Family businesses sacrifice cash in the name of innovation, study finds

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Around 80% of family business owners will forgo dividends in order to drive innovation compared to 60% of non-family firms, despite being more restricted by limited financial resources.

That’s the claim made by a new study which argues family business owners are more innovative than their non-family owned counterparts.

Dr Roberto Flören, Professor of Family Business at Nyenrode Business Universiteit, led the study and said that in order to remain competitive in arenas often dominated by larger corporations, small businesses have had to innovate and be agile in order to succeed.

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The mobility sector in particular has a large amount of independent family businesses but the emergence of more online and multiple retailers means they are having to constantly think of new ideas to stay ahead of the competition.

Dr Flören said: “Historically, bad leadership was a pitfall for family businesses, with managers resisting change and embracing tradition.

“Now there is an almost completely different story, with over half of current directors stating that it is crucial for the continuity of the family business that the new director is even more innovative than the current one.

“It is clear that increasing numbers of these organisations are anticipating and preparing for this real threat ahead of time.”

His study found that 62% of all family businesses have brought at least one new product or service to the market in the past three years.

Dr Flören believes his study offers some important lessons for heads of industry to consider.

“The report clearly shows that family business owners are not resting on their laurels, however there are still key threats to innovation which often include dependence on the innovative strength of the founder and a high percentage of the family wealth being tied up in the business, making it unavailable for use on new projects.”

“Yet despite these challenges, 72% of all family businesses have significantly improved or updated their internal business processes over the last three years. It is clear that bigger corporations looking to implement a successful innovation strategy would do well to look to family businesses for inspiration.”

The research, carried out in collaboration with global bank ING and NPM Capital, which provides private equity to family businesses, examined 399 private firms, of which 69% were family-run.

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Joe Peskett

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