The secrets of outperforming family-owned businesses: How they create value—and how you can become one

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The secrets of outperforming family-owned businesses: How they create value—and how you can become one

By Eduardo Asaf et al., | McKinsey & Company | November 28, 2023

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These days, organizations across industries and geographies are doing everything they can to bounce forward from recent economic, geopolitical, and technological disruptions.  For them, resilience may be a relatively new concept.  For family-owned businesses (FOBs)—companies in which founders or descendants hold significant share capital or voting rights—it’s just business as usual.  Regardless of what the world throws at them, many of these companies have survived and thrived over multiple decades. Some, such as Levi Strauss and L’Óreal, have been operating for well over a century.

FOBs have long played an outsize role in the global economy—a role that often goes unnoticed or underestimated. They account for more than 70 percent of global GDP, and they generate turnover of between $60 trillion and $70 trillion annually. They are responsible for about 60 percent of global employment, and they play a critical role in supporting education, healthcare, and infrastructure development across their communities around the world.

It has been widely known that FOBs deliver higher total shareholder returns (TSR) compared with non-FOBs, the root causes of this outperformance have been less well-known—until now. 

They demonstrate four mindsets that are common to all FOBs but that take on outsize importance within the high performers, allowing them to gain and sustain a competitive advantage. The critical mindsets are a focus on purpose beyond profits, a long-term view and emphasis on reinvesting in the business, a conservative and cautious stance on finances, and processes that allow for efficient decision making.

The high-performing FOBs then combine these mindsets with five strategic actions in ways that others do not. Specifically, they actively diversify their portfolios, and they dynamically reallocate resources to the most promising businesses, regions, and channels. They are both efficient investors and operators. They maintain a relentless focus on attracting, developing, and retaining talent, and they continually review their governance mechanisms to ensure strong business performance across generations.

It’s important to note that the formula and the lessons it imparts are applicable to both FOBs and non-FOBs alike—and as research suggests that deploying it effectively can pay off over the long term. 

3 key takeaways from the article

1. For family-owned businesses (FOBs) concepts such as resilience is just business as usual. Regardless of what the world throws at them, many of these companies have survived and thrived over multiple decades.  
2. It has been widely known that FOBs deliver higher total shareholder returns (TSR) compared with non-FOBs.
3. These FOBs demonstrate four mindsets: a focus on purpose beyond profits, a long-term view and emphasis on reinvesting in the business, a conservative and cautious stance on finances, and processes that allow for efficient decision making.  The high-performing FOBs then combine these mindsets with five strategic actions in ways that others do not. Specifically, they actively diversify their portfolios, and they dynamically reallocate resources to the most promising businesses, regions, and channels. They are both efficient investors and operators. They maintain a relentless focus on attracting, developing, and retaining talent, and they continually review their governance mechanisms to ensure strong business performance across generations.

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Topics:  Family Owned Businesses, Business Strategy, Resilience