Research at the Crossroads of Entrepreneurship, Innovation, and Network Theory

PhD Spotlight: Johnson School PhD candidate Andrew Foley talks about his research on family business and entrepreneurship.

Growing up, Andrew Foley, PhD candidate in management and organizations at Samuel Curtis Johnson Graduate School of Management at the Cornell SC Johnson College of Business, began his studies far from business. In college, he studied French literature and music, and then he went on to obtain a master’s degree in music. As a talented flutist, he performed in professional groups like the Louisiana Philharmonic. However, life’s journey led him to discover a keen interest in business, where he is now making his mark.

As a fifth-year PhD candidate, Foley focuses on entrepreneurship, innovation, and network theory, with most of his work emphasizing the role of alliances and interorganizational networks in the success of new ventures and commercialization of new technologies. Family business and family entrepreneurship are important topics in his research.

“I didn’t intend for family business to be part of my research agenda,” commented Foley. “It was kind of an accident, but a very fortuitous one.”

Finding a doorway to family businesses and entrepreneurship

While pursuing an MBA, Foley was exposed to the idea of relational contracting—the practice of individuals working together through the exchange of favors and goodwill without a legal contract in place—among startups in southeast Asia.

After starting his PhD program at the Johnson School, Foley spoke with Wesley (Wes) Sine, PhD ’01, John and Dyan Smith Professor of Management and Family Business and academic director of the Smith Family Business Initiative (SFBI), about hypotheses he wanted to test related to relational contracting. Sine responded that he had many experiments that were looking at family businesses in Latin America and asked if Foley could perhaps test his hypotheses there, since relational governance is an important part of how family businesses operate. That spurred Foley’s interest in family businesses as a distinct kind of economic unit. “Wes opened that door for me,” said Foley, “and then it was just an interesting floodgate.”

The more he studied family businesses, the more Foley realized that they provide boundary conditions to common wisdom prevalent in classical economics and organizational theory. Often, family businesses would forego the most profitable investment opportunities to maintain family control or ensure that wealth is transferred to future generations, for example. Foley realized that there was a lot of room to contribute in this field, where key assumptions could be flipped or relaxed.

Helping small businesses through formalization—or not

One of Foley’s current projects involving field experiments in Peru probes an interesting question: Does firm formalization improve the performance of new ventures in the context of family ventures?

An assumption often taken for granted in the business world is that you want to formalize the structure of a new venture as quickly as possible for it to do well. Things like organization charts, job descriptions, clear roles and responsibilities, and task allocations are known to increase efficiency, decrease uncertainty, and increase firm performance. New ventures often lack formal structure, which results in confusion and uncertainty that may threaten their survival. So, a prevailing prescription in many business schools and management journals is that entrepreneurs should prioritize building a robust formal structure in their early days.

“We tend to think of ‘formalizing’ as installing general, universal rules or principles that should be adhered to in all contexts, no matter who’s involved,” Foley explains. Few studies investigate whether formalization works the same way in family ventures as it does in other types of business.

Foley’s research results so far have been surprising. He has found that when the family is not a big part of the business, formalization makes the firm more effective, increases its financial performance, and makes it survive longer—echoing the prevailing prescriptions in the field. However, when the family is an important part of the business, you get the opposite effect.

Formalization appears to create difficulty within family firms, with many measures of performance decreasing after it is implemented. Family members feel they can’t act on “altruistic impulses” for each other after their roles have been formalized, Foley finds. Formalizing the business also appears to upset a delicate balance between the firm’s performance goals and the family’s lifestyle aspirations. All of this leads to tension that appears to spill over into the business, thereby reducing its performance.

Family businesses are unique because of the relationships involved. Families tend to take less time to make decisions, make fewer mistakes, and are willing to do more work for less pay. In other words, starting a business with family offers unique benefits, and Foley’s research suggests that early formalization of family ventures may rob these firms of a unique strategic resource: the relational elements of the business that made it successful in the first place.

Foley’s work is important for policy makers and people who conduct executive courses for new ventures in terms of integrating family-centered decision-making when formalizing a family business.

Addressing a blind spot in the field of management

“Studying family businesses and family entrepreneurship is important because, despite what we hear in the headlines about Silicon Valley-style startups, most firms—especially young firms—are family firms,” explains Foley. “Many firms on the S&P 500 can be classified as family firms. So, not prioritizing them results in a huge blind spot in our understanding of management.” Yet family business research, while growing, is still sparse in management journals—something Foley hopes will change.

Following graduation, Foley would like to remain in academia and will apply to faculty positions primarily in entrepreneurship, strategy, and family business.

Meanwhile, he has not left music behind. Foley continues to play the flute, particularly enjoying the work of neoclassicists, pieces such as Walter Piston’s Sonata for Flute and Piano—proving that even in the hectic world of PhDs and business, there’s always room for a beautiful tune.

Susan Hu is an assistant director at the Smith Family Business Initiative.