From the perspective of agency, resource-based view, and resource-dependence theories, we explore the impact of the presence of outside directors on firm performance in family small and medium-sized enterprise (SMEs). Using survey data from 369 Spanish family SMEs, our findings show an inverted U-shaped relationship between the proportion of outsiders on the boards of first- and second-generation family firms and firm performance. The results show that a balanced presence of outside directors contributes to value creation in family SMEs and confirm that the composition and the roles of the board of directors differ from generation to generation in family firms.