Klaus Eberhard had a rather unusual idea when he was faced with the fact that his children did not want to take over the IT company Iteratec, which he had created. He decided not to sell it to an investor. Instead, he suggested that his employees take over the company.

“I couldn’t look at myself in the mirror if I sold Iteratec just for the money,” the 65-year-old businessman tells DW. The Munich-based IT company is now owned by a cooperative of 350 members, who used to work for the German businessman. The company produces software for giants such as BMW and Deutsche Bahn.

For almost 70% of small and medium-sized enterprises in Germany, the issue of succession is today a top challenge, as a report by the German development bank KfW shows. These small and medium-sized enterprises are the backbone of the German economy. Many of them are family. The problem they face is that their founders are over 60 and therefore at retirement age. Traditionally the younger members of the family took the helm.

Taxes and energy costs act as a deterrent

“Caroline,” who spoke to DW on condition of anonymity, is a potential heir to the family’s technology company in southern Germany. She expresses particular concern when thinking about the future of the business, which produces electronic components on behalf of Bosch. “Our customers know very well that German technology has now lost its uniqueness,” says the 25-year-old, adding that similar products could be produced “much cheaper” in China.

According to a study by the Munich economic institute Ifo, more than 40% of the family businesses that participated in a related research have not found a successor from within their family.

As a business succession expert at the German Association of Small and Medium Enterprises (DMB), Benjamin Schoffer advises businesses on how to organize ownership succession. “The business environment in Germany has become less attractive for young business leaders,” he tells DW, citing high corporate taxes, rising energy costs and declining competitiveness as examples.

They are risk averse

The family of 29-year-old ‘Moric’, who also chose to remain anonymous, has been making furniture for more than 300 years. But unlike his father and grandfather ‘Moritz’ was not encouraged by his family to take over the family business. So he studied and traveled to different countries of the world. Now that his uncle is set to step down from management, the family is faced with a problem: The 29-year-old lacks the skills and qualifications needed to take over the company even if he wanted to.

Caroline, a potential heir to the auto parts maker outside Stuttgart, says that if the risks were lower she might reconsider: “If I felt the risks were lower and not so dangerous, I would take over the business.”

Not even “Moritz” declares himself radically opposed to taking over the family business. “The problem is that it would take me at least seven years to learn the carpentry trade and then I would have to do a diploma,” he says. But then he adds, “But it’s never too late.”

Editor: Stefanos Georgakopoulos