Why Family-Owned Businesses Outperform

1 minutes reading time
Published 29 Jun 2023
Reviewed by: Kasper Karlsson
Updated 22 Mar 2024

The fabric of the global economy consists of various types of businesses, and one that stands tall among them is the family-owned business. A family-owned business is a company owned and operated by members of one or more families. It has been observed that these businesses often perform better than their non-family counterparts. In this article, we will delve into the reasons behind their success, their pros and cons, and the challenges they face. Furthermore, we will find out who holds the crown for being the largest family-owned companies in the world by market capitalization.

Key Insights

  • Family-owned businesses are enterprises where ownership and control lie with one family or related families, often involving them in key roles across generations.

  • These businesses typically prioritize long-term strategies and sustainability, considering the impact on future generations, leading to a strong dedication and commitment.

  • Benefiting from a deep understanding of the business, family-owned companies can make decisions quickly and maintain a strong company culture through shared core values.

  • While they offer advantages like lower employee turnover and adaptability, they also face challenges such as limited resources, potential family conflicts, and succession issues.

  • Many large global corporations, like LVMH and Walmart, are family-owned, demonstrating the significant influence and success these businesses can achieve.

What is a family-owned business?

Before we proceed, one must first understand what a family-owned business is. A family-owned business is a company or enterprise in which ownership and control are primarily held by members of a single family or a small number of related families. These businesses are typically managed and operated by family members who may be involved in various roles, such as owners, executives, directors, or employees. The primary characteristic of a family-owned business is that it is founded, owned, and managed with the active participation or influence of family members across multiple generations.

Why family-owned businesses perform better in general

Something that's positive in general for any business is long-term focus, and family-owned businesses usually have a long-term perspective compared to non-family businesses for obvious reasons. They often think of how the business will benefit their future generations, which leads to more sustainable and forward-thinking strategies. Also, when the business is owned and controlled by a family, there is arguably an inherent level of commitment and dedication. Family members might put in extra hours and effort, knowing that the success of the business directly impacts their whole family.

Decision-making in general also becomes easier and can be made more quickly in a family-owned and operated business.Since family members usually have a deep understanding of the business, and due to the majority of the control often being in the family, decisions can be taken rapidly. Additionally, family-owned businesses often have a set of core values passed down through generations. This can contribute to a strong company culture, which in the long run can be a significant competitive advantage.

Pros and cons of a family-owned business

When it comes to the pros and cons of a family-owned business, there are several factors that make them stand out. One of the notable upsides is that family-owned businesses tend to have lower employee turnover rates. This is because family members who are engaged in the business generally are less likely to leave, which in turn leads to reduced turnover, fostering more stability within the company.

Additionally, family-owned businesses are often characterized by their flexibility and adaptability. Being closely-knit, these businesses have the ability to be more adaptable to changes and can execute decisions with more efficiency compared to some other corporate structures. Another strength lies in building strong customer relations, as family businesses often excel in forging long-lasting relationships with their customers. This is largely because customers tend to appreciate the personal touch and commitment that is often inherent in a family-run establishment.

On the flip side, family-owned businesses also face their share of challenges. One such con is that they may have limited resources compared to larger, more established companies. This limitation can sometimes act as a roadblock, hindering the growth and expansion of the business. Another issue that surfaces in family-owned businesses is the potential for family conflicts. There may be instances where business issues spill over into personal relations and vice versa. This entanglement of business and personal affairs can sometimes lead to strained relationships which negatively impact the company.

Lastly, difficulty in succession planning is a challenge that family-owned businesses often grapple with. There are instances where finding a successor within the family who is both capable and willing to take over the reins of the business can be an uphill task. This can lead to uncertainty and could potentially have a destabilizing effect on the business.

The largest family-owned companies in the world by market capitalization as of June 2023

  1. Berkshire Hathaway (United States): Market Cap: $740 billion
    Berkshire Hathaway, led by the renowned investor Warren Buffett, is the largest family-owned business globally by market cap. Although not a family business in the traditional sense, the Buffett family owns a significant stake in the company. Warren Buffett himself holds approximately 30% of the voting power and 16% of the economic interest. Established as a group of textile milling plants in the 1830s, Berkshire Hathaway evolved into a diversified holding company under Buffett's leadership. The company owns a vast array of businesses and holds significant stakes in several major American companies such as Apple, Bank of America, and American Express. Known for its consistent market performance, Berkshire Hathaway has become synonymous with intelligent investment and wealth generation.

  2. LVMH (France): Market Cap: €430 billion
    LVMH is the largest luxury goods conglomerate in the world. The company, which is led by Bernard Arnault, is approximately 48% owned by the Arnault family. LVMH's portfolio includes around 80 luxury brands in total, including renowned brands such as Louis Vuitton, Moët & Chandon, Christian Dior, TAG Heuer, Marc Jacobs, Celine, and Givenchy.

  3. Walmart (United States): Market Cap: $418 billion
    Walmart is the world's largest company by revenue. The company was founded by Sam Walton in 1962 and is currently led by the Walton family. Walmart operates a vast chain of retail stores, offering a wide range of products and services to customers worldwide. The Walton family, including the heirs of Sam Walton, still owns a significant stake in the company. Through Walton Enterprises, the Walton family holds approximately 50% ownership in Walmart. This substantial stake has propelled five members of the Walton family into the ranks of the world's richest individuals.

  4. Samsung Electronics (South Korea): Market Cap: $370 billion
    Samsung Electronics is a global technology leader known for its consumer electronics, semiconductors, and telecommunications equipment. The company was founded by Lee Byung-chul in 1938 and is still owned and controlled by the Lee family. Samsung's diverse product portfolio includes smartphones, televisions, home appliances, and memory chips.

  5. Roche Holding (Switzerland): Market Cap: $250 billion
    Roche is a leading pharmaceutical and diagnostics company based in Switzerland. The company was founded in 1896 by Fritz Hoffmann-La Roche and is still controlled by the Hoffmann and Oeri families. Roche is known for its innovative drugs and diagnostics solutions, contributing to advancements in healthcare globally.

  6. Hermès International (France): Market Cap: €207 billion
    Hermès is a renowned luxury goods manufacturer and retailer based in France. The company specializes in high-end products, including leather goods, ready-to-wear clothing, perfumes, and accessories. Hermès is known for its impeccable craftsmanship, timeless designs, and exclusivity. The company was founded by Thierry Hermès in 1837 and has remained under the control of the Hermès family (now called Dumas) for several generations. With a market capitalization of approximately €207 billion, Hermès stands as one of the significant players in the luxury goods industry, synonymous with elegance and sophistication.

  7. Novartis (Switzerland): Market Cap: $215 billion
    Novartis is a global pharmaceutical company specializing in research, development, and manufacturing of innovative medicines. The company traces its roots back to the merger of Ciba-Geigy and Sandoz in 1996. Novartis is controlled by the Sandoz family and is recognized for its contributions to advancing healthcare and improving patient outcomes.

  8. Toyota Motor Corporation (Japan): Market Cap: $220 billion
    Toyota is one of the world's largest automotive manufacturers, renowned for its quality and reliability. The company was founded by Kiichiro Toyoda and is still controlled by the Toyoda family. Toyota's innovative and efficient vehicles have made it a leader in the global automotive industry.

  9. Reliance Industries (India): Market Cap: $210 billion
    Reliance Industries, founded by Dhirubhai Ambani, is one of India's largest conglomerates. The company is currently led by Mukesh Ambani, who is among the wealthiest individuals globally. Reliance Industries operates in various sectors, including petrochemicals, refining, telecommunications, and retail.

  10. Volkswagen Group (Germany): Market Cap: €72 billion
    Volkswagen Group, or VW AG, is one of the world’s largest automobile manufacturers. The company was founded in Germany in 1937, with the aim to produce a simple, affordable car for the German population. The Porsche and Piëch families hold a significant ownership stake in Volkswagen through their family-owned holding company, Porsche Automobil Holding SE. The Volkswagen Group owns several car brands, including Volkswagen, Audi, SEAT, ŠKODA, Bentley, Bugatti, Lamborghini, Porsche, Scania, MAN, and Ducati.

In Conclusion

Family-owned businesses have proven to be a formidable and enduring component of the global economy. With ownership and control residing within familial bonds, these enterprises often flourish due to long-term vision, inherent commitment, and a deep understanding of the business. Notable pros such as lower employee turnover rates, flexibility, adaptability, and robust customer relations contribute significantly to their success.

However, it’s essential to acknowledge the challenges that these businesses face. The limitations in resources, potential for family conflicts, and difficulties in succession planning can sometimes hinder their growth and stability. It's imperative that family-owned businesses continuously evolve to strike a balance between leveraging their unique strengths and mitigating the inherent challenges.

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