VIII-S5

SUMMARY

DO FAMILY FIRMS HAVE TO SHARE THE PIE TO ACHIEVE RAPID GROWTH?

Elisabeth J. Teal, Baylor University
Samuel L. Seaman, Baylor University
Nancy B. Upton, Baylor University

Principal Topic

Can family firms experience rapid, sustained growth while maintaining family ownership? Some experts suggest private firms wishing to grow faster than industry averages must offer equity to employees. This is a concern for family firms who want to grow rapidly yet maintain family ownership and control. This study provides a comparative analysis of fast growth firms with various ownership structures including “no family,” “low family,” and “high family.”

Method

154 fast growth firms participating in the 1998 Survey of Innovative Practices administered by the Kauffman Foundation, Ernst & Young, and the Entrepreneur of the Year Institute were examined. The sample was divided into three groups according to the amount of ownership retained by the CEO/entrepreneur and family. Multiple dimensions of sales growth (percent growth in sales and sales growth index), profit (percent growth in profit and profit growth index), human resource practices (compensation and other benefits including flextime, job sharing, and telecommuting) and performance (growth, productivity, profit) were examined. Chi square tests were used to determine differences across groups.

Results and Implications

Family firms can grow rapidly and also maintain family ownership. Fast growth family firms are not significantly different than their non-family counterparts in growth strategies, objectives, or rates. However, significant differences exist in the use of non-cash compensation where family firms depend more on base salaries, benefits, and perquisites and less on non-cash incentives (including equity compensation) than non-family firms. Further analysis of family firms indicates a significant correlation between Sales Growth Index and non-cash incentives (p<.0001) suggesting that family firms that wish to maximize sales should consider using non-cash incentives.

Family firms in our sample preferred to maximize profits over sales. Growth in sales decreased as family ownership increased and maximizing profits increased with greater family ownership. Since family firms do not share ownership, other ways must be found to reward and motivate employees. The preferred method in our sample was profit sharing. This study provides insight into fast growth family firms and also illustrates the efficacy of using multiple measures of performance related to the goals of the business.

CONTACT: Elisabeth J. Teal, Baylor University, Hankamer School of Business, Department of Management and Entrepreneurship, P.O. Box 98006, Waco, TX 76798; (T) 254-710-6241; (F) 254-710-1093; Beth_Teal@baylor.edu