Q: Where do I start in setting up my family business for generational success?
A: Let’s start at the basics, with circles and hats.
Draw a three-circled Venn diagram. Label the circles family, business and ownership. Now plot your family members, employees and owners in the circles and overlaps. Individuals fit in one, two or three of these overlapping circles. This is what’s known as the three-circle model of family business.
Family businesses need to understand where each individual sits now, how they might move across the circles, and who may join or leave the family, business or ownership. You need to think about how the circles in your system may look in five, 10, 20 or even 50 years from now.
Here’s where the hats come in. Successful multigenerational family businesses hold appropriate conversations in all three circles, but separate topics discussed by each by wearing specific hats. These hats align with the three circles and are worn by the people in each: family, business and ownership.
• Family: Talk family issues with family, not in front of employees. This is where you discuss topics like family unity, an employment policy, why you want to be in business together and your family values that guide the business.
• Business: Set aside the family hat and family members not in the business when you put this hat on. Add your management team to this discussion as appropriate. This is where you talk strategy, growth, business goals, competition, suppliers, etc.
• Ownership: This hat is often not worn enough. Here’s where owners discuss topics like expected return on capital and the level of risk the business should take. You discuss who can become an owner, what a buy/sell looks like and even what business you should be in.
If you have a business you feel can become multigenerational, you’ve likely found success wearing the business hat. The challenge is the other two. Don’t take it on alone. Ask other family businesses how they navigate these conversations. Use an adviser to facilitate family or ownership meetings.
Understanding what your three circles look like, and how to communicate within each, can help you on your path to multigenerational success.
Jon Keimig is director of the University of St. Thomas Family Business Center.