Why there must be a divide between the first and subsequent business successions

 

Personal ability plays a significant role in small firm growth (Sexton and Bowman-Upton, 1991; Jennings and Beaver, 1997; Covin and Slevin, 1997; Wiklund and Shepherd, 2003).

Founding teams produce a strong path dependence* which increases over time and which is more significant that the influence of later CEOs (Eisenhardt and Schoonhoven, 1990).

Two propositions ensue from the above: 

(i) it is not the size of a company what influences growth after the first succession, but the path dependence which amplifies resistance to change after the founder exits and the successor steps in;

(ii) the first business succession in a company's history has a stronger impact on its growth than later successions.

These propositions imply that business succession is most vulnerable to external and internal factors if it is a first-time transfer of the founder's managerial and/or ownership position. Therefore, measuring first-time successions promises a lower level of noise and, accordingly, a clearer evidence. That, in turn, will lead to a "weather-tight" practice (namely, prescriptive succession patterns), whose efficiency in extreme conditions of first-time successions guarantees its appropriateness in less critical situations of later successions.

Footnote definition

* Path dependence means that both the starting point and accidental events can have significant effects on the outcome. In other words, history matters.

References

Covin, J. G. and Slevin, D. P. (1997). High growth transitions: theoretical perspectives and suggested directions. In Sexton, D. and Smilor, R. (Eds), Entrepreneurship 2000. Chicago, IL: Upstart Publishing Company.

Eisenhardt, Kathleen M., Schoonhoven, Claudia Bird (1990). Organizational growth: Linking founding team, strategy, environment, and growth among U.S. semiconductor ventures, 1978-1988. Administrative Science Quarterly (RSS).

Jennings, P. and Beaver, G. (1997). The performance and competitive advantage of small firms: a management perspective. International Small Business Journal, 15, 2, 63–75.

Sexton, D. L. and Bowman-Upton, N. B. (1991). Entrepreneurship: Creativity and Growth. New York: Macmillan.

Wiklund, J. and Shepherd, D. (2003). Aspiring for, and Achieving Growth: The Moderating Role of Resources and Opportunities. Oxford, UK and Malden, MA, USA: Blackwell Publishing.