Editorial: An ecosystem theory of family business

Citation

Ratten, V. (2024), "Editorial: An ecosystem theory of family business", Journal of Family Business Management, Vol. 14 No. 3, pp. 401-404. https://doi.org/10.1108/JFBM-07-2024-308

Family business researchers and practitioners need to use the concept of an “ecosystem” to define and clarify how family businesses differ from other types of businesses. An ecosystem theory of family business suggests that due to the nature of a family business involving close personal relationships, it evolves in an ecosystem way. This means there are a set of stakeholders that directly and indirectly engage with the family (Alderson, 2015). A family business ecosystem is made up of interacting stakeholders that vary in type (Audretsch et al., 2023). As a consequence, a family business's behaviour is not solely based on their needs but also on their ecosystem (Zachary, 2011). This is contrasted to a non-family business that does not involve family relationships, in which commercial goals are important. The performance of a non-family business is based on objective outcomes, many of which are pre-determined. In contrast, a family business values stakeholder relationships that are linked to it being a family type of business. To succeed in the competitive marketplace, a family business needs to have dynamic and fluid partnerships that can evolve with market demand. This helps them achieve goals whilst being resilient to change.

An ecosystem is based on the interactions occurring amongst businesses, government, institutions, citizens, the community and society (Volkmann et al., 2021). It plays a key role in the ongoing continuation and management of a family business. Initially, the word “ecosystem” derived from the sciences as it referred to interaction amongst organisms in the natural environment (Ratten, 2020a). This means an organism develops or erodes based on the climate, conditions and context. Interest in entrepreneurial ecosystems stems from the urban economics and regional innovation systems literature (Bejjani et al., 2023). The goal for family businesses is to be productive forms of entrepreneurship. Baumol (1990, p. 30) define productive entrepreneurship as “any entrepreneurial activity that contributes directly or indirectly to net output of the economy or to the capacity to produce additional output”. In a family business setting this means their products or services provide some form of value to customers and society (Boyatzis and Soler, 2012). It is an important type of entrepreneurial activity for family businesses that should be prioritised. Entrepreneurial ecosystems are a form of productive entrepreneurship that enables a focus on new value creation at the social level (Cavallo et al., 2019).

A family business's entrepreneurial ecosystem can be built and co-created with others. Stam and Van de Ven (2021) suggest that an entrepreneurial ecosystem has specific resource endowments (physical infrastructure, demand, intermediaries, talent, knowledge, leadership and finance) and institutional arrangements (formal institutions, culture and networks) that influence productive entrepreneurship. In a family business, the physical infrastructure can include buildings, equipment and other tangible forms of resources. The difference between physical infrastructure in family businesses and non-family businesses is that the ownership structure is usually family-related. This means it can be passed down generations, be considered part of the family's history and involve some form of emotional attachment to the physical infrastructure in terms of the way things are made and produced (Ratten, 2020b). Demand refers to the degree to which people want products or services from family businesses. It can fluctuate based on seasonal activity or general interest. The demand might be related to the price and/or quality of the output. Demand for family businesses is normally commercially related in terms of economic necessity but can be socially or community related (Rashid and Ratten, 2020). Intermediaries include businesses, people or other entities that interact with a family business. This can include suppliers as well as sellers of products. Some family businesses might be more reliant on intermediaries in terms of gaining access to retail outlets or digital platforms.

Talent refers to the level of natural aptitude a person has that they can use for productive purposes. This skill can be acquired through interaction with others or by education, depending on the circumstances (Ratten, 2021). It is a competence that some people have in terms of doing certain kinds of work. In family businesses, talent can be related to the type of products or services produced. For example, family businesses in the furniture or wood craft industry might be talented in the making of furniture, whilst family businesses in the food industry will have a talent for making food. The idea of a family business means that members have a certain natural aptitude for business. This ability can be acquired with little effort or through experiential learning. Knowledge refers to the information a family business has due to its engagement in the marketplace (Ramadani et al., 2017a). This knowledge is often the result of experiences acquired over the lifetime of the family business. Knowledge can take an explicit or tacit format, depending on its format. Explicit knowledge is codified and written down, meaning it is easier to transmit to others. Tacit knowledge, on the other hand, is implicit and not written, meaning it is often passed along to others in the form of a story. Tacit knowledge plays a key part in the success of a family business, as it can include pertinent information that is part of its success (Ramadani et al., 2017b).

Leadership involves a family business behaving in a certain way. This can include reputational and branding factors regarding how a family business is perceived in the marketplace. For family businesses that have been around for a long time, the leadership might be implicit in terms of having certain quality standards (Pounder, 2015). This means other businesses follow them in terms of evaluating their future products in the marketplace. Leadership can involve following other trends in the marketplace. Being a leader is a way of showing others what you are capable of and how you will proceed in the marketplace (Frimanslund et al., 2023). This can include providing guidance for future needs in terms of how to behave. Family businesses in a specific region can collaborate with other entities as a form of collective action, thereby giving them more market power and control in the global economy.

Finance involves the money and funds a family business has to meet its obligations. Some family businesses are self-funded in terms of relying on their own sources of finance whilst others are market-driven. The cash flow of a family business can also influence its stability and success in the marketplace. The resource endowments of a family business are influenced by their institutional arrangements. This includes formal institutions, culture and networks (Miller and Acs, 2017). Formal institutions are entities that are normally regulated by the government such as banks and other financial organisations (Cohen, 2006). They play a key role in a family business's position in the marketplace. The culture of a family business is part of its entrepreneurial ecosystem as it influences innovative practices. This means culture plays a key role in the ability of a family business to enter new markets and develop innovative products. Stam and Van de Ven (2021, p. 815) measure entrepreneurship culture as “the degree to which self-employment is seen as a viable career choice and the degree to which successful entrepreneurs are valued”. In a family business, entrepreneurship culture involves associating innovation and risk with positive values. This can include a family business proactively going after new business opportunities.

Networks can be part of a family business's culture in terms of the relationships they have with others (Ratten and Thompson, 2020). These networks can involve strong or weak ties, depending on the level of interaction. Strong ties involve more-frequent connections and can include dependent relationships. Weak ties involve less-frequent interactions but can still be powerful associations. Social networks involve the degree to which family businesses are socially connected to others. The emphasis on social meaning there is some degree of informality or fun in the relationship (Ratten, 2021).

In conclusion, this editorial has provided a summary of an ecosystem theory of family business by outlining its main components. It enables a useful way to understand the dynamics and role of stakeholders in a family business context. Due to the emotional bonds family members have and their interactions with society, an ecosystem analogy is a useful theoretical framework. Thus, future studies should utilise this theory as a basis for their research and practice.