The influence of family firms on the sustainability of start-up/nascent enterprises
conference contributionposted on 19.03.2018, 11:57 authored by Louise ScholesLouise Scholes, Mathew HughesMathew Hughes, You Yi, Xiaoti Hu, Paul Hughes
The article examines the influence of family and family businesses on the sustainability (ability to become self-sufficient after initial input from family) of seven start-up/nascent enterprises set up by family members. Family firms can expand by setting up new enterprises so that their offspring or siblings can start their own business and can experiment with novel products or processes. This has many advantages for the established and for the new firms and for society as a whole. For the established firms the funds provided for the start-up can be ring-fenced so the established firm can effectively expand with reduced risk. It also provides family firms with a means of training the younger generation, a form of apprenticeship, before they take over the whole business from the incumbent generation. For new firms it can provide sustainability that would otherwise not be easy. For society family firms can be regarded as the seedbed of larger firms that can add to GDP, generate income tax and employment. Sustainability can come from the provision of additional resources that start-ups/nascent firms often lack such as additional funding, access to its networks of stakeholders such as a skilled workforce, customers, and suppliers, and management expertise. However, there may be some disadvantage for the fledgling firm with this arrangement if there is conflict in the decision-making process between a dominant family firm founder and the new CEO of the fledgling business. Our findings show that family members are involved in the decision-making process of the fledgling firms, they provide not only finance and access to their networks but also advice and emotional support. Most combinations of parent/child have managerial/entrepreneurial mindsets and we propose this will enhance sustainability of new ventures as the parents are effectively performing due diligence on the proposed business ideas and picking the best. Sustainability can be diminished if parents do not understand the new venture and withhold funding. Another key influence on sustainability was timing, that is how close the child entrepreneur was to succeeding the family business. This manifested itself in the form of request to return to the family firms and imposed conditions in return for funding. Path dependence of the child entrepreneur, a child with a managerial mindset, an exclusive reliance on parental networks, no additional team members or partners, or a very dominant child personality could have a negative influence on sustainability. We contribute to the literature on family firms and entrepreneurship and in particular to the little explored area of how family firm foster the creation of new companies.
- Business and Economics