The Three-Circle Model of Family Business Ownership

Family businesses are unique entities that occupy a special place in the business world. 

Often, these businesses are started by families that have an entrepreneurial spirit and a desire to work together to create something great. 

To ensure success, family businesses must be structured in a way that works for both the family and the business. 

This is where the Three-Circle Model comes in: it provides a framework for structuring family businesses that takes into account the complex relationships between family members and the business itself.

The Three-Circle Model of Family Business Ownership
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What is a family business model?

The definition of a family business

A family business is an enterprise in which members of the owning family work in the business and control ownership through one or more family generations. Family businesses are unique in that family members are often involved in the day-to-day operations of the business.

What distinguishes a family business from a non-family business?

The distinguishing characteristic of a family business is that it is owned and operated by members of the same family. Unlike a non-family business, where ownership and management may be split among shareholders, a family business is often solely owned by the family.

How is a family business structured?

A family business can be structured in several ways. In some cases, the business may be owned outright by one or more family members. In other cases, the business may be owned by an ownership group that includes family members and non-family members.

How does the Three-Circle Model work?

three-circle-model-of family business
https://johndavis.com/three-circle-model-family-business-system/

How is a family business structured?

The Three-Circle Model consists of three overlapping circles: family, business, and ownership. Each circle represents a different area of concern for a family-owned enterprise. The family circle includes family relationships, the business circle includes the core business operations, and the ownership circle includes the legal and financial aspects of ownership.

What is the purpose of the Three-Circle Model?

The Three-Circle Model provides a framework for understanding the complex relationships that exist in a family business. By considering the needs of each circle and finding ways to harmonize them, family businesses can improve their chances of success and longevity.

How does the Three-Circle Model improve family businesses?

The Three-Circle Model improves family businesses by providing a governance structure that allows family members to work together effectively while also ensuring that the business is well-managed and profitable.

Who created the Three-Circle Model?

Who is John Davis?

John Davis is a leading authority on family business and a professor at Harvard Business School. His research focuses on issues related to family business, including succession planning, governance, and strategy.

What is the history behind the Three-Circle Model?

The Three-Circle Model was developed by John Davis in the 1990s as a way to help family businesses better understand the complex relationships that exist within the family business system.

How has the Three-Circle Model influenced the business world?

The Three-Circle Model has had a significant impact on the way that family businesses think about their structure and governance. By providing a framework for understanding family business dynamics, the Three-Circle Model has helped countless family businesses improve their chances of success.

What are the challenges faced by family businesses?

How can a family business deal with conflicts?

Conflicts are inherent in any organization, but they can be especially challenging for family businesses. To deal with conflicts effectively, family businesses must establish clear lines of communication and a decision-making process that takes into account the needs of all stakeholders.

What are the problems of succession planning in a family business?

Family business succession planning is one of the most challenging issues facing family businesses. In many cases, family members may believe that they are entitled to leadership positions in the company simply because they are part of the family, which can lead to conflicts and poor decision-making.

What are the advantages of hiring non-family members in a family business?

Hiring non-family members can bring fresh perspectives and new ideas to a family business. It can also help to reduce the likelihood of conflicts and polarization within the ownership group.

What are the benefits and drawbacks of family business ownership?

What are the advantages of family ownership?

One of the biggest advantages of family ownership is the sense of loyalty and commitment that family members bring to the business. This can translate into a strong sense of purpose and a shared vision for the future.

What are the drawbacks of family ownership?

One of the biggest drawbacks of family ownership is the potential for conflicts and disagreements between family members. If these conflicts are not managed effectively, they can lead to poor decision-making, lost opportunities, and even the failure of the business.

What are the implications of dividend policy in a family enterprise?

Dividend policy can be a contentious issue in family businesses. If family members receive dividend payments simply because they are part of the family, rather than based on their contributions to the business, it can create resentment and lead to conflicts within the family and the ownership group.

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