If we can't have it, then no one should: Shutting Down Versus Selling in Family Business Portfolios

• DOI: http://doi.org/10.1002/sej.1237
• Author: Francesco Chirico,Philipp Sieger,Naveed Akhter
• Date: 01 December 2016
• Published date: 01 December 2016

IF WE CAN’T HAVE IT, THEN NO ONE SHOULD:

SHUTTING DOWN VERSUS SELLING IN FAMILY

BUSINESS PORTFOLIOS

NAVEED AKHTER,

1,2

PHILIPP SIEGER,

3

and FRANCESCO CHIRICO

2,4

*

1

Strategies and Markets Department, ESSCA School of Management, Angers,

France

2

Centre for Family Enterprise and Ownership (CeFEO), Jönköping International

Business School, Jönköping University, Jönköping, Sweden

3

Department of Management and Entrepreneurship, University of Bern, Bern,

Switzerland

4

EGADE Business School, Tecnológico de Monterrey, Monterrey, Mexico

Researchsummary:How does a business family manageits business portfolio in timesof

decliningperformance to sustain the portfolio’slong-term endurance?Drawing on social

identity theory and six family business portfolios from Pakistan, we find that business

families mayprefer to shut down a satellitebusiness rather than sell it,which is primarily

driven by identity considerations. In addition, the family’s goal to recycle the assets, the

aim to restartthe business later,and the increasing declinein performance are important

contingencyfactors. This study contributesto the literatureon portfolio entrepreneurship,

business exit, and the enduring entrepreneurship of family firms.

Managerial summary:Family business managers and practitioners can benefit from our

work, which provides evidence of how family firm portfolios can respond to business decline

and ensure enduring entrepreneurship.Shutting down a satellite firm instead of selling it is a

promising turnaround strategy that can prevent a family’s identity loss while supporting the

family business portfolio’s continuity. Copyright © 2016 Strategic Management Society.

‘We would rather close down the business than

sell it to someone else.’

—Director, Kasf

INTRODUCTION

How does a business family remain entrepreneurial

over time? To answer this question, numerous

scholars have applied a transgenerational

entrepreneurship lens (cf. Habbershon, Nordqvist,

and Zellweger, 2010; Jaskiewicz, Combs, and Rau,

2015) and focused on family-level analysis (e.g.,

Habbershon and Pistrui, 2002; Nordqvist and

Zellweger, 2010), which allows researchers to assess

business families’portfolios of entrepreneurial

activities over time and beyond their core legacy

business.

1

A recent study by Zellweger, Nason, and

Nordqvist (2012b)shows that 90 percent of surveyed

entrepreneurial families are engaged with more than

one firm, which explains the increasing importance

of the portfolio entrepreneurship literature both in

general (Carter and Ram, 2003; Wiklund and

Shepherd, 2008) and in the specific context of family

Keywords: portfolio entrepreneurship; business exit; family

business; socialidentity theory; business decline

*Correspondence to: Francesco Chirico, Centre for Family

Enterprise and Ownership (CeFEO), Jönköping International

Business School, Jönköping University, P.O. Box 1026, SE-

551, Jönköping,Sweden. E-mail: francesco.chirico@jibs.hj.se

1

A core legacy business is the foundingbusiness (cf. Carter and

Ram, 2003; Feldman, 2013).

Strategic Entrepreneurship Journal

Strat. EntrepreneurshipJ.,10:371–394 (2016)

Published onlinein Wiley Online Library (wileyonlinelibrary.com).DOI: 10.1002/sej

Copyright © 2016 Strategic Management Society

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business (DeTienne and Chirico, 2013; Sieger et al.,

2011). In fact, portfolio entrepreneurship has been

identified as an important determinant of business

families’long-term entrepreneurial success (Sieger

et al.,2011).

However, thereis an important gap in the literature

because extant portfolio entrepreneurship literature

has largely concentrated on the characteristics of

portfolio entrepreneurs (e.g., Westhead and Wright,

1998), their reasons for engaging in portfolio

entrepreneurship (Carter and Ram, 2003), and,

recently, the process of establishing a business

portfolio (Sieger et al., 2011). However, successful

portfolio entrepreneurship does not end withportfolio

creation; instead, it involves constant renewal (Dess

et al., 2003), adaptation and change (Zellweger

et al., 2012b) as well as a continuous, dyna mic

process of exiting and entering business activities

(DeTienne and Chirico, 2013; Salvato, Chirico, and

Sharma, 2010). Indeed, portfolio entrepreneurship is

unlikely to follow a linear path; instead, there will be

phases of expansion and contraction (Rosa, Iacob ucci,

and Balunywa, 2005), in which portfolio

consolidation and development occur through careful

divestment and acquisition processes (Iaco bucci and

Rosa, 2010). In the family firm context, the decision

to exit one or several portfolio businesses, so-called

satellite portfolio firms,

2

is difficult but often

necessary (Salvato et al., 2010) to preserve the

nonfinancial benefits tied to the overall business

portfolio, particularly in times of declining

performance (DeTienne and Chirico, 2013;

Gomez-Mejia et al., 2007). Nevertheless, whether,

how, and why a business familyexits from its satellite

portfolio firms and which satellite portfolio firms it

chooses to exit remain unknown; such information

would greatly enhance our understanding of business

families’long-term enduring entrepreneurship,

particularly in times of decline.

To close this research gap, we investigate how

business families react to the declining performance

of their business portfolios; specifically, we focus on

the exit strategies that are deployed with regard to

satellite firms andtheir underlying motivating factors.

Because of the limited amount of extant theory, we

follow a qualitative approach and study a sample of

six family business portfolios from Pakistanthat each

experienced a decline, meaning that the business

portfolios had overall performance deterioration over

a persistent period (Weitzel and Jonsson, 1989). We

examine 49 businesses and 20 exits. Our main data

sources are interviews supplemented with

observations and other supporting evidence collected

from December 2010 to January 2014. We apply

social identity theory as the conceptual lens (cf.

Ashforth and Mael, 1989) because it is well known

that business families strongly identify themselves

with their firm(s) (Astrachan and Jaskiewicz, 2008;

Deephouse and Jaskiewicz, 2013) and that such

identification is likely to affect divestment or exit

choices (Gomez-Mejia et al., 2007; Sharma and

Manikutty, 2005).

As a first key insight, we reveal that a business

family may prefer to ‘shut down’a satellite portfolio

firm (i.e., close down operations and keep the assets)

rather than sell it to a third party—even if the latter

was an availableoption. This ‘if we can’thaveit,then

no one should’approach contrasts with the classic

profit-maximizing model. Indeed, in all of our

investigated exit cases, selling the firm would have

enabled the family to generate immediate financial

revenue (Decker and Mellewigt, 2007; Maksimovic

and Phillips, 2001; Wennberg et al., 2010) that could

have been used for other (entrepreneurial) purposes

(see DeTienne, 2010; Lieberman, Lee, and Folta,

forthcoming; Mason and Harrison, 2006). Second,

by analyzing the mo tives behind thi s decision from a

social identity theory perspective, we reveal that the

likelihood of shutting down versus selling a satellite

firm is higher when there is a high degree of fit

between the family and the satellite business identity.

In addition, the goalsof recycling the resources and of

restarting the satellite business in the future and the

degree of performance decline are important

contingency factors of the above-stated relationship.

THEORETICAL BACKGROUND

Portfolio entrepreneurship

Portfolio entrepreneurship refers to the simultaneous

ownership and management of several businesses

(Alsos and Kolvereid, 1998; Carter and Ram, 2003)

or to the parallel discovery and exploitation of two

or more business opportunities (Wiklund and

Shepherd, 2008). Scholars agree on the economic

and social relevance of portfolio entrepreneurship

(cf. Westhead and Wright, 1998), and Carter and

Ram (2003: 375) depict it as a ‘ubiquitous feature of

the economic landscape,’which has recently led to a

growing body of literature.

Nevertheless, portfolio entrepreneurship was

largely ignored by scholars until the level of analysis

2

A satellite portfolio firm is a secondary/subsequent business

establishedafter the core business (cf. Carterand Ram, 2003).

372 N. Akhter, P. Sieger, and F. Chirico

Copyright© 2016 Strategic ManagementSociety Strat. EntrepreneurshipJ.,10:371–394(2016)

DOI: 10.1002/sej