Familial Socio‐Political Influences on New Venture Creation in Family Business

Abstract

New venture (NV) creation has been extensively studied in Entrepreneurship literature (Perrow, 2002). However, recent discussion on NV has moved to ecosystems such as family businesses (Sharma et al., 2014). As a business family grows, creating new business ventures becomes crucial for family business sustainability (Zahra, Hayton & Salvato, 2004). Family plays an important role in NV creation (Rodriguez et al., 2009). Though it is critical for family business sustainability, researchers have regularly emphasized that our understanding of the actual venture creation process in family business requires further exploration (Steier, 2009). particularly, the role played by the socio-political forces within the family in NV creation process is an area that is not understood well. This paper is an attempt to address this crucial gap in literature. The key questions we researched are: (i) Besides commercial viability, what other considerations influence NV creation in family businesses? (ii) Why some economically viable NV proposals receive family’s support, while others do not?, and (iii) What influence do family members have on resource allocation to NVs? We report answers to them based on empirical research done on Indian family businesses.

Understanding NV Creation: Theoretical Perspectives and Family Business Dynamics NV creation is a complex, multidimensional phenomenon (Gartner et al., 1989) that is shaped by individual (Brockhaus, 1982), organizational (Barney, 1991; Vesper, 1980) and environmental (Pennings 1982 a&b) factors. The process dimension of NV creation is more complex and influenced by its context (Bhave, 1994). From the process perspective, NV creation involves identification of opportunity, gaining family's approval and resources, and venture creation.

Family provides multiple resources (Chrisman et al., 2003) to NVs generating wealth for family (Miller, Le Breton-Miller and Lester, 2010), those developing family members' expertise in sustaining family’s legacy (Sharma, 2008) and family’s reputation (Zahra, 2010). Thus, families are likely to support decisions that can add to their overall wealth. H1: NV proposals that address multiple family considerations receive owner family’s attention and support.

Socio-Political Forces influencing Decisions: Family members have strong emotional (Churchill & Hatten, 1997) and strategic (Sharma, 2004) connect with the family. They have tacit knowledge (Cabrera-Suarez et al., 2001), social capital (Steier, 2001), passion (Andersson, Carlsen, & Getz, 2002), and innovative spirit (Litz & Kleysen, 2001) that help NVs succeed. H2: NV proposal from a family member stands better chance of getting support from family compared to that proposed by a non-family member.

The dominant coalition in the family shapes the vision of a family business (Chua et al., 1999), and those close to it are likely to attract greater family attention. Well networked family members often bypass competence criteria and receive preferential treatment (Athanassiou et al., 2002). Those with strong social standing in the family are likely to be capable of influencing other family members (Aldrich and Zimmer, 1986). Hence, H3: Given parity among NV proposals on business and family considerations, NV proposal from a family member with strong social and/or political standing is more likely to get the family’s attention and support.

While dealing with influential members, relational rules often dominate formal rules and governance mechanisms (Lehman & Ramanujam, 2009). The greater an individual’s distance from the family’s core, the weaker is the relationship with the family (Gersick et al. 1997). Family considerations often influence the allocation of resources in business (Miller & Miller, 2006) H4: NV proposal from a close family member is likely to be scrutinized for approval and resource allocation leniently compared to that from a distant family or non-family member.

Creation of a NV by a family member is a step towards continuation of family legacy and promotion of socio-emotional wealth. Family firms are averse to loss of socio-emotional wealth (Gomez-Mejia et al., 2007). H5: NV proposal from a family member is more likely to secure commitment of support from other members in post approval stage compared to the one championed by a non-family member.

Keywords: Family Business, Entrepreneurship, New Venture, Sustainability, Innovation, Diversification, Start‐up