Family Firms Aren’t Less Innovative — They Innovate Differently

The conventional wisdom about family businesses is easy to summarize: they are conservative, risk-averse, and less innovative than non-family firms. It is also incomplete.

The problem starts with the metric. In most boardrooms and many academic studies, innovation is treated as synonymous with R&D spending. By that definition, family firms often appear to lag. But that lens misses a broader strategic reality: innovation is not just about laboratories, patents, and intangible assets. It is also about how firms commit resources, redesign business models, and build capabilities that compound over time. 

That distinction matters. Some of the most influential companies of the past half-century did not create advantage through a single breakthrough invention. They built it gradually. Walmart, Ryanair, Cirque du Soleil, and Patagonia each took years — in some cases decades — to refine a distinctive model and scale it successfully. Their stories suggest that enduring innovation often looks less like a dramatic leap and more like disciplined strategic evolution. 

Family firms are especially likely to follow that path. Because family wealth is often concentrated in the firm, owners tend to be more cautious about uncertain bets. That usually reduces appetite for high-risk R&D (Anderson, Duru & Reeb, 2012). But it does not eliminate innovation. It changes where innovation shows up.

The central finding of Cassiman, Valentini & Wehrheim (2026)* is that successful family firms allocate resources differently from successful non-family firms. In this context, “successful” refers to firms whose average return on assets (ROA) in 2020–2024 matched or exceeded their average ROA in 2017–2019—that is, firms that maintained or improved profitability through and after the Covid shock. Across a sample of 420 publicly listed industrial firms in Spain and Germany, family firms that met this benchmark invested more heavily in capital expenditures and less in R&D and SG&A than both unsuccessful family firms and successful non-family peers. Non-family firms, by contrast, were more likely to follow the opposite pattern. The implication is straightforward: family firms are often judged as “less innovative” because observers are looking for the wrong signals.

A better way to think about family-firm innovation is through strategic transformation. Hilti is a telling example. The family-controlled company did not merely improve its power tools; it gradually transformed itself into a fleet management service business. That shift took roughly 15 years and required much more than product development. It meant rethinking pricing, contracts, inventory management, repair services, sales incentives, working capital, and customer education. In other words, the innovation was systemic. It was embedded in the business model itself. 

This is where family firms may hold an advantage. Strategic transformation requires patience, control, and liquidity. The evidence in Cassiman, Valentini & Wehrheim (2026) suggests that successful family firms pair relatively strong cash reserves with higher leverage, giving them both resources and control when uncertainty rises. They also show greater consistency in resource allocation over time — the kind of strategic steadiness that allows a firm to stay the course during disruption rather than lurch from one priority to the next. 

For executives, investors, and family owners, the lesson is clear: stop equating innovation with R&D intensity alone. The more important question is whether a firm is making coherent long-term bets that can reshape its competitive position. In many family businesses, innovation is not missing. It is simply less visible, more operational, and more tightly linked to survival. That may be the real challenge for family firms today. Not learning how to innovate like everyone else — but learning how to explain the kind of innovation they already do best.

* - Cassiman, B., Valentini, G., and D. Wehrheim. 2026. Innovation at Family and Non-Family Owned Firms: The Case of Germany and Spain. Working paper. Mimeo.

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Bruno Cassiman is Professor in the Strategic Management Department at the IESE Business School.

Giovanni Valentini is Professor in the Strategic Management Department at the IESE Business School.

David Wehrheim is Associate Professor in the Strategic Management Department at the IESE Business School.

This blog is based on a discussion held at the 2026 IESE-ECGI Corporate Governance Conference Family Firms: Purpose, Economic Performance and Social Impact. Visit the event page to explore more conference-related blogs.

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