Eponymous family businesses outperform - mostly

Porsche - the name of the family in the brand might just explain part of the success of the famous car company                    Photo: Pixabay

Porsche - the name of the family in the brand might just explain part of the success of the famous car company                    Photo: Pixabay

Here is an interesting thought to ponder - family businesses that bear the name of their owners outperform those that don’t. OK, there is no absolute evidence of this, but new research may back this up.

According to three academics, eponymous businesses, those that bear the name of their owners, generate a three percentage point greater return on assets than non-synonymous firms.  Writing for the American Economic Review, the academics from Duke University's business school looked at data from more than 1.8 million European firms, covering a ten-year period from 2002 to 2012.

The study found that eponymous ventures are likely to create a stronger association between the entrepreneur and his/her firm. This increase the reputational benefits or costs of having the market hold a favourable or unfavourable impressive of his/her ability, says the research. The authors reckon this is partly the result of high-ability entrepreneurs being more drawn to eponymy than low-ability ones. Interestingly, the research also found the rarer the name of the owner the more likely the business will succeed.

Indeed, there might be something more in this than even this research suggests. Out of the top 500 companies in the world, as measured by the University of St Gallen, 161 have the owner's name in their company's name. That’s 32% of the total. Some of the best-known ones are household brands like Ford, Estee Lauder, Heineken and Porsche.

This assumption isn’t backed up with substantial research, but the fact that so many big family businesses still contain the name of the owner is likely to further endorse the Duke University study’s thesis. Most of these 161 companies have proven their success over multiple generations and grown to a size that proves it.

Of course, the reverse of all this is also true. When a family business with the owner’s name enters a difficult period, the reputation of that business - and the family - might just suffer more

A further link to the family-name argument, or at least from a trust perspective, was recently pointed out by Rory Sutherland, vice chairman of the advertising group, Ogilvy & Mather, and columnist for the UK-based Spectator magazine. He argues the reputation of a family business is increased even further when “& Sons” is added to the name. In a recent tweet, Sutherland said: “Adding ‘& Sons’ to the name of a family business adds a further reason to trust it.”

Although this might be less of the case when looking at the top 500 family businesses - few add “& Sons” to their company's name. And given the social norms of the 21st century, adding “& Sons” might not go down as well these days as it has in the past.

Of course, the reverse of all this is also true. When a family business with the owner's name enters a difficult period, the reputation of that business - and the family - might just suffer more than a company not named after the owner, which is experiencing similar difficulties.

One good example of this is the British jewellery company Ratners Group. The family owner Gerald Ratner made an infamous speech in 1991, which denigrated his, up until then, very successful products. Consequently, consumers stopped buying Ratners jewellery, Gerald was forced out of the business and the new owners changed the company’s name. With skin in the game, eponymous owners have to take the rough with the smooth - and perhaps that’s why they are trusted more by the outside world than many with non-owner name brands.