TRANSITIONING YOUR FAMILY BUSINESS
July 8th 2014
The “Three Circle Model”
Did you know?
Only 30% of family businesses
survive to the 2nd generation
Less than 15%
survive to a 3rd generation
Only 3%
survive to a 4th generation
The average life expectancy
of a family business is 24 years
The family business can be a convoluted pool of personal and professional relationships. Who fits in where? Who has a stake in decision-making?
As family business consultants, understanding these relationships is key to helping ensure the survival of the family business.
Determining WHERE to place each member of the family in relation to the family business is one of the greater challenges we face on a day-to-day basis. I.E. what is the role of each family member in relation to 1- the family itself, 2- the business, and 3- the ownership?
In order to simplify the process, the “Three-Circle Model” from the Reger Group has garnered widespread acceptance and used by consulting firms like Fuller Landau.
“Three-Circle Model” Zones
This model helps to break down the complex interactions within a family business and makes it easier to understand what is actually happening – and why. It is a useful tool for understanding the cause of interpersonal conflicts, role dilemmas, priorities and boundaries in family firms.
For example, when taking a view on the appropriate level of dividend payments, non-owning family members who work in the business (Zone 6) often take a very different view to their relatives who own shares in the business but who are not employed by it (Zone 4).
The former may favour cutting dividends in order to boost reinvestment in the business (and improve their career prospects),
the latter may want a dividends increased to provide a better return on their investment.
The more family members involved, the more complicated it can become, with many different aspirations and opinions trying to influence the way the family and the business conduct themselves
We encourage all family business owners looking to transition their business, to take the time to pencil in family members in their respective zones. Having a clear picture of where everyone fits in will help in the decision-making process and increase the longevity of the family business.
Please note that the information provided in this bulletin consists of general guidelines and that there are many exceptions and special cases that could apply.
