In this paper, we develop an overlapping generations model, where agents are endowed with heterogeneous innate talent, and family firms have a comparative advantage over non-family enterprises as they have access to an additional source of immaterial capital, namely the network of family connections. Our theory predicts the polarization of family firms into groups with very different quality of managerial practices and level of profitability, and the uncertain evolution of the economy between a crony (stagnant) and an entrepreneurial (dynamic) regime, depending on the productivity of family connections for doing business. Then, consistently with the theory, we provide empirical evidence in favor of an almost bimodal distribution of managerial practices across family firms, with a "bump" on its left tail, and of the importance of social connectivity among individuals for explaining the difference in managerial practices between family and non-family firms.