Why there are so many successful family businesses

When you hear the phrase “family business,” you might think of the backstabbing Roys of Succession or the dysfunctional Duttons of Yellowstone . But while TV’s family companies are entertaining, their real-life counterparts may be even more compelling. Around the world, family businesses produce about two-thirds of all economic output and employ more than half of all workers . And they can be very profitable: The world’s 500 largest family businesses generated a collective US$8.8 trillion in 2024. That’s nearly twice the gross domestic product of Germany. If you’re not steeped in family business research—and even if you are—their ubiquity might seem a little strange. After all, families can come with drama, conflict, and long memories. That might not sound like the formula for an efficient company. We are researchers who study family businesses, and we wanted to understand why there are so many of them in the first place. In our recent article published in the Journal of Management , we set out to understand this different kind of “why”—not just the purpose of family firms, but why they thrive around the world. The usual answers don’t really explain it The standard answer to “Why do family companies exist?” is straightforward: They allow owners to generate income and potentially create a legacy for future generations . A related question is: “Why do entrepreneurs even want to involve their relatives in their new ventures?” Research suggests entrepreneurs do so because family members care and can help when resources are limited . But that might not be unique to family businesses. All companies—whether run by a family or corporate executives—balance short-term profit and long-term goals. And all of them want reliable workers who are willing to pitch in. So those answers don’t explain why family companies, specifically, are so common worldwide. A different angle: Winning without fighting For our study, we considered decades of research about family firms to conclude that family businesses are uniquely skilled at keeping competitors out of their market space—often without actually competing with them. How? We think a quote from Sun-Tzu’s The Art of War captures the idea: To fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy’s resistance without fighting. Family-owned businesses often do exactly this, which is why there are so many of them. Here’s how it works in practice. 3 key differences Research on family businesses has shown that they differ from other types of companies in three key ways: the types of goals they pursue , the governance structures they establish , and the resources they have . Together, these three characteristics explain how family businesses may use their property rights to get an edge over their competitors. The first is goals. Unlike other types of enterprises, family businesses prioritize noneconomic goals involving the reputation, legacy, and well-being of the family— both now and in the future . Of course, they still have to worry about making a profit. But their interest in...

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