Family entrepreneurship
When we think of startups, we often imagine a lone wolf in a garage. But the data suggests a different reality: most businesses are a family affair.
"75% of entrepreneurs in 48 economies around the world said that their family was involved in starting their businesses, either as co-managers or co-owners. The vast majority of startups around the world are, in fact, family businesses."
— Babson College
Beyond Succession: Pooling Resources
Historically, research focused on Succession—the passing of the torch from one generation to the next. While legacy is important, modern theory recognizes that family entrepreneurship is also about the creation of new ventures.
Chrisman et al. (2003) argue that the true power of families lies in their unique ability to pool resources. Families can mobilize labor, capital, and social connections faster than non-family teams because of high trust and shared goals.
[Image of Three-Circle Model of Family Business]New Frontiers: Copreneurs and Teams
Randerson et al. (2015) propose that the field is expanding beyond the traditional "Father-Son" shop. They identify several emerging areas of research:
- Copreneurs: Couples living together and running a business together (romantic and business partners).
- Entrepreneurial Teams: Groups of relatives (siblings, cousins) forming teams to launch new ventures.
- Corporate Family Entrepreneurship: How families handle high-level strategic decisions like mergers, acquisitions, and spinoffs.
- Transgenerational Entrepreneurship: How value is created not just for the current quarter, but across decades.
The Modern Reality: The "Shrinking" Family
How does the changing definition of "family" affect business? Aldrich et al. (2021) introduce the Family Embeddedness Perspective (FEP).
This perspective recognizes that the "Corporate Family" (the large, multi-generational dynasty) is in decline. Modern families are smaller, women have increased occupational opportunities outside the home, and there is a growing proportion of childless adults.
The FEP uses a Life Course Perspective, examining entrepreneurship over long lifespans rather than single points in time. It brings a normative lens to difficult questions, such as the pressure to join the family business or "coerced resource pooling" (when family members are guilt-tripped into providing cheap labor).
1. Family Entrepreneurship and Resource-Based View (RBV)
Family Entrepreneurship provides a compelling application of the Resource-Based View (RBV). The unique competitive advantage of a family business often stems from "familiness"—a distinct bundle of resources including high trust, shared history, and the ability to mobilize labor quickly ("resource pooling"). While RBV asks if a resource is rare and inimitable, Family Entrepreneurship confirms that the deep, tacit social bonds of a family unit are nearly impossible for non-family competitors to replicate, providing a durable strategic edge.
2. Family Entrepreneurship and Agency Theory
There is a complex friction between Family Entrepreneurship and Agency Theory. Agency Theory predicts conflicts between owners (principals) and managers (agents). However, in many family firms, the owner and manager are the same person (or close kin), theoretically eliminating "agency costs" like monitoring. Yet, this introduces "family agency costs"—altruism toward unqualified relatives or the expropriation of minority shareholder wealth to satisfy family needs. Thus, family ties can solve traditional agency problems while creating entirely new ones.
3. Family Entrepreneurship and Upper Echelons Theory
Upper Echelons Theory argues that an organization reflects the cognitive biases of its top team. In Family Entrepreneurship, this reflection is intensified. The "dominant coalition" is not just a professional team but a biological unit with shared "Life Course" experiences. The strategic decisions of a family firm—such as risk aversion to protect generational wealth—are direct manifestations of the specific values, history, and "embeddedness" of the ruling family, validating the Upper Echelons premise that biography dictates strategy.
4. Family Entrepreneurship and Social Capital Theory
Family Entrepreneurship is essentially Social Capital Theory in its most concentrated form. Social Capital focuses on the value derived from relationships. In family ventures, this capital is "bonded" by blood, creating an incredibly efficient network for transferring knowledge and financial support ("coerced resource pooling"). However, this dense social capital can become a "dark side" liability if it insulates the firm from outside ideas, demonstrating the theory's warning that strong internal ties can lead to insularity and stagnation.
5. Family Entrepreneurship and Stewardship Theory
While Agency Theory suspects managers of self-interest, Stewardship Theory suggests they can be motivated by a desire to serve the organization. Family Entrepreneurship offers the strongest evidence for Stewardship Theory. Family members often view the business not as a financial asset to be milked, but as a legacy to be protected for future generations ("Transgenerational Entrepreneurship"). This psychological ownership drives them to act as stewards, prioritizing long-term survival over short-term personal gain.