I think some of it is that it can be a lifestyle business from the perspective of the owners. For employees it can mean they're getting paid below the market rates at a large company and working at least as hard. That may be a reasonable tradeoff to avoid dealing with big company BS--though possibly dealing with small company BS instead.

That may all be a reasonable tradeoff but lifestyle business does get used as a rationale for a lot of things not all of which necessarily benefit employees. (Or maybe lifestyle business just gets used for a lot of things that are only somewhat related.)