4 min read.Updated: 18 Jan 2022, 10:25 PM ISTTulsi Jayakumar,Varun Nagaraj
It differs vastly from the startup ecosystem in the spotlight but is valuable in a broader range of ways
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Indian entrepreneurs seem to be the new toast of the town, with a recent study from Stanford pointing out that four of every 10 unicorn founders in the US happen to be first-generation immigrants, with those of Indian origin the most numerous. Of 1,078 founders across 500 US unicorns, 90 were born in India. The startup system in India, similarly, has been receiving much attention, with India now ranked the third-largest unicorn hub with its 90 odd unicorns. Of these, 46 achieved unicorn status in 2021 alone.
It is a fallacy, however, to assume that entrepreneurship is a new trend in India. It is not the sole preserve of the trendy startup ecosystem backed by venture capital (VC) and private equity (PE). Historically, India’s family businesses, which rank No. 3 in the world, and family business communities have fostered and nurtured entrepreneurship across continents. Overseas, the economies of South and South-East Asia like Myanmar, Malaysia, and Singapore, and many in Africa owe much in this context to family businesses hailing from India’s Marwari, Gujarati and Chettiar business communities. Family entrepreneurship—or the creation of new ventures and/or strategic renewal or innovation within existing family businesses by either family members or others in association with the family— is the norm rather than the exception in this sphere. Preliminary results from our ongoing study of family business indicate that more than half the respondents had started a new venture in the previous five years. However, while this form of entrepreneurship is critical to India’s entrepreneurial ambitions, it flies below the media’s radar and does not command much attention in pop culture.
The nature of family entrepreneurship is very different from the VC/PE-centric kind that is in vogue. The ‘Shark Tank’ mindset of entrepreneurship, driven largely by the commercial goal of achieving high valuations to allow profitable exits, is not the usual driving force of family entrepreneurship. Research on the latter indicates that social and other non-economic goals may have a larger role to play than financial returns in businesses started by individuals from business families (bit.ly/3A5O4U9). Such family members may seek to preserve the family’s entrepreneurial legacy through new ventures. Next-generation family members may even be motivated to start new ventures as a way to demonstrate their own abilities within the family to qualify as successors. Such ventures may also be a means of sustaining family harmony in case of conflict among its members seeking power within the original family business. At times, these startups may also serve as paths out of toxic family relationships for members searching for emancipation.
Family entrepreneurs use a range of practices to venture ‘out’. They may seek explicit approval from the family, or tacit approval by mimicking the larger family business to seek the family’s buy-in. They may jockey within or around the family for resources, and sometimes simply bypass the family.
Some of the reasons that family ventures fail are also idiosyncratic to family businesses. If business families are more intent on fulfilling the narrow interests of their current generations than on long- term goals that include transgenerational succession, the chances of a new venture’s success will be lower. Such limitations get accentuated when the family business is too inward-looking and has only a limited capability to acquire new knowledge.
It is evident then that family entrepreneurship, with family dynamics at its heart and an emphasis on socio-emotional wealth, differs vastly from the VC/PE-funded version.
Family entrepreneurship is also rather different from ‘corporate entrepreneurship’ or ‘intrapreneurship’ within large corporations, where new ventures are created through a formal top-down approach. These businesses are typically better structured, economically rational and well resourced in comparison with family startups. Moreover, not only does the process of entrepreneurship vary between the corporate and family contexts, the motivations that propel corporate intrapreneurs and their risk profiles are vastly different from those found to be associated with next-generation family entrepreneurs. Finally, the socio-emotional outcomes that are emphasized and sought by family entrepreneurs are irrelevant to corporate intrapreneurs in most cases.
Even as the world celebrates and fetes Indian unicorns, ‘decacorns’ and their founders, it is time to study and promote the entrepreneurial stories and successful practices of Indian family businesses.
Harsh Mariwala’s autobiographical book Harsh Realities offers glimpses of the dynamics of family entrepreneurship that gave us Marico as one of India’s big family business success stories. However, not all stories have happy endings. It is time for Indian academia, policymakers and financiers to recognize the uniqueness and importance of this distinct type of entrepreneurship and help create tangible success enablers for family entrepreneurship. These could include academics providing empirically-grounded and contextual prescriptions that might improve the odds of successful new-venture creation by next-generation family members. Support could also take the form of accelerators that provide not just funding but also the necessary emotional and social capital to drive such ventures. A thoughtful combination of intellectual capital, social capital and financial capital can ensure that one of the country’s great strengths—its family businesses—can help drive our economic development.
Tulsi Jayakumar & Varun Nagaraj are, respectively, professor, economics and chairperson, Centre for Family Business & Entrepreneurship, and dean, Bhavan’s SPJIMR, Mumbai. These are the authors’ personal views.