesses are weak-link systems that can be undone by incompetent heirs.
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A family business can survive a mediocre CEO, but rarely survives weak owners.
Most family businesses spend years preparing or searching for the right CEO successor, even though the person who will ultimately determine the business’s success is generally not the CEO at all.
Soccer and basketball offer a useful insight. Basketball is a strong-link system. A superstar like Michael Jordan or LeBron James can elevate the entire team and compensate for any weaknesses on the roster.
Soccer is different. Economists David Sally and Chris Anderson analyzed thousands of soccer matches across Europe’s top leagues. Their research showed that soccer is fundamentally a weak-link system: success is not determined by a team’s star player but by the mistakes and weaknesses of its worst players. One player’s mistake that allows the other team to score a goal undoes ninety minutes of brilliant play.
Family businesses are also weak-link systems because their long-term success depends less on the CEO’s talent and more on the competence of the weakest heirs when they become owners.
Many founders, however, believe that success depends mainly on finding the next “Michael Jordan” to run the business. But if you look more closely, that belief is mistaken.
Founders Retire from Three Positions at Once
After years of acting simultaneously as CEO, their own board, and the principal shareholder, founders identify most strongly with the CEO role when they look back on their success because it was the role they lived every day. They made decisions, solved problems, and drove growth.
What these founders fail to recognize is that most of their important decisions would have had to be taken to the board or shareholders for approval. But since founders are their own board and principal shareholders, they don’t need to seek permission or authorization. It’s their business after all. Conversely, an outside CEO would be hemmed in by these regulations once the founder departs.
This creates the illusion that all decisions were managerial, when in reality most decisions that shaped the company’s success were made in the owner’s capacity. As a result, when succession arrives, founders end up focusing on finding the next CEO without realizing that the business is losing three positions, not one: shareholder, board, and CEO.
When the next generation becomes owners, the game changes. The business stops playing basketball and starts playing soccer. Success no longer depends on a star player but on every heir understanding their role as owner and playing it well.
A Mediocre CEO Can Be Fixed. Weak Ownership Cannot.
If a CEO lacks certain skills, owners can invest in coaching or executive development. If a CEO proposes a risky acquisition, excessive debt, or an ill-advised strategy, shareholders can intervene and prevent costly mistakes. And if the CEO ultimately underperforms, owners can replace them altogether.
On the other hand, a great CEO cannot direct heirs into acting responsibly as owners or force them to stop fighting. And most importantly, the CEO cannot replace the shareholders. Ownership represents the true weak link in family businesses. When ownership is strong, even an average CEO can succeed because owners provide oversight, support, and accountability. But when ownership is dysfunctional, even an exceptional CEO can be rendered helpless.
Management problems can be solved by ownership, but ownership problems cannot be solved by management. Consequently, the future of a family business is determined less by the person running it and more by the people who own it.
Management Can Be Outsourced. But Not Ownership.
In my book Legacy Traps, I discuss in more detail why founders must make this philosophical shift: stop building for a star player and instead build a team. Readers will also learn the mistakes that repeatedly derail management and ownership succession, along with the practical solutions to help families navigate both successfully.
Because when a family business approaches the succession stage, the question should not be:
“Who will be the next star player? Who will be our Messi, Ronaldo, or Mbappé?”
Instead, the question should be:
“Do all heirs as owners understand the rules of the game, and do they have the skills needed to play their position well?”