Study: Family Businesses Outperform Non-Family Firms

Companies started by families are more profitable and can have higher employee productivity.

Family businesses are more profitable and create more jobs than non-family firms, according to a new study.

The study, which compared S&P 500 and Fortune 500 companies based on net profit margin, employment, revenue, and gross income growth between 1992 and 2002, concluded that those started by families are more successful than their non-family counterparts. For example, the average profit margin for family firms was 10%, two points higher than for non-family firms.

“Wal-Mart and Ford are successful businesses that were started by families,” said Jim Lee, an economics professor at Texas A&M-Corpus Christi, who authored the study. “That shows how successful family businesses can be if they focus on training and knowledge sharing.”

Many companies in the United States start out as a family-run business, but statistically do not last long, according to Lee. “Eighty-five percent of family run businesses do not make it past the first generation due to the lack of succession planning and knowledge transfer,” he said.

The purpose of the study, published in the June issue of Family Business Review, was to investigate the competitiveness of family versus non-family firms. If family business owners take high-level managerial roles within their companies, they can command greater loyalty within the firm, which enhances employee productivity and morale, according to the study.

The study also cites the likelihood of family-run businesses to avoid downsizing, even during the midst of a recession and massive layoffs by non-family run firms.

“If family run businesses have succession plans and transfers of knowledge, their ability to succeed are great,” Lee said. “You even see Donald Trump training his children to take over one day.”

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