The importance of company names

When you’re launching a new business, one of the trickiest tasks is to give your new enterprise the right name.  Indeed, so challenging can the task be that agencies have emerged that will do the brainstorming for you.

Many companies however, especially if family firms, choose to name their business after the founders.  A recent paper from Duke University examines whether calling your company after your family name has any impact on subsequent financial performance.

What’s in a name?

The researchers analyzed around 2 million small companies from across western Europe.  The sample contained companies that were relatively young and with few shareholders and employees.  The analysis revealed that around 19% of companies were named after their founders.

Interestingly, it emergedt hat companies that were named after their founder, or largest shareholder, performed better than their peers.  Their return on assets was a significant 3% higher than other companies.

They suggest that this occurs because owners have a greater reputational stake in their business if it bears their name.  If you feel strongly enough about what you offer that you’re willing to put your own name and reputation to it, then you’re more likely to put the work in to make sure it’s a success.

This phenomenon was particularly strong when the name of the company was unique.  When the name was relatively common, it was less clear that the company was named after the founder, and therefore the market rewarded them less than companies with rarer names where signal was much stronger.

A family premium

In a previous post I looked at a study that was exploring the key role founders played in the success of their business.  It found that employee satisfaction is highest at companies that are run by their founder, or the family of the founder.

Interestingly however, not only is employee engagement higher, but corporate performance also appeared to be higher, as engaged employees produce better outcomes for the founders.

“We found that employees at firms like Amazon—large, founder-run, publicly traded—are, on average, more satisfied with their company,” the authors suggest.

This may be because such firms think fundamentally differently to companies where the founders are no-longer present.  A recent study found that founder-CEOs have a very different world view to the CEOs of non-family firms.

The analysis revealed that the more family orientated the company was, the greater focus it had on its stakeholders.  So, for instance, if it was a choice between paying a dividend to shareholders or making employees redundant, they would generally choose to protect the jobs.

Interestingly, the ‘family’ CEO is also much more likely to take a hands on role in the business and is therefore less likely to delegate responsibility to someone else.

Whilst it seems the family run firm does afford a premium, it also seems that an additional premium can be secured if their company carries their name.

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