Family Business Model Segments: An Overview
In a family business, especially a multi-generational one, there are many different stakeholder groups. Each individual with their different needs and biases may have a direct impact on how they approach their role, which can result in confusion, chaos, alienation, in-fighting, tribal politics and more. Each one is an individual with different needs and biases that have a direct impact on how they approach their role.
Family Business Model Segments: An Overview
Let’s look at some of the different groups of people that might exist in the business:
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Co-founding spouses
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Father and son partnerships
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Siblings in partnership
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Large businesses with multiple family branches
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Operational managers who are family members
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Owners and families who do not run the business
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Employees who are family but have not yet earned a stake in the company
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Young children who stand to inherit a stake in the company
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Uninvolved family members who had been bought out
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Non-family employees who have shares in the company
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Anonymous shareholders of publicly traded companies
Understanding the Challenges of Each Segment
To succeed in the context of a family business, it’s critical to understand the unique challenges faced by each person in each segment. Only then can you effectively design systems and methods to align with the overarching goals.
I met John Davis at USC’s Business School in 1989 a decade after he and Renato Tagiuri developed The Three-Circle Model of the Family Business System while at Harvard Business School.
The segments are:
The Three Circle Model of Family Business System
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Family members or descendants/spouses who have nothing to do with running the company
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Family owners who do not work for the company
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Non-family/owners who are not employed by the company
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Non-family/owners who are employed by the company
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Employees who are not family
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Employed family members who do not have ownership
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Family/owners who are actively working at the company
What the overlaps tell us is that all of the various roles need to unite in order to set a course for the future of the enterprise. The ongoing success of the business hinges on how all of these elements work together.
How Understanding Can Change Perceptions
When you see where a person stands in the system, you might not judge them so harshly for the way they approach their own role in the big scheme of things.
For example, Jack, a young family member/employee (but not an owner) notices that his uncle John, a family member/owner (but not an employee), constantly complains that he gets nothing out of the business. John is constantly fighting with his brother Jerry, who is a family member/owner and an operational manager.
When all of the company’s stakeholders are mapped onto the three circles, it’s easier to understand the tension. Because John doesn’t work for the company, he doesn’t collect a salary or benefits. The dividends he receives might not be enough to sustain him, even though it appears that the company is doing very well.
Young Jack always thought that his uncle was just a greedy complainer, but after seeing how each member of his family stacks up on the diagram, he now has more sympathy for John’s point of view and realizes that his uncle’s situation is very different from his own.
It’s About Relationships
In conclusion, the circles are connected, overlapping, intertwined – all related to each other but distinct in their own way. Much like one bad apple in a brand new bag, all it takes is for one segment to be unbalanced or unhealthy for all the others to bruise.
To succeed in a family business, it’s critical to understand the unique challenges faced by each person in each segment of the interlocking circles. Only then can you effectively design systems and methods to align with the overarching goals.
Are you interested in learning how you can improve your family business? Reach out today to set up a call. I’d love to learn more about your company and show you how I can help.