Lesson 1: Treat the Business Like a Business, the Family Like a Family, and Ownership with Respect

There is one reason that the three-circle idea is so appealing to family business owners and the professionals who work with them. It helps untie knots. When a CEO in a Sibling Partnership gets a request from his nonemployee sister, asking for a job for her troubled twenty-year-old child, the dilemma may feel unresolvable. Saying “yes” violates company policy and angers the managers and coworkers in the division that is unlucky enough to be assigned the nephew. Saying “no” disappoints a sister who is also a coowner and whose support is needed for much more important challenges facing the company.

The best chance for a win-win resolution of such dilemmas is to recognize that the conflicting alternatives come from different circles of the system, only one of which is appropriate for the particular problem. The problem is in the family circle: a drifting, unemployed nephew and a single-parent sister who is worried about him. The proposed solution is in the business circle: a job for which the candidate is not qualified and which may have a negative impact on the company’s performance. In the actual case from which this example was taken, the CEO realized that the appropriate response to a family need is through the family. The sister objected at first, but he held firm that a job in the company was the easy, but wrong, solution. Acting like a brother, not a CEO, he talked with his sister about her concerns, spent some weekend time with his nephew, discovered that the problems were more serious than his sister had realized, and helped the young man get the professional help he needed.

Not all such situations work out. And some problems actually do exist in two or three circles at the same time. But even in those cases, sorting out the parts of the issue that come from ownership, business, or family can be the first step toward action. We use the perspective of this model to try to see beneath individual behavior and personality, into the deep structure of the family business system. This puts people’s actions into context. We have found that, as a result, our own understanding of what is happening and why has been greatly enhanced—and this is the kind of understanding that can be shared with the family members themselves.

As for all basic lessons, however, this one has its limits. The value of separating the circles is greatest for those who are immersed in the complexities of a dilemma and need help in sorting out all the contributing factors. But it is equally important to remember that focusing on one subsystem at a time is just a diagnostic aid; in the end, this is a model of an integrated, multidimensional system. The complications of family businesses and their unique strengths are two sides of the same coin. You cannot successfully resolve problems in family businesses by deciding to look only at the business, or the family, or the shareholders. Perhaps the fuller version of this lesson is: Treat the business like a family business, owned and run by people who are much more than business associates to each other; treat the family like a business family, involving relatives who have chosen to bring their careers and financial lives into the family domain; and treat owners with the respect they have earned by investing not just their assets but their personal identity and the future of their children in the success of the enterprise.

One of the oldest stories in the field still speaks eloquently to families about the need to attend to both the whole and the parts of family businesses. It concerns a remarkably successful family business in the eastern United States, run by a dynamic, visionary founder. The business had grown to include several large stores, which had received national acclaim for their profitability, customer service, and innovative management. The founder had three sons working with him in the business: two who were conscientious and competent, and the youngest, who was charismatic and affable, but who had trouble dedicating himself to steady work. When he was around, he was everybody’s favorite guy, but he wasn’t around very often.

When the father finally discovered the poor work record of his youngest son, he was at first ambivalent about how to respond. The nonfamily supervisor was clear that, if the young man were not the owner’s son, he would have been fired months earlier. But the father also knew that he had not been on top of the situation and that his increasingly busy schedule meant that he had not spent nearly as much time with his youngest son as he had with the older two. In the end, the father asked his son to join him for an important conversation, which (as the story is always told) took place in the jacuzzi at the father’s home. The son was very excited, expecting that this was finally the day when he would be promoted to the same level as his brothers and take his place as one of the family leaders.

The father began by saying that owning a family business meant that he had to wear many different hats. “Let me start by putting on my CEO hat,” he said. “Sir, your supervisor has told me about your unsatisfactory performance over the past year, despite his warnings. I’m sorry, but you’re fired.” The young man was stunned, and nearly slipped below the water level. His father said, “Wait. Now I have to put on my father hat.” After a brief pause, he continued in his most sympathetic voice, “Son, I’m so sorry to hear that you just lost your job. What can I do to help?”

As the story concludes, both men were able to talk as father and son in a way that they had not for several years. The son acknowledged that he wanted to be successful like his brothers but did not know how, and that he felt that he needed more of the kind of mentoring that his older siblings had received. Together they worked out a plan for the son to return to school for an MBA. After graduating, he worked in another company for several years, accumulating some great experience and an impressive resume. In the end he did return to the family company as a successful member of the Sibling Partnership. The father concluded, “I didn’t understand why at the time, but something told me I had to respond to my son in two ways, as a businessman and as a father, each with a very different message.” We couldn’t say it any better.

Lesson 2: Keep in Mind the Inevitable, Constant Nature of Developmental Change

Like the weather in the Midwest, if you don’t like the way things are in a family business at the moment, just wait—it will soon be completely different. In trying to get a handle on how family businesses work, it is very easy to become locked into a “snapshot” perspective. The dynamics are so complex that it seems a conceptual triumph to freeze all the balls in the air at the same time and really come to understand how the system works. Unfortunately, the freezing is an illusion. The system is constantly evolving in all three dimensions, even when it seems calm on the surface.

The ownership structure changes least often, but most dramatically. We have emphasized that it is often not the identity of individual owners that is important, but the structure of the ownership group that determines so much about the operation of the family business system. The distinctions between Controlling Owner, Sibling Partnership, and Cousin Consortium companies are not only consequences of the serendipity of procreation and estate plans. They are choices, made in pursuit of individual and collective dreams. Nearly all of the other dynamics we have presented in this book—among family members, managers, and shareholders—follow from the stage of ownership development, and change when the ownership structure changes.

The family changes continuously, as every family member ages year by year. Still, the rhythm of individual and family development also resolves into a sequence of stages that are distinctive and have meaning for business families. We have made extensive use of Levinson’s adult development concepts because they seem to work so well in helping to explain this pattern of stability and transition in families. The lesson that we have learned is that it is rarely adequate to talk about “the business family” without taking into account its developmental stage. The differences between Young Business Family, Entering the Business, Working Together, and Passing the Baton families have important consequences for the business as well as the family, because they influence what is on the minds of the key family members, and what is closest to their hearts.

Finally, the business changes erratically, along a course that is developmental only in the broadest sense. In this dimension, it is not so much the sequence of stages that is critical, but the recognition that business size and complexity make a difference. For example, it is easy to see that Start-Up companies are different in some ways from all others, resulting from the level of effort (some might say obsession) that is required in the Start-Up stage. As we began to pay more attention to this dimension, we were also impressed by the subtle but powerful impact of the distinction between Expansion/Formalization companies and those that have reached Maturity. The demands of growth and the consequences of more complex structures provide both opportunities and challenges that can dominate the family and the ownership group. The leveling off of expansion can also have a profound effect on financial decisions and career opportunities for involved family members.

All things considered, this recognition of development is the core lesson of our model. We have found it a useful analytic tool. We are also realistic about its limitations, and we look forward to learning more about its applicability. After all, like an artist’s sketch, a model does not capture reality, it only suggests it. Nevertheless, paying attention to stages can help increase business families’ proactive control over important parts of their lives. There is one great advantage of a developmental model, if it is rooted in experience and broadly valid. Developmental perspectives give us not only an understanding of the past, but also a glimpse of the future. Once owners, or family members, or managers find their current place along a developmental dimension, they know a bit more about what lies ahead. Controlling owners can anticipate the predictable consequences of all their succession options, before the moment of transition is upon them. Executives in Expansion/Formalization companies can begin far in advance to prepare for the needs of Maturity, and put the wheels in motion for their business’s renewal. And family members, who already know that their children are growing up and that they are growing older, can benefit from having some light thrown on the experiences of many other business families who have traveled the same road before. Thoughtful family business members do not need a developmental model to tell them that things are always changing but rather to illuminate the likely consequences of these inevitable changes throughout their complex, interconnected systems. As a result, they may be able to improve the chances that their family business will continue to sustain them and the people they love, from generation to generation.