Family Business: From Genesis To Revelation (the abridged version)
In the beginning, a founder had an idea and created a business. Nurtured by a clear vision, core values, hard work, steadfast commitment, and burning passion, the business grew and multiplied, adding employees, customers, and suppliers.
by Larry D. Hause, J.D.
The business fulfilled the dream and met the needs of the founder. The founder enjoyed being the center of all the activity, holding everything together. And from this center seat, the founder looked at the business’ productivity, presence, and participation in the lives of its employees, customers, and vendors, and their families and the communities which the business served, and declared it all to be good. And it was good. (Figure 1)
The founder married and had children, and the children married and had children of their own. Several (but not all) of the founder’s children and some of their spouses started working in the business. Some were involved in management, working alongside the founder and other non-family managers. To all children, the founder gave stock in the business so they and their families could enjoy the economic benefit of the company. The success and challenges of the business became the focus at family gatherings. Everyone was thankful, happy, and enjoyed being with each other. The founder enjoyed being the center of all the activity, holding everything together. And from this center seat, the founder viewed his family, the owners, managers, and the business, and declared it all to be good. And it was good. (Figure 2)
As the years passed, the founder started to want to work less and the managers, particularly the founder’s children in management, to work more. The founder increasingly encountered a recurring dilemma: on the one hand, wanting the business to continue to benefit successive generations and family members to continue managing the company; while on the other hand, wanting to stay involved in the business in a meaningful way and to keep everything just as it was, forever.
Seeing their own visions of what might be coming, those family members in management asked the founder for more freedom to run the business and expressed concerns about siblings not working in the business interfering with management and receiving benefits from ownership when they had not worked at the company. And each of the siblings in management had expectations of replacing the founder in the center. The company’s non-family managers shared with the founder their doubts about the children being able to run the business as the founder did and any one of them being able to hold together the family, owners, and management.
Some of the founder’s children who were owners but who did not work in the business questioned the founder about why their siblings in the business were receiving more than they from the company. Others echoed the doubts expressed by the non-family managers about competency, offering their ideas of how to run the business and suggesting the owners succeed to the founder’s power.
The business continued to be the focus at family gatherings, but now, in place of thankfulness were demands. Anxiety and agendas replaced happiness. The family broke into “sides.” Family gatherings served as battlegrounds as these “sides” exchanged their opinions with increasing intensity. Siblings were pitted against siblings. Parents against children. Spouses against spouses and descendants.
The founder no longer enjoyed being the center of all the activity and could not hold everything together. From the center, the founder viewed the “sides” becoming more pronounced within and among the family, owners, and managers and knew this was not good. And it was not good. (Figure 3)
But instead of the coming of the “apocalypse”, the founder took the lead to examine the type of system in place and what changes were necessary to accommodate the founder transitioning from management, multiple owners replacing the founder as the single owner, and owners and managers being different people. Instead of having one or more persons replace the founder in the center, the center was removed. The family, owners, and managers were separated but joined together by plans that were created by each group and that were evaluated by two “balance point” groups charged with making sure the groups aligned the interests within their respective plans. (Figure 4)
And after this hard work was completed, the founder from his sole seat on the board of directors, the founder looked at the family, owners, and managers working together on their own responsibilities through the family council and board, and saw the goodness return. And it had.
The three-circle model may be the most popular illustration used to explain the nature of family businesses. It presents a family business as a complex system consisting of three overlapping subsystems: family, ownership and management. Including the three primary groups that exist in every family enterprise (the family, owners, and management) gives the model universal application. Illustrating each group as a circle reflects how each group is separate and distinct, but overlapping the circles illustrates how the groups are also interdependent.
It is important to realize, however, that the three-circle model is descriptive, not prescriptive. In other words, the three-circle model describes the challenges that exist in family businesses, namely unclear roles and responsibilities, blurred boundaries, different interests, and uncertainty over authority and accountability. But the three-circle model does not help a family and their professionals figure out how to overcome those challenges.
The Balance Point System, described in The Balance Point: New Ways Business Owners Can Use Boards, suggests how the three circles are taken apart and put back together in a way to address all of these common challenges; that is, to provide clear roles, responsibilities, and boundaries; identify and reconcile different values, needs, and goals; clarify authority; and make everyone accountable to the plans. You are invited to share you thoughts with the author on familybusinesswiki.org or at email@example.com.
Larry D. Hause helps families successfully transition their businesses and wealth to achieve the collective values, needs and goals of the enterprise, its owners, and members of the family. He is the Founder and Principal of Hause Family Business Transitions, LP and Senior Of Counsel at Fredrikson and Byron, PA. Larry is also the co-author of The Balance Point: New Ways Business Owners Can Use Boards.