Every family business adviser in India has heard the old line about wealth: the first generation makes it, the second holds it, the third loses it. It is usually said as a joke at the end of a long meeting. Our survey suggests it deserves more attention than that, though the mechanism is quieter than the proverb implies. Most third-generation firms in our sample did not collapse. They stopped compounding.
Between February and June 2025 we spoke to promoters, family directors and a small number of non-family CEOs at 212 Indian family businesses, from ₹100 crore to ₹12,000 crore in revenue, across fourteen states. Seventy-four were still run by their founders, 89 by the founders’ children and 49 by grandchildren or a group of cousins. These are the firms that agreed to talk to us, so treat the numbers as indicative.
What the survey found
Asked whether a written, board-approved succession plan exists today, 41% of founder-led firms said yes. In the second generation the figure was 27%. In the third it was 12%, fewer than one firm in eight.
Figure 1
Share of family firms with a written succession plan, by generation in control
That fall surprised us. You would expect families to formalise more as they grow, because the number of people with a claim on the business grows too. A founder with two children can settle most questions over dinner. A third-generation family with eleven adult cousins, four of whom work in the company, cannot. The firms with the most need for written rules were the least likely to have them.
Growth told a similar story. Median five-year revenue growth reported by founder-led firms was 14% a year. For third-generation firms it was 6%, roughly in line with nominal GDP. We would not claim the missing plan causes the slowdown. Both are probably symptoms of the same thing.
Why the third generation is different
In most families we work with, the second generation inherits a business and a set of relationships at the same time. Siblings grew up in the same house, often worked under the same parent and share a memory of how decisions used to be made. Their disagreements are real, but they argue inside a common frame.
The third generation inherits shares. Cousins grew up in different cities, sometimes different countries. Some work in the business and many do not. A cousin who practises medicine in Pune and holds 6% has different needs from a cousin who runs the Tiruppur plant and holds 4%. Neither is wrong. The company now has to serve owners who want dividends and owners who want reinvestment, and nothing in its structure says how to choose.
Figure 2 · Third-generation firms, n = 49
Main obstacles to succession planning, as named by the family
Unclear decision rights among cousins came up most, cited by 63%. Second was the lack of an agreed exit route for family members who want to sell. The third, at 44%, is the one families find hardest to say aloud: someone from the previous generation still holds the signing authority, formally or otherwise.
“The firms that kept growing had one difficult conversation early, and wrote down what they agreed.”
Four decisions that separate the growers
Fourteen of the 49 third-generation firms grew faster than 10% a year over the last five years. We looked at what they had in common. The list is short and none of it is new. What stood out was that they made these decisions on purpose, usually before a crisis forced them to.
- They separated the family from the board. A family council meeting each quarter decides family matters: employment of relatives, dividends, education funds. The board, with at least two independent directors under the Companies Act, 2013, decides company matters. Eleven of the fourteen had this split.
- They agreed a price before anyone wanted to sell. A written right of first refusal with a valuation formula turns a family rupture into a transaction.
- They set an entry rule for family employment. Typically a degree, three to five years outside the company, and a role that would exist anyway.
- They let the older generation step back in stages. A fixed date for handing over signing authority, a chair role with a defined scope, and an announcement so bankers and customers know who to call.
Where to start
For families who recognise themselves in these numbers, we suggest a modest first step. Before drafting a constitution or hiring a CEO, write down who decides five things today: capital expenditure above ₹10 crore, senior hiring, dividends, family employment and the sale of shares. If the honest answer to more than two of them is “it depends who asks”, the family has a governance problem that no strategy will fix.
That exercise takes an afternoon. In our experience it is also the conversation most families have been avoiding for a decade. The ones that have it early tend to find the rest of the work easier than they feared.
Full survey tables, including results by state and sector, are available to participating families and to clients on request. All figures are self-reported and drawn from the Kaveri & Rao Family Business Survey, 2025 (n = 212).
Anjali Kaveri
Founding partner and head of the Succession & governance practice, Mumbai. Anjali has drafted family constitutions for more than thirty promoter families and sits as an independent director on two listed boards. She co-founded the firm in 2011 after fourteen years in corporate law. Profile and articles →