May/June 2013 Openers

Study of European listed companies finds family firms stand out


By Cristina Cruz



Imagine that you had invested €1,000 in family businesses listed on European stock exchanges in 2001. What do you think your investment would have been worth by 2010?


When I challenge people with this question, they routinely cast doubt on the performance of family firms. Words like “complacent” and “slow-moving” are often used. The stereotype of the sleepy family firm doing little to create new value is incredibly strong.


And yet, the reality is that your €1,000 invested at the beginning of the 21st century would have been worth €3,533 by the end of the decade. Impressive, but even more so when you consider that €1,000 invested in a portfolio of comparable non-family firms would have grown only to €2,241.


The reality is that family businesses are vitally important, but underestimated, generators of economic value and growth. After, all they account for 50% to 80% of GDP in most economies.


My recent research (conducted with Laura Núñez Letamendia and funded by Banca March, a 100% family-owned Spanish financial institution) looked at 2,423 companies listed on various European stock markets during the period 2001-2010. The results of this first “Banca March-IE Report on Value Creation in Family Firms” are conclusive about the relationship between family businesses and value creation.


We examined the performance of listed European companies capitalized at more than €50 million. Of these, 27% are family firms, although this varies between countries. Italy has the highest proportion of listed family businesses compared with non-family firms (52%), followed by France (49.6%), Portugal (45.83%) and Spain (42.11%). At the opposite extreme are the U.K., Luxembourg and Ireland, where family firms make up barely 10% of listed companies.


Family businesses—defined as companies in which an individual or family holds at least 20% of the shares and at least one family member serves on the board—tend to be smaller than non-family firms. Interestingly, the family businesses that created most value for their shareholders were smaller than the other family firms.


Family firms are also older—the average age of the family firms we studied is 60 years, vs. 43 for non-family firms. An impressive 20% of these family businesses are over 100 years old. This might explain their reputation for being slow-moving.


Seven findings stand out:


1. Family businesses outperform their local stock market indexes. In all the countries examined, family firms achieved much higher returns than local indexes did at similar or even lower risk levels. The biggest difference in return was attained by German family businesses compared with the DAX, their national benchmark index.


2. Family businesses create value while the rest of the market destroys it. If we measure value creation through the economic value added generated by a company for each unit of assets employed in its business, over the last decade family businesses created value while non-family firms destroyed it.


3. Family businesses generate more profit from their assets. Family firms achieved a much higher return on assets (ROA) than non-family businesses over the course of the decade.


4. Family businesses gain access to financing at a lower cost. The weighted average cost of capital of family businesses was lower than for non-family firms, as both the interest they pay on their debt and their cost of equity are lower.


5. Family businesses create more jobs than non-family firms do. The annual compound average growth rate of the average number of employees over the period was 3.4% for family firms and 0.8% for non-family enterprises.


6. Family businesses create more jobs during downturns in the business cycle. Over the last decade, job creation by family businesses was higher in downturns than in upswings. By contrast, non-family firms created jobs only during upswings, while they cut jobs or kept them virtually stable in downturns.


7. Family businesses have much higher average labor productivity than non-family firms do. Labor productivity for family companies was €1.58 million, compared with €0.16 million for non-family firms. The family firms also had significantly lower wage costs throughout the period studied.


The key to growth


To explain such results, you need to return to the very raison d’être of family firms. The key differentiating factor about family businesses is the fact that profit maximization (financial wealth) exists side-by-side with other non-economic objectives that are important to the owner family. For some it is more important to be able to hand over a thriving enterprise to the next generation than to record stratospheric profits.


This does not make family businesses paragons of new-age economic perfection. But it does make clear that they have a vital role to play in creating economic growth. Ignore them at your peril.


Cristina Cruz is a professor of entrepreneurial management and family business at IE Business School in Madrid.








An entrepreneurial cross-country trip



By Barbara Spector



Two Asheville, N.C., brothers and business partners are taking a two-month cross-country trip to visit and interview small-business owners in major metropolitan areas. Their goal, they say, is not only to tour the country, but also to share information on business strategies, challenges and successes with other entrepreneurs. The mission of the trip, as the brothers describe it in a video on their website, is “to promote and enliven the entrepreneurial spirit throughout the United States.”


Brothers Jacob and Daniel Ballard, owners of iWebXpert, an Internet marketing company, left their hometown on April 1, planning stops in Dallas, Las Vegas, Los Angeles, Seattle, Chicago, Cleveland and New York, among other cities. They started their trip with a list of prospective interviewees and hoped to find others along the way via a combination of referrals and serendipity.


The Ballards are documenting their journey—which they’ve dubbed “Big Town, Small Business”—on their company’s website, The “roadtrip” section of the site includes a city-by-city blog and video documentaries. They’re also using social media like Facebook and Twitter to promote their travels, during which they plan to offer free workshops to business owners and tout their brand.


The brothers say their trip is possible because the nature of their business enables them to serve their clients from remote locations. The services they offer include web design and development, graphic design, search engine optimization and social media marketing. “We have the option to work wherever we want,” says Jacob Ballard, 27, who founded the company about two years ago. “All we need is our computers and the Internet.”


Daniel Ballard, 30, who held a variety of jobs before taking a full-time post at iWebXpert, says this flexibility helped seal his decision to join the company. “That idea was exciting to me,” Daniel recalls.


Maintaining their business while traveling and producing their documentaries will be challenging, Jacob notes. “It sounds like it’s all fun,” he says, “but we’re going to be doubling our workload.” To help fund their trip, they are seeking donations from visitors to their website.


A March 15 article on the Ballards’ travel plans in the Asheville Citizen-Times caught the attention of Cindy Clarke, executive director of the University of North Carolina Asheville Family Business Forum. Clarke reached out to the brothers and suggested they discuss family business issues during their interviews with entrepreneurs. “I thought, ‘They’re probably going to see businesses that are family-owned, and I bet they never thought about that aspect,’” Clarke recalls. “Now they realize that there’s another perspective, and that best practices include family communication. This gives them a whole other dynamic.”


Jacob acknowledges the need to maintain a balance between family and business when working with his brother. “We piss each other off and then become friends [again] in 15 minutes,” he says.


The brothers’ first blog post and video document their visit to New Orleans, including a sit-down with Jason and Inta Phayer, a husband and wife who own The Milk Bar, a sandwich and milkshake shop. Jason Phayer acknowledges in the video that the eatery can’t compete with larger restaurants on the basis of price or fancy décor. “We compete on product and service,” he says.


In keeping with the brotherly spirit, Jacob and Daniel will end their journey with a visit to their brother Josh Ballard, 28, in Lakewood, Fla., who expects to become a first-time father in early June.








Copyright 2013 by Family Business Magazine. This article may not be posted online or reproduced in any form, including photocopy, without permssion from the publisher. For reprint information, contact

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