Despite employing more workers, family businesses are more efficient

Here’s an interesting piece of research. From the Italian chapter of the Family Business Network and Bocconi University, the research focuses on a comparison of family businesses and non-family businesses. Among the many findings was and interesting employment/efficiency comparison between the two different business-ownership types.

The study, which canvassed the views of more than 15,000 businesses across Italy, found that family businesses grew their employment levels by a combined annual rate of 5.3% from 2010 to the end of 2014, whereas non-family businesses grew their levels by an annual rate of just 1.2% over the same period.

But not only were family businesses better job creators, they were also more efficient. During the same period, businesses with annual revenues of more than €50 million saw considerably higher growth rates than non-family businesses. Growth for those family businesses with less than €50 million in annual revenues was around the same as for their non-family counterparts.

But operating profits for all family businesses were higher than their non-family counterparts, said the study. And family businesses outperformed non-family businesses on a return on capital basis. Not only did family businesses employ more people and achieve greater profitability than non-family businesses, they achieved this with less debt than non-family businesses.

The numbers are enlightening because they show that businesses that employ more people are often more efficient than those employing less. This is contrary to the conventional economic theory on businesses, which sees labour as a cost, and those that employ less staff, all being equal, should be more profitable than those employing more staff.

Although the study was just in Italy, similar trends are likely to be happening in other economies. As reported last April, the top 500 family businesses in the world generate more jobs per dollar in revenue than the companies comprising the Fortune 500.

More research needs to be done in this area, and most family businesses are just as cost efficient when it comes to labour as non-family businesses. Nevertheless, there appears to be something in the fact that family businesses can apparently maintain profitability, but at the same time employ more labour than non-family businesses. They also do this with less debt.

Policymakers around the world need to take note.