Understanding Exit from the founder's business in family firms

Abstract

In this chapter we investigate the role of family-specific factors in facilitating or constraining business exit in family firms. Family business literature seems to have an implicit bias toward continuity and persistence in the founder's business. This is explained by heavy emotional involvement and development of path-dependent core competences over generations. However, several long-lived family firms were able to successfully exit the founder's business. Exit allowed them to free significant strategic resources, which were later reinvested in exploiting novel entrepreneurial opportunities. Our aim is to investigate the process of exit from the founder's business in family firms, to explain both triggers and obstacles to decommitment and de-escalation. We address this issue through the study of the Italian Falck Group's exit from the steel industry in the 1990s, followed by successful startup of a renewable energy business. By carefully triangulating different data sources and different voices within and outside the controlling family, we develop a framework describing family-specific facilitators and inhibitors of business exit, and subsequent startup of a new business. Three types of family-specific factors emerge as relevant in shaping a family firm's likelihood and speed of exit from a failing business: family-related psychological triggers and obstacles to business exit; family-specific components of the structural de-escalation context; family responses to ensuing de-escalation and exit needs. The emerging framework offers a more nuanced interpretation of decommitment activities in family firms, pointing to the differential role family-specific factors may play as facilitators or inhibitors of business exit. We also suggest how these family-specific results may contribute to a deeper understanding of exit in nonfamily firms. Our results also have practical implications for family business entrepreneurial management. Actively managing the different determinants of exit choices that emerged from our study will set the stage for de-escalation from a failing course of action – a dynamic capability all family firms should learn and practice if they intend to transfer their entrepreneurial orientation to next generations.

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