Daniel Chong
Director – EREA Management Consulting
*Translated with DeepL AI
Only 30% of Latin American family businesses make it to the second generation. The cause is rarely the market—it is almost always a lack of planning.
Family businesses make up between 70% and 90% of the Latin American business landscape, generate the majority of formal employment in the region, and make a decisive contribution to each country’s GDP. And yet, the survival statistics are hard to ignore: according to KPMG’s Global Family Business Report 2024, only 30% make it to the second generation, and fewer than 12% reach the third. In markets such as Mexico, Colombia, or Argentina, that rate drops below 10%. The generational transition is not just one risk among many—it is, quite often, the irreversible tipping point.
What the founder built and what he could not pass on
The typical Latin American founder succeeded under unfavorable conditions: political instability, cycles of inflation, recurring crises, and informality as the norm. He turned those constraints into competitive advantages: he learned to move quickly, to build relationships where there were no institutions, and to create businesses where others saw only risk. That instinct allowed him to lead markets, build brands with genuine positioning, and accumulate considerable assets.
The second generation inherits that legacy, and for a time, the momentum carries them. Assets generate cash flow, the brand protects margins, and relationships open doors. Management can be minimal, and the ship keeps moving forward. But that period has a limit—and when it ends, what remains of the founder are anecdotes, not tools. The family scattered, businesses multiplied indiscriminately, and the leadership that held everything together faded a generation ago.
An environment that no longer tolerates improvisation
External pressure intensified just as internal pressure also grew. The accelerated regionalization of large conglomerates—Falabella, Cencosud, Grupo Terra—lowered barriers to entry and brought structured competition to markets that had operated with little for decades. Consumers have evolved: they demand speed, experience, consistency, and price all at once. Business models that worked for twenty years began to show cracks.
Against this backdrop, the new generations are pushing to assume leadership positions. The pressure is legitimate—they are better prepared in many ways, speaking the digital and global language that the founder did not master—but it comes without the mechanisms that should frame it. There is no succession protocol. There is no board to evaluate the decision with objective criteria. There is no plan defining where the group is headed and what each generation’s role is within that direction.
The result is predictable: pressure is yielded to prematurely, reactive decisions are made in response to competition, prices are lowered without analysis, resources are invested in new businesses without selection criteria, and strategic assets are liquidated to cover operational needs. The company that was a leader in its industry begins to operate with no other direction than to survive the next quarter.
The problem is not a lack of talent in subsequent generations. It is that the founder’s talent was deeply contextual, built under conditions that his children and grandchildren did not experience, and he did not leave behind the institutional mechanisms that would allow the business to function without depending on an exceptional individual.
Why Strategic Planning Is the Core, Not the Add-On
The answer many family groups seek first is corporate governance: establishing a board, appointing independent directors, defining dividend policies. It is a necessary step, but it is not the right starting point. A well-structured board without a clear strategic plan will make well-ordered decisions about a direction that no one has defined. Corporate governance enhances planning, but without planning, it is an empty structure.
Strategic planning in a family business is not a document that is drafted once and filed away. It is an ongoing process that defines the group’s raison d’être, mission, vision, and values that transcend the founder, long-term objectives aligned with both business and family aspirations, strategies for growth, innovation, and risk management, and clear criteria for deciding which businesses to invest in, which to grow, and which to exit with dignity.
The documented benefits are consistent. Family businesses with formal strategic planning grow faster during favorable cycles, weather crises better, drastically reduce value-destroying intra-family conflicts—it is estimated that planning prevents between 50% and 60% of failures in generational transitions—and more easily attract external talent and structured financing.
What a well-prepared transition makes different
A successful generational transition is not improvised or resolved through family goodwill. It is designed. And that design requires honestly answering questions that many groups avoid: In which businesses does it make sense to continue investing, and from which should we exit before the market forces us to do so under unfavorable conditions? How is power distributed among generations without destroying the unity that holds the group together? What external talent needs to be brought in to compensate for the capabilities the family lacks? What are the criteria for evaluating significant capital investments?
These questions have no easy or quick answers. But they are precisely the ones that distinguish the groups that manage to transcend from those consumed by internal conflicts or left behind by more agile competitors. And what makes it possible to answer them is having first built the institutional framework—the planning process, the board, the shared criteria—where they can be discussed without the outcome depending on who holds the most power at the table.
Generational change is not inevitably a failure. It is the moment when the business can stop depending on an exceptional individual and become an organization with its own capacity for renewal. That transformation does not happen on its own—it requires determination, method, and the willingness to view the business without the filters of family nostalgia. But when it does happen, what is preserved is not just the assets: it is a direction that subsequent generations can make their own.
