Professor Frank Hoy from the University of Texas at El Paso has published an excellent article which has a critically important lesson for family businesses (note: you can get access to an abstract, but need to pay for the full article). He argues that, like any mature business, family firms must find ways to innovate and even redefine their businesses if they are to continue to survive in the marketplace.
Does family matter in corporate venturing? Converting the question, can a family firm survive without corporate venturing? Life cycle theory contends that it is normal for an organization to form, grow, mature, decline, and die. Long-term survival, especially through multiple generations, would require renewal through innovation to avoid decay and death. Strategic corporate venturing may be the answer for many family firms. To innovate and prosper, a family enterprise must contend with multiple life cycles, rarely synchronized, any one of which may be in a decline stage at any point in time.
The business model that created the initial success for the founder in all probability will not allow the business to survive over the long term in a dynamic market. Some of the same processes of innovation that created the business in the first generation may need to be repeated by subsequent generations.
My experience with family businesses is that there can be two sources of resistance to innovation (or what Prof. Hoy calls willingness to change) in family firms. I often see resistance from the first generation, where the founder may bristle at any suggestions about “doing things differently than we have done them all along.” But resistance to change may also come from subsequent generations, who may not have the entrepreneurial passion of the founder.
However, this article also got me thinking again about how we define entrepreneurship. The type of innovation Prof. Hoy refers to is sometimes called corporate venturing or corporate entrepreneurship. The argument for calling innovation in established businesses entrepreneurship is that it is the same basic process. And since we define entrepreneurship as a set of processes rather than in terms of a type of person, entrepreneurship can take place in a variety of different settings and contexts.
My concern is that this rather broad use of the term has led to the loss of any clear meaning to the word entrepreneurship. From a previous post in which I look at the issue of a definition:
Entrepreneurship has become sort of a generic term that describes all sorts of behaviors that involve being creative, being mischievous, being sneaky, breaking rules, not wanting to follow rules, and so forth. An example involving rules can be heard every day in large corporations. “I wish they would leave me alone. I am just being entrepreneurial.” These people are not starting any businesses; they just use the term as cover for not wanting to follow corporate policy. I actually heard a criminal described on a newscast as being entrepreneurial because he was somewhat clever and creative in his crime. At least in American culture, the term entrepreneurship has become blurred into any one of a large collection of basically anti-social behaviors. But, I suspect from conversations I have had with friends and colleagues from around the world that is not uniquely an American issue. In some cultures they avoid the use of entrepreneur, because it has developed the connotation of a sleazy, cunning con-man.
This is what can happen when terms take on a more generic meaning. The term loses specificity and really begins to have no clear definition. Entrepreneurship has become a trendy term that can mean almost anything you want it to in many contexts.
I do not mean to diminish the importance of the lesson for family businesses in Prof. Hoy’s article. The need for innovation and corporate venturing cannot be overstated for most aging family firms. But I do wish all of us would be more careful and narrow in our use of the term entrepreneurship. Let’s keep entrepreneurship as the process of business formation by privately held ventures.