Ending on a High Note or Perpetuating Commitment? Exploring Founder Exit in Social Business Ventures

Abstract

By applying stewardship theory and threshold theory, we derive three criteria that founders of social business ventures use to set performance thresholds towards exit: 1) the desired social impact based on mission, 2) financial sustainability through multiple sources of revenue, and 3) organizational capability by building a firm that could progress beyond founder’s tenure. Based on these criteria, we conducted a conjoint analysis experiment with 105 current founder-CEOs of social business ventures to examine their exit intentions and exit mode preferences. Contrary to the postulates of both threshold theory and stewardship theory, some founders were disinclined to exit even when venture performance fell below thresholds while others deviated from expectations in their exit choices during high firm performance scenarios. Deeper analysis of the decision-points revealed the existence of four distinct types of exit preferences among the founders: The Never Exit Idealists (20% of the respondents) expressed their opinions on the exit decision in idealistic terms and stressed on the importance of persevering and fighting against all odds even when their venture is not performing well. Impact-focused Traditionalists (43%) opted to leave explicitly when the social mission of the organization is achieved. Growth-oriented Realists (24%) expressed a high likelihood to leave when the venture performance was low, yet, were interested in further growth of the venture when performance was high in order to reach more beneficiaries. Performance-bound Pragmatists’ (10%) intention to exit was the highest at extremes (high and low) of venture performance against the threshold conditions. We describe the heterogeneity in exit preferences among the founders of social business ventures and discuss the implications of our empirical typology for theory and practice.