Do I have to let my kids fail at the business to actually let them lead?

Yes, with a softer landing than you had. Kris Kluver, in The Dysfunctional Family Office, has Robert Mitchell commit to this directly with his adult children. He has to let them do things their way and potentially let them fail. It's the only way they'll learn. He had to learn his lessons his way. They'll have to learn theirs their way. He can provide some cushion so the landing is softer. He can't provide a path that prevents the lessons entirely. Most founders intellectually accept this and operationally violate it. They intervene before the kid feels the consequences. They rewrite the kid's decision into a version they prefer. The fix is to actually let the failure happen, on a scale the kid can recover from, and then let the kid do the recovery. The lesson lives in the recovery, not in the protection.