IVEntrepreneurshipComparison
Succession in the Family, by Employees, or by Outsiders
Most owners want a successor from the family. Many do not find one. Whoever lays the three routes side by side early chooses, instead of taking whatever is left in the end.
Key takeaways
- By the end of 2029, around 545,000 owners of German small and medium-sized businesses want to hand over their business, and 569,000 plan to close it (KfW 2026).
- 55 percent of those planning succession want a family solution, 42 percent consider selling to outsiders, 28 percent handing over to employees.
- Each route has a typical obstacle: in the family, will or suitability is often lacking; with employees, money; with outsiders, knowledge of the business.
- Five kinds of obstacles according to De Massis, Chua, and Chrisman can be checked for each route: person, relationships, money, context, and process.
Why the choice of successor is made earlier than many think
The question of who will take over the business is often asked as if there were one answer that just has to be found. In fact there are several routes, and each requires different preparation. Whoever only decides at 65 that the daughter does not want to take over after all has hardly any time left for a handover to employees and sells under pressure.
The guide planning your own exit describes the timeline and, following DeTienne, McKelvie, and Chandler (2015), distinguishes three basic types of exit: financial harvest, stewardship, and voluntary cessation. This comparison takes the cases in which the business is to continue and asks: Which succession route suits which business, family, employees, or outsiders, and what does each typically fail on?
To answer it, I first look at what owners in the German Mittelstand, the small and medium-sized business sector, are planning, then present a model of obstacles, compare the three routes, and weigh two views. At the end there is a five-question check. This article is not legal or tax advice.
What owners in the Mittelstand are planning
The succession monitor of KfW, the German state development bank, is based on the KfW SME Panel. According to the January 2026 edition, around 545,000 owners want to hand their business over to a successor by the end of 2029, around 109,000 per year on average. Another 569,000 plan to withdraw without the business continuing. For the first time, planned closures thus slightly outnumber handovers. In 2025, 57 percent of owners were at least 55 years old.
Source: KfW Research: Nachfolge-Monitoring Mittelstand 2025 (January 2026)
For this comparison, another figure is more revealing: which routes those planning succession want. Multiple answers are possible, so many keep several routes open.
Source: KfW Research: Nachfolge-Monitoring Mittelstand 2025 (January 2026)
Two KfW findings show the tension. The family remains the most popular route, but 47 percent of owners planning a closure cite a lack of interest in the family as a reason. And the average price expectation of around 499,000 euros has risen by around 34 percent since 2019. On average it is 1.2 times annual revenue, the median 0.6 times. That is the price an employee or buyer must first finance.
The three routes and their terms
In family succession, a family member takes over ownership and management, often gradually and frequently at a price below market value, for example through gift or inheritance. In succession by employees, staff take over the business. KfW speaks of an employee buyout (EBO) when employees buy and of a management buyout (MBO) when co-owners take over. In external succession, a person or company from outside buys. If an outside executive takes over management personally, this is called a management buy-in (MBI). If a competitor or financial investor buys, the business usually becomes part of a larger group.
Expressed in the three basic types of exit: family and employees usually belong to stewardship, where continuity is in the foreground. Selling to outsiders is usually financial harvest, where the proceeds are in the foreground. The boundaries are fluid, for example when an owner deliberately chooses a buyer by whether he will keep the employees.
The thinking model: five kinds of obstacles according to De Massis
De Massis, Chua, and Chrisman (2008) reviewed research on why family succession does not come about even though everyone wants it. They assign the reasons to five kinds of obstacles. The model was developed for the family but can be applied to any succession route, because the same questions appear with different weight.
| Obstacle | Question | Family | Employees | Outsiders |
|---|---|---|---|---|
| Person | Does the successor want to and can he? | Most common obstacle | Often can, but not always as an entrepreneur | Usually given, is checked |
| Relationships | Do the relationships carry the change? | Siblings, parents, role conflicts | Role change from colleague to boss | Trust must first develop |
| Money | Can the transition be financed? | Compensation for other heirs, taxes | Purchase price often the main obstacle | Usually solvable, price is negotiated |
| Context | Can the business absorb the change? | Customers know the family | Customers know the person | Customers and suppliers must be won anew |
| Process | Is the transition prepared? | Often started too late | Successor involved too late | Due diligence, negotiation, handover take time |
Source: De Massis, Chua, and Chrisman (2008), own application
The value of the model lies in breaking a failure down into its parts. “The children don't want to” is often not a statement about will but about a relationship or process problem: nobody ever asked under which conditions they would want to. And “the employee can't afford it” is a money problem that can often be solved with installments, vendor loans, or development loans.
An everyday analogy: whoever wants to bequeath or sell a house checks not only whether someone wants to live in it. He also checks whether the siblings agree, who carries the mortgage, whether the neighborhood fits, and whether the roof must be fixed before moving in. Five questions, each of which alone can prevent the move.
A succession rarely fails on a single big reason, but on a small one that nobody raised in time.
The three routes compared
Family or employees
- Successor knows the business, customers, and processes
- Continuity among managers and values
- Price often below market value or hard to finance
- Risk: role conflicts and lack of new impulses
External buyer
- Often the highest proceeds and secured financing
- New impulses, access to markets or capital
- Larger information gap, longer due diligence
- Risk: ruptures in staff, customers, and culture
KfW describes the trade-off similarly. With employees and co-owners, the advantages lie in continuity: processes, products, supply chains, and customer relationships are known. At the same time, the role change carries potential for conflict, and necessary changes may fail to happen because outside impulses are missing. With outsiders, according to KfW, information gaps are larger and effort and time requirements higher.
A study with data from the German Mittelstand confirms the difference in continuity. Graffius, Hansen, and Kölling (2026) analyzed 70,421 observations of executives, predominantly in small and medium-sized businesses. In family firms planning a family-internal succession, executives left the business less often than with a planned external succession, especially in the period before the change. With external succession, turnover before the change was lower than in businesses without succession but rose afterward. The qualifications and pay of executives also differed depending on the route chosen.
Two views: continuity or renewal?
The first view sees internal succession, by family or employees, as the better route. It preserves the knowledge that is written down nowhere, the customer relationships, and the values the business stands for. The essay succession and sales shows how strongly customer relationships depend on people. An internal successor has often already got to know them.
The second view sees external succession as an opportunity. A business that has been run by the same family for thirty years may need precisely someone who thinks differently. Graffius and colleagues point to studies according to which external successions give businesses the chance to reposition themselves. And a purchase price at market value secures the owner's retirement provision.
I consider the question of the better route wrongly posed. Which route holds depends on which of the five obstacles is greatest in one's own case. Where the family wants to and can, but the money to compensate siblings is lacking, that is a solvable problem. Where the will is lacking, no money helps. Where an employee can do everything professionally but has never decided as an entrepreneur, years of preparation are needed. And where the business needs a change anyway, an outsider can be the right successor, even if it feels like a loss to the owner.
The succession check in five questions
From the model I derive a check that I would go through separately for every conceivable succession route. It shows where the greatest effort lies, and therefore when one has to start.
Person: does he want to and can he?
Ask the possible successor directly and under which conditions. Check experience outside the business, leadership experience, and the will to be an entrepreneur, not just a specialist.
Relationships: who else is affected?
Siblings, co-owners, long-serving managers. How family and business are separated is described in leading a family business.
Money: how is the transition paid for?
Purchase price, compensation for other heirs, taxes, the owner's retirement provision. Check vendor loans, installments, and development loans with the bank and tax advisor.
Context: what do customers, suppliers, and the bank say?
How much revenue depends on you personally? The relationship map from the essay succession and sales shows it.
Process: what must happen by when?
Count back from the planned exit. Rules for transfer and valuation belong in the articles of association, as what shareholders should settle early describes.
Whoever wants to sell externally should look at the business through a buyer's eyes. What buyers of small businesses pay attention to is described in growth through acquisition. And because knowledge can be lost on any route, the guide securing knowledge before experienced employees leave is worthwhile.
What you can put into practice right away
- Write down which of the three routes come into question for your business at all, and name a possible successor or buyer type for each.
- For the route you prefer, go through the five questions and mark the greatest obstacle.
- Have an open conversation with the possible successor about will and conditions, without a commitment.
- Have the approximate value of your business estimated and compare it with what an internal successor could finance.
Conclusion: Which succession route fits?
The guiding question was which succession route suits which business and what each typically fails on. The KfW figures show that the family remains the most popular route, but a lack of interest in the family is among the most frequent reasons for closures. Family and employees offer continuity and often fail on will, roles, or money. Outsiders bring proceeds and new impulses and tend to fail on the information gap and on ruptures in staff and customers.
The model of De Massis, Chua, and Chrisman helps make the choice soberly: for each route it is checked whether person, relationships, money, context, and process hold. The right route is not the one most wished for, but the one whose greatest obstacle can be solved in the remaining time.
Frequently asked questions
What types of business succession are there?
The three main routes are succession within the family, takeover by employees or co-owners, and sale to outsiders. KfW speaks of an employee buyout for employees and a management buyout for co-owners. If an outside executive takes over management personally, this is called a management buy-in.
How many businesses in Germany are looking for a successor?
According to KfW's succession monitor of January 2026, around 545,000 owners of small and medium-sized businesses want to hand over their business by the end of 2029, around 109,000 per year on average. Another 569,000 plan to close without continuation.
Which succession do owners want most often?
In 2025, 55 percent of those planning succession wanted a family solution, 42 percent considered selling to outsiders, 28 percent handing over to employees, and 24 percent to co-owners. Multiple answers were possible.
Why does family succession fail?
De Massis, Chua, and Chrisman (2008) distinguish five kinds of obstacles: in the person of the successor or owner, in relationships, in money, in the context, and in the process. Often the will or suitability is lacking, or the handover was prepared too late.
How does an employee finance the takeover of a business?
Often through a combination of equity, bank loans, development loans, and a vendor loan in which part of the purchase price is paid in installments. The structure depends on the individual case and should be clarified with the bank and tax advisor.
Sources
- KfW Research: Nachfolge-Monitoring Mittelstand 2025. Fokus Volkswirtschaft No. 526, January 9, 2026.
- De Massis, A.; Chua, J. H.; Chrisman, J. J. (2008): Factors Preventing Intra-Family Succession. Family Business Review, 21(2), 183-199.
- Graffius, M.; Hansen, C.; Kölling, A. (2026): From continuity to change: Executive team restructuring in family firms during succession events. German Journal of Human Resource Management, 40(3), 287-318.
- DeTienne, D. R.; McKelvie, A.; Chandler, G. N. (2015): Making sense of entrepreneurial exit strategies: A typology and test. Journal of Business Venturing, 30(2), pp. 255-272.
Note. This article is not legal or tax advice.
