Guide

Choosing a name for your biz? You'll want to read this first

Some of the world's most famous businesses are branded with a family name that stretches back generations. Some boast that their very survival and success come from the strong values associated with a name.

It may even boost the company's value or share price.

Over a 10-year period from 2001-10, Spanish private bank Banca March examined 832 European businesses where an individual or family holds at least 20 percent of the company's shares and at least one family member is on the board of directors. It found listed family-run businesses generated significantly higher stock returns, or the "family premium."

Tailors work on a garments in the work room in London.
Dan Kitwood I Getty Images
Tailors work on a garments in the work room in London.

The outperformance varied from sector to sector, but the survey found the areas in which family businesses prevail are ones with "lower-than-average risk," including personal hygiene, perfumes, clothing and textiles, food and machinery.

If a name suits….

But for many of Europe's best-known businesses, using the family name and maintaining family ownership are more important than stock market returns.

On London's famous Jermyn Street, home to some of the country's finest tailors and shirtmakers, family names, such as Gieves & Hawkes and Harvie & Hudson, dominate.

Founder of formal menswear and shirtmaker Charles Tyrwhitt, Nick Wheeler, named his business after his middle names because he said it was fitting with the tradition of the industry.

"In clothes, traditionally what you would have done is go to your tailor or go to your shirtmaker. The name above the door was the name of the person in the shop," Wheeler told CNBC in 2014.

"I suppose when I started the business in 1986, I didn't really want to call it Nick Wheeler shirts. Shirt making is a traditional thing. Jermyn Street is about tradition, so the name needed to sound old. I had the middle name Charles Tyrwhitt, which sounded like it had been around for 100 years," Wheeler said.

Giving his business the family name makes it more personal, as customers associate the firm with a real person, Wheeler said, but it also ultimately makes the company harder to sell.

"You become much more personally attached, and I suspect if you did some research, you would find people who called their business after their own name would be less likely to sell the business. I think you become attached to it, which is a good and bad thing," he added.

Beauty products pioneer Estee Lauder during the opening of a shop in Hungary, October 1989
AFP | Getty Images
Beauty products pioneer Estee Lauder during the opening of a shop in Hungary, October 1989

'Joint responsibility'

In Europe, family businesses are especially important for the economy as they account for between 65 to 80 percent of all European companies and provide between 40 percent and 50 percent of all jobs in the European private sector, according to business group European Family Businesses.

Precious metals, materials and technologies firm Heraeus, has been a family-run enterprise for more than 160 years, established by Wilhelm Carl Heraeus, a pharmacist and chemist who took over his father's pharmacy in Hanau, Germany, in 1851.

Dr. Jürgen Heraeus is still chairman of the supervisory board and the company has grown from 40 employees to around 12,500 staff in over 110 subsidiaries.

Heraeus takes the family name very seriously, and the group said they aim to "remain 100 percent family-owned for the long term," according to the group.

"We have a joint responsibility to strengthen the company we inherited and pass it on to the next generation," Heraeus said in a statement in the group's website.

"The goal of the owners is to actively shape the future of the company and the family in line with professional standards and to the benefit of all concerned," according to the website.

Going it alone

For entrepreneurs with a name that is already well known, breaking from the family firm can have its challenges.

Aerin Lauder, granddaughter of beauty icon Estee Lauder has worked for the family business most of her life. The company's shares are up more than 90 percent in the last five years compared to returns of around 40 percent for the broader index for the S&P 500, as of early February.

But in 2012, Lauder decided to focus on her own venture and launched the home, lifestyle and cosmetics brand AERIN.

Aerin Lauder's cousin, William Lauder, who serves as the executive chairman of the family firm, said that having a famous surname did not automatically mean Aerin Lauder's business would be a success.

"Outside of the beauty category there are other companies who have great names and Aerin Lauder is trying to establish herself outside of the beauty business," he said in a 2014 CNBC Meets documentary.

"This business is a very competitive business, and you can't stand still for a moment to think that just because you have a certain name your brand is going to do well and Aerin takes that to heart. She works hard, her team works hard … but they have to keep at it because somebody else is going to be right behind them," William told CNBC.