Final answer:
Later generations of a family business may lose competitive advantages due to a shift from founder's deep knowledge and commitment to a reliance on impersonal financial information by outside investors, diluting entrepreneurial passion and slowing decision-making.
Step-by-step explanation:
Later generations of a family business may lose their competitive advantages of speed and agility for various reasons, but an important factor is the shift from a deep personal knowledge and commitment of the founder to a more impersonal ownership structure.
As a firm grows and becomes established, the intimate understanding of managerial vision and business plans by outside investors such as shareholders and bondholders becomes less critical since they can rely on widely available financial information about the company's performance. This shift can lead to a dilution of the founder's entrepreneurial passion and a potential misalignment between managers and investors' goals, impeding the rapid decision-making that initially gave the business its competitive edge.
Moreover, the expectations for equal treatment among family members can interfere with the necessary meritocratic decision-making, and non-family managers may exhibit less confidence in the business's trajectory as compared to the founder's bold vision. Over time, the firm needs to navigate and adapt to new market conditions, which can be challenging if the same level of innovative spirit and personal investment in the company's success is not sustained across generations.