A Betrayal in the Family: An Inhibitor or Stimulus for Business Model Innovation?

ABSTRACT Academic Summary Business‐focused betrayals perpetrated by family members in managerial and decision‐making positions can devastate family businesses, questioning their assumptions about trust and how they conduct the business. Such betrayals ignite tensions between family and business logics, potentially causing paralysis and protection of the status quo or compelling innovation of its strategies and operations—its business model. We draw on two contrasting perspectives to examine this tension: the threat rigidity thesis suggests that betrayal inhibits business model innovation by inducing fear of failure (an emotional familial response); organizational learning theory suggests that betrayal stimulates business model innovation by prompting knowledge development (an impassive business response). Relying on a sample of family businesses from India ( n = 221) and Bangladesh ( n = 289), our results support the latter perspective. Our study provides a theoretical foundation for the relationship between business‐focused betrayal and business model innovation, revealing new mediating mechanisms and new insights into when and why the coupling of family and business logic prompts or impedes change. Managerial Summary Betrayal within family businesses resulting from the actions of family members in leadership or decision‐making positions can strike at the heart of trust and stability. Such moments often provoke powerful emotional reactions that lead to defensiveness, strained relationships, and resistance to change. Yet our findings reveal a more complex reality: betrayal can become a powerful catalyst for business model innovation. Rather than inherently damaging the family business, betrayal can disrupt entrenched routines, compel family business leaders to reassess priorities, and push family firms to explore new strategies, new practices, and innovative business models. The key to this innovation lies in reframing betrayal not as a threat, but as an opening for organizational learning, innovation, and growth. By acknowledging this dual nature, family firms can transform betrayal‐induced adversity into momentum. Doing so enables them to navigate emotional familial responses with impassive business responses that drive innovation to restore the strength, resilience, and competitiveness of the family business in time.