Succession Risk and the Buddenbrooks Effect: How Success Sows the Seeds of Decline

What this model means

Succession risk is the danger that an organization—a company, dynasty, or institution—won’t survive the transition from one generation of leadership to the next. The Buddenbrooks effect (named after Thomas Mann’s novel) describes a common pattern: the first generation builds, the second consolidates, and the third enjoys and lets discipline erode.

The founder’s paranoia, hunger, and hands-on attention get lost. Systems that looked robust were actually held together by one person’s judgment. When that person is gone, the structure quietly rots from within.

Why it matters

This model explains why so many successful enterprises don’t outlast their founders. It’s not just bad luck or incompetent heirs. The very success of the first generation creates conditions that make the third generation vulnerable: accumulated wealth reduces urgency, institutional memory fades, and the hard lessons that shaped the original culture become abstract history.

If you’re building something you want to last, you can’t just assume future leaders will have the same paranoia and discipline. You need systems that survive a “third generation” who may be talented in different ways but less obsessed with the boring, defensive parts of the business.

Examples

1. The Medici Bank (15th century)

Giovanni di Bicci built a cautious, profitable bank. His son Cosimo scaled it and maintained tight controls. His grandson Lorenzo “the Magnificent” grew up already at the top—a brilliant patron and statesman but no longer a banker at heart. Under Lorenzo, branch controls weakened, risky exposures grew, and the family drew heavily on the bank for political and personal spending. When external shocks hit—defaults, papal conflict, invasion—there was no institutional resilience left. Read more in Medici Bank.

2. Family business mortality statistics

Research consistently shows that only about 30% of family businesses survive into the second generation, and around 10-15% make it to the third. The reasons include poor succession planning, diluted ownership, family conflicts, and loss of the original entrepreneurial drive.

3. Industrial dynasties and the “shirtsleeves to shirtsleeves” proverb

Variants of this saying exist across cultures: “Rice paddy to rice paddy in three generations” (China), “Clogs to clogs in three generations” (England). The pattern is old and universal: wealth created by hard work is often dissipated by heirs who never learned why the discipline mattered.

4. Apple’s near-death experience (1985-1997)

After Steve Jobs was ousted in 1985, Apple went through a series of professional CEOs who lacked his product obsession. The company drifted, lost focus, and nearly went bankrupt. Jobs’ return in 1997 reversed the decline—but it required the founder coming back. Without that, Apple might have become a cautionary tale.

How to use it / common failure mode

If you’re building something you want to outlive you:

Don’t rely on future heirs having the same paranoia and discipline
Build systems, norms, and independent checks that work even when leadership is mediocre
Document the reasons behind decisions, not just the decisions themselves
Consider whether concentrated control is an asset (founder judgment) or a liability (single point of failure)

If you’re inheriting something successful, don’t assume the machine is self-healing. The slack and margin of safety your predecessors built may be thinner than you realize.

Failure mode: Becoming so obsessed with succession risk that you never empower the next generation or share real responsibility. Succession has to actually happen at some point. The goal is to make it survivable, not to prevent it.

In one line: Succession risk warns that what a founder built with hunger and paranoia can crumble when later generations inherit comfort instead of caution.

This article was produced with AI assistance and human editing. Last updated Dec 14, 2025.