Better Balance: Understanding the 3-Circle Model for Family Businesses
Think your family dynamics are stressful? Add running a business to the mix, and you’ve entered an entirely new world of complexity.
Family businesses are a unique incubator for stress and discord as most family-owned enterprises are a mixture of professional ambitions and deep personal relationships
Unlike traditional businesses, family enterprises must balance the complex dynamics of ownership, business operations, and family relationships.
To navigate this complexity, John Davis and Renato Tagiuri developed the 3-Circle Model, which provides key insights into and holistic support for the unique dynamics and challenges that arise at the intersection of these three areas.
What is the 3-Circle Model?
The 3-Circle Model breaks down family businesses into three interdependent circles:
Family: The personal relationships and family ties that influence business decisions
Business: The operational and strategic aspects of running the company.
Ownership: The rights, responsibilities, and interests of those who legally own the business.
Each of these circles represents a key stakeholder group, and it’s not uncommon for individuals to fall into more than one of these categories. Understanding where each person fits within these circles helps family businesses manage expectations, resolve conflicts, and make decisions more effectively.
Three Circles Explained
Creating a thriving model of governance for family business requires attention to detail in these three key areas and how these areas intersect.
By acknowledging these crossovers, family business owners hold space for each individual within the business and his or her unique perspective. The 3-Circle Model validates all roles and legitimizes each perspective as valuable and important.
The Family Circle
The family aspect of a business is emotional, meaningful, and deeply personal. It includes all family members, whether or not they are involved in the company. There are several key characteristics that individuals in the family circle must address.
Shared Values and Legacy
Many family businesses pride themselves on passing down traditions and core values from one generation to the next.
Your family values are the cornerstone of your identity. These values provide a moral and emotional compass for your actions. In family-owned businesses, your family legacy—not your business legacy—should be the guiding force behind business decisions.
Conflict Resolution
Conflict is inevitable. Disagreements can sprout from anything from differences in opinions to sibling rivalries— even generational gaps. Having a clear communication strategy and conflict resolution process is critical.
Effective conflict resolution is essential to maintaining harmony and productivity in your family-owned business.
Succession Planning
Family businesses often struggle with leadership transitions. Who will take over when the current generation steps down?
Your ability to navigate the complexities of a major family business transition will come down to two key factors:
Your ability to communicate
Your level of preparation
A well-defined succession plan ensures stability.
The Business Circle
This circle includes employees, management, and anyone involved in the daily operations of the company. Here are a few key considerations within the business circle.
Performance and Profitability
The company must remain competitive and financially healthy to sustain itself. This often means being adaptable to market changes while staying competitive.
Successful family businesses can conduct annual reviews and hold regular family meetings to maintain forward momentum.
Professional Leadership
Balancing family leadership with professional expertise is crucial. Bringing in a neutral third party like a family business coach can help family businesses stay focused, address difficult questions, and improve common challenges like making decisions.
Family business coaching can support current and future business leaders by providing the following, to name a few:
Mentoring
Relevant education
Personal development
Hands-on-experience solving complex business problems
The Ownership Circle
The ownership circle represents those who have financial stakes in the business. Key challenges within ownership include:
Equity Distribution: Deciding how ownership is distributed among family members can create unnecessary tension, especially as the business grows.
Governance and Decision-Making: Owners must establish clear governance structures, such as a board of directors, to guide major decisions.
Estate Planning and Wealth Transfer: Planning for future ownership transitions, including tax and legal considerations, is essential for long-term success.
Managing the Overlaps
Many family business challenges arise at the intersection of these circles. Some people fit into multiple circles, creating conflicts unique to family business owners. Recognizing these overlapping roles helps businesses and families create fair policies, define roles clearly, and address potential conflicts proactively.
Best Practices for Family Businesses
To thrive, family businesses should adopt best practices that align with the Three-Circle Model Here are 4 key suggestions:
Clarify Roles and Responsibilities: Establish clear job descriptions and decision-making structures to avoid confusion.
Develop a Family Business Plan: Create a formal document outlining governance, succession plans, and conflict resolution strategies to prevent disputes.
Encourage Open Communication: Hold regular family meetings and transparent discussions about expectations and goals to help maintain harmony.
Seek External Advisors: Non-family advisors, such as a business coach, can offer objective insights to support business growth.
By giving space for the complexities of business and family relationships, the 3-Circle Model can help families manage relationships and mitigate potential power struggles in and out of the office.
If you’re ready to include the 3-Cirlce Model in your family business dynamics, book a free consultation with The Family Business Coach today. We’ll discuss tools that can help compartmentalize different areas of your life, giving you the space to enjoy each one fully.
