Why Does Operating A Family Business Have To Be So Difficult?

The simple answer to this question is that the operation of a family business is a paradox and every aspect of their business is subject to pressures, loves, opinions, demands and emotions of the entire family.  Introduce family members from multiple generations (and their respective spouses) and perhaps the interests of non-family member owners, board of director members and key employees and it is no wonder why business families feel elated and appear to be The Brady Bunch one day and confused and distressed and more like The Addams Family the next.

To better understand the challenges that business families experience John A. Davis and Renato Taguiri of the Harvard Business School in 1982 developed what professionals in the Family Enterprise Advising community call the “Three Circle Model” that looks like this:

Under the Three Circle Model, every member of a business family identifies within the Family Circle, the Ownership Circle, or the Business Circle and many members of the family identify with two or all three of the circles.  Many advisors utilize this model when working with their family business clients.

Under the Three Circle Model, individuals that are represented by #1 would typically include a spouse that has no involvement with the day-to-day business or its ownership, minor children and often spouses of the adult children who are working in the business.  Individuals represented by #2 would be non-family owners like partners and minority shareholders.  Individuals represented by #3 would include key employees that are not members of the family.  While families don’t typically see individuals represented by 1, 2 or 3 being ‘involved’ with the business, that may be a short-sighted position to take as that suggests the family hasn’t considered how events like a co-owner demanding to be bought out, a key employee unexpectedly quitting, a child demanding to be hired in the business, or a divorce in the family would affect both the family and the business. Further, consider the acronym “CEO” as it relates to the family’s matriarch, where that acronym often translates as the family’s “Chief Emotional Officer” and how her needs need to be satisfied for the good of the family.  Any of these events by an ‘uninvolved’ individual can be extremely challenging on both the family and the business.

In the overlapping positions, 4, 5, 6 and 7, the perspectives and requirements of those individuals is even more important to consider.  Individuals represented by #4 could include spouses or siblings that hold an ownership interest but are not involved in the day-to-day business.  #5 has individuals that could include the business ‘partner’ or their children that have ownership interests and work in the business.  Children of the business family, perhaps cousins, are often seen as being represented by #6.  Lastly, #7 is very commonly represented by mother and father, or their oldest children who own shares in the business and also work in the business on a day-to-day basis. Individuals that fall within the #4 and #5 can certainly prove to be influential in the business but those individuals represented by #6 and #7 live and breathe the business and to them there is no separation between the business and the family.

No wonder family dinners can become tense or highly charged affairs, especially when family members had a disagreement at work or the business plans undertaken by the family are about the explode in a good way.

If the Three Circle Model intrigues you, try positioning your own family’s members and other key individuals in your business into the Model.  Then, consider how each individual’s needs, opinions, goals, desires or demands impact others in both their circle and interests of others in the adjoining circles. You will soon see that while you may be the “owner” of the business and perhaps the ‘head of the family’ you are never alone in either of those positions.  If you have taken steps to understand the needs of those closest to you, congratulations as your family is likely running a fantastic business and has a methodology to address surprise events and stresses that happen to every family and business owner.

If you haven’t taken steps to have the honest communication with those closest to you, you may want to consider joining the Family Enterprise Xchange (https://family-enterprise-xchange.com/ or 1.866.849.0099) or contacting an accredited FAMILY ENTERPRISE ADVISOR™ to see how other families manage their communications to advance their family business and bring their families closer together.

Until next time,

Reid

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