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Business Jargons

A Business Encyclopedia

Family Business

Definition : Family business, as the name suggests, is the business which is actively owned, operated and managed by two or more members of the single-family. Here, members may be related by blood, marriage or adoption. Basically, in a family business:

Family Business plays a significant role in the economy. Indeed it is the oldest surviving economic system, that has a substantial contribution in the country’s Gross National Product (GNP), total employment and total exports.

Here are some successful and popular examples of family business organization from across the world:

Characteristics of Family Business

A family business is characterized by:

Types of Family Business


Who are First Generation Entrepreneurs?

These are New Entrepreneurs, who invest their money and bears risks and uncertainties to set up the business. They are wealth creators and pioneers in the business. They are innovators who bring new ideas to the business.

Who are Second Generation Entrepreneurs?

Second Generation Entrepreneurs are supposed to control and run the business established by their parents, but their activities and decisions are always under examination. They join the business as middle or top-level management, and after showcasing their potential, the reins of the business are handed over to them.

Structure of Family Business

structure-of-family business

In this model, the first circle indicates ‘ownership’, the second circle represents ‘family’ while the third represents ‘business’. Now we will discuss entity in detail:

The Bottom Line

By sum and substance, initially, when the business is set up, it is like an ordinary business, but over the years other generations of the founder’s family and their extended families, start taking part in the business, which makes it a family business. And the key managerial positions of the concern are absorbed by the family members.

Related terms:

Reader Interactions

Dr. Saleh Alkhatib says

October 16, 2022 at 4:40 pm

Thank you, Well done and Well organized, helped me so much to prepare a quick presentation about family owned business.

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Wealth Management

board room chairs

The New Family Business Ownership Model

Patricia Angus | Mar 15, 2019

Family businesses are complex in many ways.

They’re inevitably a mix of entrepreneurial spirit, family connections, business challenges and evolutionary processes spanning multiple dimensions all at once. Any lawyer, accountant, investment advisor or, most importantly, family business consultant, working with a family business needs a variety of frameworks, tools and perspectives from many disciplines to provide the best advice to a family business. Academics and practitioners have developed some useful frameworks to aid this process, but there still are too few.

One area especially in need of attention relates to family business ownership. Too often, advisors make assumptions about key questions—who owns the business, how it’s held and for what purpose—that limit their ability to fully understand and provide the best advice to a family business.

Here’s a new way of looking at ownership to assist advisors working with family businesses so that they can more effectively assess and advise their clients. 

The Three-Circle Model

In the field of family business consulting, there are few, if any, heuristic models used as universally as the “Three-Circle Model.” Created in 1978 by Renato Tagiuri and John A. Davis, the model is a simple Venn diagram illustrating the three systems identified in every family business: family, ownership and business management. Rooted in an organizational development framework, it’s based on the assumption that each group functions as a system with its own culture, individual motivations and internal relationships. It aims to create clarity by providing a place, and only one place, for each individual in all of the three systems.

The Three-Circle Model is also helpful to shed light on the common, and complicated, position in which many members of a business-owning family find themselves. That is, when they hold multiple roles that are —by definition—in conflict with each other. A family member CEO who owns all, or part, of the business is in an especially delicate position. There’s a natural tension among running the business, maintaining the family and realizing an owner’s legitimate expectations from the business. Indeed, one might argue that many family businesses often fail when these tensions aren’t resolved or at least managed. And, in this case, failure isn’t just the casualty of a business that dies, but also fractured family relationships, hardship for employees and disruption in the community.  

A second classic model is the seminal “Three Dimension Developmental Model,” in which each of three axes maps out family, business and ownership over time. The ownership axis evolves from Controlling Owner to Sibling Partnership to Cousin Consortium. Again, the assumption is that ownership is held by individuals.   

Challenges to the Models

Like any good model, the Three-Circle Model and the Three Dimension Developmental Model have their limits. First is the assumption that each group functions as a system unto itself. For example, it would be hard to say that a system comprising all shareholders of a family-controlled public company functions similarly to a group of shareholders who own a privately held family business. Second, there are obviously multiple other systems at play in any family business, including vendors, customers and the community. Where do they belong? Where does the legal system fit? Culture? Third, there are evolutionary changes afoot in each of the groups that put pressure on their definitions and boundaries. For example, the very notion of “family” is changing around the world, which triggers questions, including: Where do non-married partners belong? What about divorced spouses who are still considered part of the family? Business practices are changing fast too. Where does an independent contractor who isn’t an employee belong? Most importantly, the major flaw in the Three Dimension Developmental Model is the implicit assumption that ownership is held by individuals.  

Using these models, it’s all too easy for family business consultants to assume that ownership of a family business is always held by individuals who are acting for themselves. A potentially fatal flaw. But, let’s not throw out the baby with the bathwater. First, let’s admit that the major differentiating factor between family and non-family businesses is neither the family nor the business. It’s ownership. And, this is the least understood area, a reality that’s made even worse by the existing models. 

Tax, Trust, Legacy Planning 

In addition to limits of these family business models, the increasing sophistication of tax, trust and estate planning has exacerbated the confusion around ownership. It doesn’t take long for an owner of a business to realize (with the lawyer’s assistance) the benefit of placing company shares into a trust or other holding structure (such as a limited liability company)—to minimize taxes, protect assets and/or provide for transfer across generations. Today, any business owner who enters a lawyer’s (or wealth advisor’s) office with any of these goals in mind is likely to leave with one or more trusts into which shares of the business will be transferred. Individual ownership is going the way of the horse and buggy.  

For these reasons, a simple heuristic device is needed to quickly assess the nature of the overall ownership of a family business. The key question is whether the business is held entirely by individuals, by holding structures, such as trusts, or a combination of both. In the family business context, these distinctions make all the difference.  

New Ownership Categories

Ownership of family businesses falls into one of three distinct categories: direct, indirect and hybrid. These apply whether the business is privately or publicly owned. 

All direct owners. In this type, direct family businesses are owned solely and directly by individuals who hold shares in their own names—each individual has full, unfettered control of her shares. Most often, the shares are held by family members, but there may be other individual shareholders as well. Most founder-controlled family businesses fit into this category, often with the founder owning 100 percent of the shares. Over time, the founder might give or sell some shares to other family members or investors. The benefit of a direct owner business is that each shareholder has her own voice, with each individual’s rights and responsibilities held in a personal capacity. In shareholders’ meetings, each shareholder represents herself, and buy-sell contracts are negotiated between individuals. 

In a family business context, this category can make it especially difficult for family members to distinguish roles and motivations. Interactions among owners can mix personal and business issues. When is someone speaking as a father, when as a controlling shareholder? When as a sister, and when as a co-owner?

In this case, family members would be well advised to learn about how to distinguish between their desires for the family from those of the business. Financial success for the business might require decisions that are uncomfortable for the family. For example, a sale of the business might feel like the death of a family member. It’s essential to be able to distinguish fact from feeling.  

All indirect owners. This category consists of businesses that are owned entirely by trusts and other holding structures. The business is owned by one or more trusts that are the “legal” owners, while individual family members, and potentially others, are “beneficial” owners. In the past, a family business often didn’t fit in this category until after the demise of the first generation, when the shares of the business passed into trust from the founder’s estate. But, today, in the United States and increasingly in other parts of the world, this transfer can happen even before the company is established. In some cases, there’s a single trust, with one or more trustees who is/are the legal owner(s) of the business. For others, individual family members create trusts to own their respective shares, and/or voting trusts may be in place to consolidate control. In each case, the legal owners are trustees acting on behalf of others (current and future beneficiaries). This setup creates layers of fiduciary responsibilities, sometimes in conflict with each other.

In this case, family members, especially business founders, may not know, understand and/or want to accept the legal reality of how the business is actually owned. De facto authority may be in conflict with the de jure reality. Trustees who are family members may find it especially difficult to distinguish between their positions as legal owners of the business with their fiduciary responsibilities to trust beneficiaries. Family members may not understand that their voices with respect to the future of the business may be limited by the legal reality of their positions as beneficiaries rather than direct owners. And, well-meaning family business consultants may put a lot of energy into educating family members as to their opportunities and responsibilities as owners, only to find out that, in fact, those family members have no legal authority to act on their wishes. A harsh reality.  

Hybrid. The third category is where more family businesses will find themselves at one point or another. The family business is owned partly by individual family member(s) and partly by trustees. This setup combines the clarity of direct ownership with the complexity of fiduciary responsibilities, often including the very same family members in each capacity. Principal/agent distinctions can get quite confusing in this category. For these businesses, a buy-sell agreement must be negotiated and agreed to by each party with clarity as to her role and authority. A family member trustee who also owns shares in her individual name is actually two separate parties to the agreement. Family members who are speaking with each other as owners must remember to include trustees who are owners and legally have a right to be in the conversation.  

Applying the New Ownership Model 

This New Ownership Model can help family business consultants and others to analyze and work with a family business in a more effective way. Certainly, the New Ownership Model has its limitations and flaws, as any attempt to simplify such a complex matter would. Nonetheless, it’s hoped that family business consultants, and other advisors to family businesses, will consider whether and how it might help for them to apply the categories outlined above to a specific client situation. This strategy might go a long way to helping families better understand their reality and make the best of it, for themselves and all stakeholders involved.     

This is an adapted version of the author's  original article in the March 2019 issue of Trusts & Estates.

family business model definition

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The Three-Circle Model celebrated 40 years in 2018

family business model definition

The Three-Circle Model of the Family Business System was developed at Harvard Business School by Renato Tagiuri and John Davis in 1978.

It quickly became, and continues to be, the central organizing framework for understanding family business systems, used by families, consultants and academics worldwide.

This framework clarifies, in simple terms, the three interdependent and overlapping groups that comprise the family business system: family, business and ownership. As a result of this overlap, there are seven interest groups present, each with its own legitimate perspectives, goals and dynamics. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.

family business model definition


How three circles changed the way we understand family business.

Professor Renato Tagiuri and doctural student, John Davis, had no idea that they were inventing a game-changer. In 1978 at Harvard Business School, they sought to explain the dynamics, roles, issues, and tensions in family business sytems. The Three-Circle Model, just as relevant today, remains the dominant paradigm used worldwide for understanding and analyzing family business systems. READ MORE

Professor John Davis remembers, “There was so little written on family business in the 1970s. We needed a convenient framework to be able to organize our thinking about how these systems work.”


family business model definition


The Three-Circle Model of the Family Business System was developed by Renato Tagiuri and John Davis at Harvard Business School, and was circulated in working papers starting in 1978. It was first published in Davis’ doctoral dissertation, The Influence of Life Stages on Father-Son Work Relationships in Family Companies, in 1982. In 1996, the Family Business Review published it in Tagiuri and Davis’ classic article, “ Bivalent Attributes of the Family Firm .”

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family business model definition

A Tribute to Renato Tagiuri, my Mentor and Friend

By John A. Davis

It is challenging to adequately summarize, let alone fairly describe, the work of Professor Renato Tagiuri. His intellectual contributions are enormous, span six decades, cover many topics and add to at least three academic disciplines. And his writing and contribution are ongoing, with more intellectual and practical gems still to be appreciated.

Read More ›

Additional Concepts by John Davis

Family Enterprise

Family Enterprise

Family Wealth Paths

Family Wealth Paths

Stages of Development of the Family Business

Ownership Stages

Family Sustainability Framework

Family Sustainability Framework

Book cover

The Palgrave Handbook of Heterogeneity among Family Firms pp 333–374 Cite as

Defining Family Business: A Closer Look at Definitional Heterogeneity

2226 Accesses

18 Citations

Researchers have used a myriad of different definitions in seeking to explain the heterogeneity of family firms and their unique behavior; however, no widely accepted definition exists today. Definitional clarity in any field is essential to provide (1) the basis for the analysis of performance both spatially and temporally and (2) the foundation upon which theories, frameworks, and models are developed. We provide a comprehensive analysis of prior research and identify and classify 82 definitions of family business. We then review and evaluate five key theoretical perspectives in family business to identify how these have shaped and informed the definitions employed in the field and duly explain family firm heterogeneity. Finally, we provide a conceptual diagram to inform the choice of definition in different research settings.

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family business model definition

The analyzed units were: year, journal, type of article (conceptual/empirical), and Family Business (FB) definition.

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Appendix: Family Business Definitions

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Diaz-Moriana, V., Hogan, T., Clinton, E., Brophy, M. (2019). Defining Family Business: A Closer Look at Definitional Heterogeneity. In: Memili, E., Dibrell, C. (eds) The Palgrave Handbook of Heterogeneity among Family Firms. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-77676-7_13

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How three circles changed the way we understand family business.

Forty-one years ago, Renato Tagiuri and I were looking for a framework to categorize the issues, interests and concerns voiced by Tagiuri’s executive students, most of whom led family companies. It was 1978, and I was a first-year doctoral student. Tagiuri was a faculty member in a Harvard Business School executive program and had invited me to be his research assistant.

family business model definition

This model always felt inadequate, whether we were discussing a fledgling retail operation owned and run by husband-and-wife founders or a late-generation manufacturing empire owned by cousins with many non-family executives.

Two circles became three circles One day in the fall of 1978, I reviewed a couple of cases and Tagiuri took out his pen and drew two circles to represent the family and the business. “That’s part of it,” I remember saying, “But in this system, they are fighting over getting shares in the company. Some of the family members are owners and some are not, and the two circles don’t account for that.”

Tagiuri thought for a moment. “Would this work?” He sketched a third circle overlapping both of the first two, and labeled it Ownership.

And that was it. That would work — beautifully. The Three-Circle Model not only fit every case we could think of, but also helped us understand the perspectives, goals and concerns of everyone involved. The addition of the ownership circle brought to attention issues that were not explicitly recognized by the first two circles. Succession had to do with passing leadership and ownership. Some tough situations were resolved through buyouts of owners. Capitalizing a family business sometimes required bringing in outside owners. Linking the family, business and ownership circles now fully defined the family business system.

The model may seem elementary, but for four decades now academics, business families and their advisers have been sketching these three circles to gain insight into the workings of family business and business family relationships. All family business systems can be described — and each one uniquely described — using the three circles.

The diagram also framed our definition of family companies: A family company is one whose ownership is controlled by a single family and where two or more family members significantly influence the direction and policies of the business, through their management positions, ownership rights or family roles.

The Three-Circle Model explained The Three-Circle Model shows three interdependent and overlapping groups: family, ownership and business. An individual in a family business system occupies one of the seven sectors that are formed by these overlapping circles. An owner (partner or shareholder) will sit within the top circle. Family members will occupy the left-hand circle, and employees of the family company the right-hand circle. If you fill two roles, you will be in an overlapping sector, sitting within two circles at one time. If you are a family member who works in the business but has no ownership stake, you’re in the bottom-center sector. If you are a family member who owns a stake in the business but is not employed in the business, you’re in the left center sector. If you are a family member who works in the business and is an owner, then you’ll sit in the center of the three overlapping circles. Non-family members who are owners or employees (or both) are represented in the three right-hand sectors.

With the Three-Circle Model, one can depict seven distinct interest groups (or stakeholders) with a connection to the family business. Moving in a clockwise direction from the bottom left:

1. Family members not involved in the business, but who are descendants or spouses/partners of owners. 2. Family owners not employed in the business. 3. Non-family owners who do not work in the business. 4. Non-family owners who work in the business. 5. Non-family employees. 6. Family members who work in the business but are not owners. 7. Family owners who work in the business.

Each of the seven interest groups identified by the model has its own viewpoints, goals, concerns and dynamics. The model reminds us that each sector has legitimate views that deserve to be respected, but these views also must be integrated to set future direction for the family business system. The long-term success of a family business system depends on the functioning and mutual support of each of these groups.

Changing the game Sitting around the conference table in the Humphrey House lounge in the late 1970s, Tagiuri and I had no sense that we were inventing a game-changer. For starters, there wasn’t really a game to be changed; the study of family business was in its infancy. There was almost no documented conceptual thinking on these systems. Through doodling, we were simply trying to develop a useful tool to organize our thinking. From those doodles came a model that has, decade after decade, allowed for consistently deep analysis of family businesses.

Here are six often-noted impacts and consequences of using the Three-Circle Model.

1. Family business members, students, academics and advisers worldwide have witnessed the transformative power of the Three-Circle Model. It clarifies and explains issues to be resolved, different perspectives of individuals involved and why challenges exist. Whenever I’m in a classroom helping MBA students get their arms around their system for the first time, my students will later tell me that when they saw the three circles, it all made sense.

2. The three overlapping circles or subsystems indicate that what happens in one circle influences the others. If one circle, say the family, is in conflict or stuck, it can pull down the performance of the other circles and stall the development of the entire business. A high-performing business, meanwhile, can create pride in a family and build unity in the ownership group.

3. The circles visually raise questions that beg for answers. The Three-Circle Model helps not only to identify where in the family business system issues are occurring, but also to diagnose why issues have occurred or spread from one circle to another.

4. The neutrality of the model can defuse tensions in the family business system by illustrating the power of roles; a systems-oriented approach can alleviate some of the blaming that often goes on. People have told me that relationship tensions just made more sense after they saw where their relatives were located in the model.

5. The Three-Circle Model explicitly recognizes the several interest groups or constituencies in the family business system. It becomes apparent that every group in the system has its own, legitimate interest in the family business, and all groups must be respected, responded to and integrated in some way into company policies and decisions.

6. The model teaches that the needs of the three circles, and of each interest group, evolve and change over time. Families should not only address their current challenges, but also prepare for likely future challenges. Fortunately, the development of each circle over generations is fairly predictable (see G eneration to Generation: Life Cycles of the Family Business, by Kelin E. Gersick, John A. Davis, Marion McCollum Hampton and Ivan Lansberg, Harvard Business School Press, 1997).

Withstanding the test of time When so much in business, technology, wealth, family and society has changed and continues to change, how can a 40-year-old model still help us understand and manage issues in current family business systems?

Part of the reason why the Three-Circle Model has withstood the test of time is its adaptability. The model, for instance, readily incorporates new definitions of “family”: In-laws, blended families, divorced couples, adopted children, domestic partners and whoever is called a member of the “business family” through ownership all have roles within the model.

Likewise, the ownership circle can accommodate many scenarios. If a family business goes public or invites a private equity partner, the model accommodates that ownership change. If the company issues different classes of stock (voting and non-voting), and holds some of the shares in a trust, the model accommodates that.

In addition, the business circle of the model may represent one business or multiple businesses, holding companies, joint ventures and more. It can even describe a situation where the business family has sold its operating company and is managing their financial assets as an entity (sometimes in a family office). The family is in a different business, but managing their assets is still their business. The “business” circle can be labeled “family office,” and the model still works.

How about a fourth circle? I have, over the years, tinkered with adaptations and additions to the three circles. I played with the idea of having a fourth circle of wealth holders, for instance, since the holders of family wealth sometimes differ from the owners of the family business. But, ultimately, nothing seems to have the sticking power of the original Three-Circle Model.

Simplicity is central to its efficacy. Models that keep working must be simple enough to describe most of what you need to describe, and the Three-Circle Model does that.

Admittedly, even the Three-Circle Model has its limitations. It’s a helpful tool, but it’s not the only tool you need.

And what about the future? In some regards, things will change: I think, for instance, we will begin to map systems in three dimensions. I can see three intersecting spheres representing a family business system in three-dimensional space. This could allow some breakthroughs in understanding. But, as it stands, the Three-Circle Model has remained essential over the past 40 years, and I see no convincing reason why it won’t remain essential for the next 40.                         

Professor John A. Davis leads the family enterprise programs at the MIT Sloan School of Management. He is chairman and founder of the Cambridge Family Enterprise Group, a global advisory, education and research organization for family enterprises ( JohnDavis.com ). For permission to reprint or cite this article, contact Dina Dvinov at [email protected] .

For more comments on the Three-Circle Model by John Davis, visit the YouTube channel of the Cambridge Family Enterprise Group.

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Build a Family Business That Lasts

family business model definition

Judging from how they’re portrayed in the media, it would be easy to dismiss family businesses as hotbeds of power-playing, backstabbing, and favor-currying, ultimately destined to fail; think of the Murdochs and News Corp, or the Redstones and National Amusements, to name just two. But many family businesses have enjoyed success for decades, even centuries. The authors explore five aspects of ownership that are crucial to whether a family business thrives or perishes: the type of ownership (whether a sole owner, a partnership, or another arrangement); the governance structure; how “success” is defined; what information the owners will (and won’t) communicate to other family members and stakeholders; and how to handle the transition to the next generation.

Companies that endure do these five things right.

Idea in Brief

The paradox.

Family businesses are famous for power plays, backstabbing, and dramatic implosions. Yet some are among the most enduring companies in existence.

Why It Matters

Family-controlled firms represent some 85% of the world’s businesses. In the United States they employ 62% of the workforce.

The Keys to Longevity

The owners of a family business have the right to: decide on an ownership type, structure governance, define success, determine what to communicate, and plan the transfer of power to the next generation. Misunderstanding or misapplying these rights can destroy the work of generations—and exercising them wisely can lead to long-term success.

Given their portrayals in the media, it might be easy to dismiss family businesses as hotbeds of power playing, favor currying, and back-stabbing—preoccupations that can hurt the company, the family, or both. Think of the Murdochs and NewsCorp, or the Redstones and National Amusements, to name just two. But despite the headline-grabbing tales, many family businesses have enjoyed success for decades, even centuries. For instance, the Italian winemaker Marchesi Antinori, established in 1385, has thrived as a family business for more than 600 years. Similar examples can be found across the globe just within the alcohol business; they include Gekkeikan in Japan (founded in 1637), Berry Bros & Rudd in the United Kingdom (1698), and Jose Cuervo in Mexico (1795).

So which is it? Are family businesses prone to dramatic implosions, or are they some of the most enduring companies in existence? The answer is both. They can be much more fragile or much more resilient than their peers. Given that family businesses—companies in which two or more family members exercise control, concurrently or sequentially—represent an estimated 85% of the world’s companies, ensuring their longevity is essential. The United States alone has 5.5 million of these businesses, which employ 62% of the workforce, according to the research and advocacy group Family Enterprise USA.

To explain the difference between those two fates, we’ll delve into an area rarely explored in business schools or the media: the impact of ownership on a company’s long-term success. Ownership of any asset confers the power to fundamentally shape it. Think of a professional sports team. Within the rules of the league, the owner has the right to make essentially every important decision, including whether to fire the coach, which players are on the roster, where the team plays, whether the franchise seeks to maximize wins or profits, and whether and when to sell it. The teams with the best track records have great owners at the helm. If your favorite team has an ineffective owner, you are probably doomed to disappointment.

The owners of family businesses wield profound decision-making power. We know of sizable companies in which not a dollar can be spent without their approval.

In a widely held public company, the owners are mostly investors. Their influence is limited. They typically let the board and management run the business; when dissatisfied, they “vote with their feet” by selling their shares. Ownership of a family business could not be more different. It rests with a relatively small number of people, who are related. Their ability to shape the company is profound and is itself shaped by their relationships with one another. That’s a potent mix, creating the extraordinary highs and lows we see daily in our work advising the owners of family businesses.

Five core rights accompany family ownership—the right to:

Understanding and effectively exercising these rights can lead to long-term success. Misunderstanding or misapplying them can destroy what a family has spent generations building. In this article we explore the five rights and offer battle-tested approaches for exercising them well.

What Type of Ownership Do You Want?

Family businesses are often lumped together as if they were all the same. But four fundamentally different types exist, distinguished by who can be an owner and how owners share control. If you want your family business to last for generations, you need to understand the characteristics of your type and the strengths and challenges associated with it. The choice of ownership type isn’t a mere legal formality; it can define or restrict various members’ involvement and may loom as an unrecognized source of conflict.

Sole owner.

One family member owns the company and is responsible for all decisions. This works best when the business requires decisive leadership and creates enough liquidity to satisfy nonowners (or when nonbusiness assets can do so).

The French cognac maker House of Camus has had a sole owner since its founding, in 1863. In each generation, one member leads the company, buying out siblings’ shares. The current owner, Cyril Camus, says this model has been essential to the firm’s longevity. With no siblings or cousins involved, family conflict around the business is rare. Sole ownership has downsides: Succession becomes a central issue, which may be decided according to merit (as assessed by the current owner) or assigned by primogeniture or a similar rule, and the owner must wrestle with what benefits to extend to other family members. This model can be risky, because much of the family’s capital and talent exit in each generation.


Ownership is restricted to family members actively working in the business. This allows for multiple perspectives and requires clear rules governing how people can join or leave the ownership group and what benefits accrue to nonowners. The German-Dutch Brenninkmeijer family, sixth-generation owners of the clothing chain C&A, have chosen this type. Children of current owners are admitted to the partnership on a competitive basis, after a rigorous evaluation and an apprenticeship. Like sole ownerships, partnerships keep family owners highly engaged but can be vulnerable to the loss of capital and talent. They are typically more resilient because they don’t rely on just one leader, but they may face conflict over who is admitted to ownership.

Distributed ownership.

Any family member may be an owner and participate in decision-making. This works well when most of the family wealth resides in the company, when it is mandated by law, or when it is expected by family culture. The Brazil-based conglomerate Votorantim has this type of ownership: In each generation, family members pass down their shares, usually evenly. With no need to buy out nonowner members, distributed ownership can keep family capital tied to the business. But owners may vary in engagement; aligning their interests and defining decision-making norms can be challenging, and resentment about “free riders” may arise if some are operating the business while others are “only” investors. Big problems may crop up if some members of the family want to cash out; having a clearly defined exit ramp reduces that risk.

Concentrated ownership.

Any family member may be an owner, but a subset controls decision-making. This works well when decisive action is required despite a multiplicity of owners, and it mitigates some of the challenges of distributed ownership. But the question of who will exercise control becomes more complicated with each new generation. Vitamix, the 100-year-old manufacturer of high-performance blenders, operates this way. Shares are passed down to descendants, but in each generation the CEO must own or control a majority of voting shares. Although the owners aim for consensus on big decisions, the CEO makes the final call. One of the chief risks is conflict over who will lead. Another is the possibility that those not in power will lose interest and sell their shares.

family business model definition

Although hybrids exist, most family businesses fall into one of those four categories. (If a family business has some shares that are publicly traded, it may fit into any of them, depending on how the family has decided to handle its piece.) In a survey we conducted of family businesses of various sizes and across numerous industries and geographies, we found that 13% had a sole owner, 24% were partnerships, 36% had distributed ownership, and 27% had concentrated ownership.

The type of ownership needn’t be a static choice. Be on the lookout for the need to make a change, which may arise when the next generation is joining, when the size or complexity of the business alters significantly, or when you’re bringing in outside leaders. The Antinori winemaking family had a sole owner for 25 generations: Control passed to a male descendant, keeping the business and associated land united. But Piero Antinori, who took the reins in 1966, has three daughters and no sons. He opted for a three-way partnership to succeed him.

How Will You Structure Governance?

The owners of family businesses wield profound decision-making power. We know of sizable companies in which not a dollar can be spent without their approval. When this power is channeled appropriately, it confers a major competitive advantage, facilitating the nimbleness needed to capitalize on opportunities as they arise. Many family business leaders we know can make big bets at a moment’s notice, without having to run decisions through multiple layers of management and bureaucracy. “Speed of response is becoming more crucial, and we can put large projects to work quickly,” says Alexandre Leviant, the president of the specialty chemical conglomerate ICD, which his father founded in 1952.

But if that power is wielded ineffectively, the business will suffer. Some owners exercise too much control, stifling innovation and making it hard to attract and retain great talent. Others step back from major decisions, leaving a vacuum that may be filled by executives looking to their own interests. We saw a number of family businesses nearly destroyed when decisions were left to nonfamily managers who wanted to run the company down and buy it at a fire-sale price.

Governance in a family business is all about finding a middle ground between micromanaging and abdicating responsibility, and it becomes more challenging as the family and the business grow. We suggest a simple framework to guide decision-making: the four-room model. Imagine your business as a home with one room each for the owners, the board, management, and the larger family. The owners set high-level goals and elect the board; the board oversees the business and hires (and if necessary fires) the CEO; and management recommends business strategy and directs operations. Because the board and management report to the owners, the first three rooms are in a row, with the owners’ room on top. The family’s room, which is critical for maintaining members’ emotional connection to the business, sits alongside the other three, underlining the importance of family influence and unity throughout.

family business model definition

In a well-run family business, each room has explicit rules about who belongs there, what decisions are made there, and how. People’s roles vary from room to room. For example, a nonfamily CEO can run the management room but shouldn’t decide how the owners will use their dividends. Nonowner family members, for their part, can’t walk into other rooms and make decisions. Governance based on the four-room model makes the hierarchy and boundaries clear.

Time and again, we’ve seen businesses slide into chaos for lack of a good decision-making process. Too often the problem becomes apparent only after disagreements have begun to destroy what years of collaboration built. At a regional retail chain headed by a family member we’ll call Steve, the lack of governance let his self-described “cowboy” instincts run unchecked, sparking resentment in his sister and his cousin, who were equal owners. Once they all recognized the problem, they turned to the four-room model and created an owners’ council, which Steve was required to consult for decisions of a certain magnitude. That allayed his co-owners’ concerns while forcing him to plan big moves more carefully, and the business—along with the family—got back on track.

The four-room model helps owners maintain control over the most important issues and delegate other decisions. It establishes a process for revisiting decisions as goals evolve for the family or the business or both.

How Will You Define Success?

The owners of a business have a right to the residual value it creates. With that right comes the ability to define success. For widely held public companies, that’s straightforward: They aim to maximize shareholder returns. But few family businesses we know would describe their primary objective in those terms. That’s one of the best things about family ownership: You get to determine what matters most. No outsider can force you to value earnings growth more highly than, say, providing family members with employment, or can insist that you pursue opportunities that clash with your beliefs.

Effectively exercising this right can be an incredible advantage in making a business last. It enables a long-term, generational approach that contrasts sharply with public companies’ obsession with quarterly results. But not all families are clear about what they value most. That lack of clarity can trigger battles over priorities, missed opportunities, or a failure to retain talented employees. More fundamentally, if you are unclear about your objectives, you risk losing your raison d’être for being in business together, especially as the company grows and transitions to new generations. Your path may become a dead end.

To avoid that fate, you need an owner strategy that identifies concrete goals and sets up guardrails.

These fall into three main categories. You can aim for growth: maximizing financial value. You can seek liquidity: prioritizing a healthy cash flow for the owners’ use outside the business. You can look to maintain control: keeping decision-making authority firmly within the ownership group by avoiding outside equity or debt.

There will be trade-offs among these options. You might pursue only one goal, or you might decide on a combination. We have found that for most family-owned companies, this is a “pick two” situation, meaning they prioritize two goals at the expense of the third. That suggests three basic owner strategies—one for each possible pairing of goals, each forming a side of what we call the owner strategy triangle.

family business model definition

Growth-control companies—the most common type we have encountered—focus on becoming bigger while keeping decision-making within the owners’ purview.

Growth-liquidity companies also seek to become bigger, but they pay out considerable money to the owners and use outside equity or debt or both to keep the engine going—consequently relinquishing some control.

Liquidity-control companies are not concerned with rapid growth; instead they hope to produce a significant cash flow for the owners while retaining decision-making authority.

We know highly successful family businesses that have chosen each strategy combination. And these are broad strategies; companies can find spaces between them. What’s most important is understanding the explicit and implicit choices you are making about what to prioritize; those should flow from your fundamental values. You should revisit your choices as circumstances evolve, whether because of external factors such as economic developments, industry consolidation, and regulatory shifts or because of internal factors such as generational transitions, family conflict, and changes to senior management.


Aligning on priorities is essential. But without concrete ways of measuring performance, it’s just lip service. Guardrails can help ensure that those running the business day to day are directing their energy and resources toward what you as owners care about most. They allow you to delegate decisions more confidently.

Guardrails can be financial or nonfinancial. Owners should home in on a small number of financial ones—for example, minimum levels of return on invested capital or maximum levels of debt—and ensure that the company stays within them. Nonfinancial guardrails define outcomes for which owners are willing to sacrifice financial performance. The values informing them are often part of the glue holding the family together and a means of making the world a better place. For example, we work with a U.S.-based family business whose members lost relatives in the Holocaust. It invests only in countries with a high score in the nonprofit NGO Freedom House’s annual ratings.

Having a clear owner strategy fosters longevity by ensuring that the business accomplishes the owners’ financial and nonfinancial goals. Over the long term, families need an emotional connection to their company; they must be able to say, “We own this because we want to make a difference” or “This represents what our grandfather sacrificed to give us a better life.” Without an emotional connection, owners may be tempted to cash out.

What Will—and Won’t—You Communicate?

Owners are legally entitled to know a great deal about their business, such as what’s in financial statements, certain organizational records, and ownership documents. And except when they bring in outside investors, lenders, or board members, they are not obligated to share that information with anyone (other than the government). That means they control communication; nothing of consequence can be shared without their permission.

How owners exercise this right significantly affects the business’s longevity. That’s because effective communication is critical to building one of a family business’s most valuable assets: trusted relationships. These are often underappreciated, but they help generate three important things:

The impulse to keep things private is understandable. Privacy can protect the business and the family from outsiders. But if owners hold their cards too close to the vest, they risk starving the business of its ability to cultivate valuable relationships.

A business school professor we’ll call Sophie married into a family with a fourth-generation media business in Asia. Concerned about what she saw as a casual attitude toward innovation, she began asking about the company’s long-term strategy. The more questions she asked, the more information the executive team withheld, until it requested that her husband stop sharing financial reports with her for fear she would “rock the boat.” Sophie became increasingly anxious about whether her children would inherit a business with any value. In the face of the stonewalling, she withdrew, even scheduling vacations elsewhere during the family’s annual reunions. That deprived her children of opportunities to forge relationships with their cousins (and future co-owners), which could have a devastating impact on the business in the years to come.

Delaying or poorly planning a transition to the next generation can wreak havoc on the family and the business alike. You need a continuity plan.

Early on in the life of your business, communication is likely to be informal, perhaps taking place over meals. As things progress, consider what meetings, policies, functions, or technological platforms could improve your dialogues. Start by aligning on what you will and won’t disclose to each audience. In our experience, owners are often so worried about protecting details regarding their wealth that they fail to think through what they can share to help stakeholders feel connected to the business’s long-term success. Such information might include your owner values and strategy, how decisions will be made, how you think about succession, and your passion for the business. If you decide to keep such information private, tell your stakeholders why.

We have seen cases in which the failure to communicate effectively was the single biggest reason for a family business’s demise. We’ve also seen some in which skillful communication pulled the company through tough times. Wield the right to inform wisely.

How Will You Handle the Transition to the Next Generation?

The final right of owners is deciding how to exit. You can choose who will own the business next, what form that ownership will take (whether shares or a trust), and when the transition will occur. With this right come complex and difficult decisions. What will you do with the assets you worked so hard to build? How will you let go? What roles should members of the next generation play? How should you prepare them? Are the relationships among them strong enough that they can work through decisions together?

Delaying or poorly planning your transition can wreak havoc on the business and the family alike. A Boston Consulting Group study of more than 200 Indian family businesses found a 28-percentage-point difference in market capitalization growth between companies that had planned their transitions and those that had not. Family empires may be consolidated or squandered in the transfer of power across generations.

To execute a successful transition, you’ll need a continuity plan that maps a path from the current generation of owners to the next. It should address three main challenges:

Transition is a process, not an event—and the more the continuity plan resembles a discussion rather than an ultimatum, the greater the chances of success. The plan can’t simply be dictated from one generation to the next; incoming leaders need to be prepared and aligned. To see what can happen when they’re not, consider the Pritzker family, which built the business empire that includes Hyatt hotels. Jay Pritzker, the leader of the third generation, and his brother Robert gathered the family in 1995 and handed out a two-page document describing their succession plans. It detailed a complex web of trusts created to hold the family’s assets, spelled out when members would receive distributions, and assigned leadership to a triumvirate. It was undoubtedly well-intentioned, but it didn’t work. Just months after Jay’s passing, in 1999, a series of lawsuits began. The family eventually decided to divide its holdings.

Oftentimes the biggest hurdle to continuity planning is getting started. When facing pressing concerns in the present, it can be tempting to put off cross-generational conversations that may be fraught with issues of mortality and identity. So put those conversations on your agenda (in your owners’ room, with a designated continuity-planning task force, or through your board) and set some deadlines for them.

We won’t sugarcoat the bottom line: Without hard and smart work by the owners, other family members, and employees, family businesses often implode. Much energy is needed to keep the many competing interests from turning destructive.

There is no single way to survive, and there are few universal best practices. But by applying the five-rights framework, you can organize yourself for the work that family ownership requires. Ask the members of your business to individually assess your performance against each right. Then share the results and develop a plan that builds on your strengths and shores up your vulnerabilities. Only through such collaboration can you use the power of ownership to sustain your family business for generations to come.

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How Companies Make Money

What Is a Business Model?

Understanding business models, evaluating successful business models, how to create a business model.

The Bottom Line

Learn to understand a company's profit-making plan

family business model definition

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

family business model definition

Investopedia / Laura Porter

The term business model refers to a company's plan for making a profit . It identifies the products or services the business plans to sell, its identified target market , and any anticipated expenses . Business models are important for both new and established businesses. They help new, developing companies attract investment, recruit talent, and motivate management and staff.

Established businesses should regularly update their business model or they'll fail to anticipate trends and challenges ahead. Business models also help investors evaluate companies that interest them and employees understand the future of a company they may aspire to join.

Key Takeaways

Business Model

A business model is a high-level plan for profitably operating a business in a specific marketplace. A primary component of the business model is the value proposition . This is a description of the goods or services that a company offers and why they are desirable to customers or clients, ideally stated in a way that differentiates the product or service from its competitors.

A new enterprise's business model should also cover projected startup costs and financing sources, the target customer base for the business, marketing strategy , a review of the competition, and projections of revenues and expenses. The plan may also define opportunities in which the business can partner with other established companies. For example, the business model for an advertising business may identify benefits from an arrangement for referrals to and from a printing company.

Successful businesses have business models that allow them to fulfill client needs at a competitive price and a sustainable cost. Over time, many businesses revise their business models from time to time to reflect changing business environments and market demands .

When evaluating a company as a possible investment, the investor should find out exactly how it makes its money. This means looking through the company's business model. Admittedly, the business model may not tell you everything about a company's prospects. But the investor who understands the business model can make better sense of the financial data.

A common mistake many companies make when they create their business models is to underestimate the costs of funding the business until it becomes profitable. Counting costs to the introduction of a product is not enough. A company has to keep the business running until its revenues exceed its expenses.

One way analysts and investors evaluate the success of a business model is by looking at the company's gross profit . Gross profit is a company's total revenue minus the cost of goods sold (COGS). Comparing a company's gross profit to that of its main competitor or its industry sheds light on the efficiency and effectiveness of its business model. Gross profit alone can be misleading, however. Analysts also want to see cash flow or net income . That is gross profit minus operating expenses and is an indication of just how much real profit the business is generating.

The two primary levers of a company's business model are pricing and costs. A company can raise prices, and it can find inventory at reduced costs. Both actions increase gross profit. Many analysts consider gross profit to be more important in evaluating a business plan. A good gross profit suggests a sound business plan. If expenses are out of control, the management team could be at fault, and the problems are correctable. As this suggests, many analysts believe that companies that run on the best business models can run themselves.

When evaluating a company as a possible investment, find out exactly how it makes its money (not just what it sells but how it sells it). That's the company's business model.

Types of Business Models

There are as many types of business models as there are types of business. For instance, direct sales, franchising , advertising-based, and brick-and-mortar stores are all examples of traditional business models. There are hybrid models as well, such as businesses that combine internet retail with brick-and-mortar stores or with sporting organizations like the NBA .

Below are some common types of business models; note that the examples given may fall into multiple categories.

One of the more common business models most people interact with regularly is the retailer model. A retailer is the last entity along a supply chain. They often buy finished goods from manufacturers or distributors and interface directly with customers.

Example: Costco Wholesale


A manufacturer is responsible for sourcing raw materials and producing finished products by leveraging internal labor, machinery, and equipment. A manufacturer may make custom goods or highly replicated, mass produced products. A manufacturer can also sell goods to distributors, retailers, or directly to customers.

Example: Ford Motor Company


Instead of selling products, fee-for-service business models are centered around labor and providing services. A fee-for-service business model may charge by an hourly rate or a fixed cost for a specific agreement. Fee-for-service companies are often specialized, offering insight that may not be common knowledge or may require specific training.

Example: DLA Piper LLP


Subscription-based business models strive to attract clients in the hopes of luring them into long-time, loyal patrons. This is done by offering a product that requires ongoing payment, usually in return for a fixed duration of benefit. Though largely offered by digital companies for access to software, subscription business models are also popular for physical goods such as monthly reoccurring agriculture/produce subscription box deliveries.

Example: Spotify

Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.

Example: LinkedIn/LinkedIn Premium

Some companies can reside within multiple business model types at the same time for the same product. For example, Spotify (a subscription-based model) also offers free version and a premium version.

If a company is concerned about the cost of attracting a single customer, it may attempt to bundle products to sell multiple goods to a single client. Bundling capitalizes on existing customers by attempting to sell them different products. This can be incentivized by offering pricing discounts for buying multiple products.

Example: AT&T


Marketplaces are somewhat straight-forward: in exchange for hosting a platform for business to be conducted, the marketplace receives compensation. Although transactions could occur without a marketplace, this business models attempts to make transacting easier, safer, and faster.

Example: eBay

Affiliate business models are based on marketing and the broad reach of a specific entity or person's platform. Companies pay an entity to promote a good, and that entity often receives compensation in exchange for their promotion. That compensation may be a fixed payment, a percentage of sales derived from their promotion, or both.

Example: social media influencers such as Lele Pons, Zach King, or Chiara Ferragni.

Razor Blade

Aptly named after the product that invented the model, this business model aims to sell a durable product below cost to then generate high-margin sales of a disposable component of that product. Also referred to as the "razor and blade model", razor blade companies may give away expensive blade handles with the premise that consumers need to continually buy razor blades in the long run.

Example: HP (printers and ink)

"Tying" is an illegal razor blade model strategy that requires the purchase of an unrelated good prior to being able to buy a different (and often required) good. For example, imagine Gillette released a line of lotion and required all customers to buy three bottles before they were allowed to purchase disposable razor blades.

Reverse Razor Blade

Instead of relying on high-margin companion products, a reverse razor blade business model tries to sell a high-margin product upfront. Then, to use the product, low or free companion products are provided. This model aims to promote that upfront sale, as further use of the product is not highly profitable.

Example: Apple (iPhones + applications)

The franchise business model leverages existing business plans to expand and reproduce a company at a different location. Often food, hardware, or fitness companies, franchisers work with incoming franchisees to finance the business, promote the new location, and oversee operations. In return, the franchisor receives a percentage of earnings from the franchisee.

Example: Domino's Pizza


Instead of charging a fixed fee, some companies may implement a pay-as-you-go business model where the amount charged depends on how much of the product or service was used. The company may charge a fixed fee for offering the service in addition to an amount that changes each month based on what was consumed.

Example: Utility companies

A brokerage business model connects buyers and sellers without directly selling a good themselves. Brokerage companies often receive a percentage of the amount paid when a deal is finalized. Most common in real estate, brokers are also prominent in construction/development or freight.

Example: ReMax

There is no "one size fits all" when making a business model. Different professionals may suggest taking different steps when creating a business and planning your business model. Here are some broad steps one can take to create their plan:

Instead of reinventing the wheel, consider what competing companies are doing and how you can position yourself in the market. You may be able to easily spot gaps in the business model of others.

Criticism of Business Models

Joan Magretta, the former editor of the Harvard Business Review, suggests there are two critical factors in sizing up business models. When business models don't work, she states, it's because the story doesn't make sense and/or the numbers just don't add up to profits. The airline industry is a good place to look to find a business model that stopped making sense. It includes companies that have suffered heavy losses and even bankruptcy .

For years, major carriers such as American Airlines, Delta, and Continental built their businesses around a hub-and-spoke structure , in which all flights were routed through a handful of major airports. By ensuring that most seats were filled most of the time, the business model produced big profits.

However, a competing business model arose that made the strength of the major carriers a burden. Carriers like Southwest and JetBlue shuttled planes between smaller airports at a lower cost. They avoided some of the operational inefficiencies of the hub-and-spoke model while forcing labor costs down. That allowed them to cut prices, increasing demand for short flights between cities.

As these newer competitors drew more customers away, the old carriers were left to support their large, extended networks with fewer passengers. The problem became even worse when traffic fell sharply following the September 11 terrorist attacks in 2001 . To fill seats, these airlines had to offer more discounts at even deeper levels. The hub-and-spoke business model no longer made sense.

Example of Business Models

Consider the vast portfolio of Microsoft. Over the past several decades, the company has expanded its product line across digital services, software, gaming, and more. Various business models, all within Microsoft, include but are not limited to:

A business model is a strategic plan of how a company will make money. The model describes the way a business will take its product, offer it to the market, and drive sales. A business model determines what products make sense for a company to sell, how it wants to promote its products, what type of people it should try to cater to, and what revenue streams it may expect.

What Is an Example of a Business Model?

Best Buy, Target, and Walmart are some of the largest examples of retail companies. These companies acquire goods from manufacturers or distributors to sell directly to the public. Retailers interface with their clients and sell goods, though retails may or may not make the actual goods they sell.

What Are the Main Types of Business Models?

Retailers and manufacturers are among the primary types of business models. Manufacturers product their own goods and may or may not sell them directly to the public. Meanwhile, retails buy goods to later resell to the public.

How Do I Build a Business Model?

There are many steps to building a business model, and there is no single consistent process among business experts. In general, a business model should identify your customers, understand the problem you are trying to solve, select a business model type to determine how your clients will buy your product, and determine the ways your company will make money. It is also important to periodically review your business model; once you've launched, feel free to evaluate your plan and adjust your target audience, product line, or pricing as needed.

A company isn't just an entity that sells goods. It's an ecosystem that must have a plan in plan on who to sell to, what to sell, what to charge, and what value it is creating. A business model describes what an organization does to systematically create long-term value for its customers. After building a business model, a company should have stronger direction on how it wants to operate and what its financial future appears to be.

Harvard Business Review. " Why Business Models Matter ."

Bureau of Transportation Statistics. " Airline Travel Since 9/11 ."

Microsoft. " Annual Report 2021 ."

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family business

Definition of family business

Example sentences.

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'family business.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback .

Dictionary Entries Near family business

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Cite this Entry

“Family business.” Merriam-Webster.com Dictionary , Merriam-Webster, https://www.merriam-webster.com/dictionary/family%20business. Accessed 15 Mar. 2023.

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What is Family Business and its Characteristics

From experience, I can mention that to define what a family business is, it is complex. Especially because one of the many problems that exist in family businesses is the lack of an understanding of what they are. Some other problems are the proper assignation of roles, or see where every member of the family stand within the company environment.

What is a Family Business?

group of people brainstorming sitting on the

It is known by those involved that the characteristics of a family business are in a somewhat different magnitude to another company.

Knowing what belongs to whom, and what activities should make such a person is important for harmony remains within the company and the family. If the company is in the stage of the founder, it is easy for him to have control over and decide how they will be allocated the resources generated by the company. But once the second generation begins to grow, and have a desire to continue with the company, it is important that the roles of each of those involved are defined.

To learn a little more to this complex world I have added the following.

Weglot English banner

Definitions of a Family Business

Here I will mention some important concepts surrounding a family business.

“It is one in which the property and decisions are dominated by members of a group of emotional affinity.” (Carsud, 1996)

“The property control is allocated to a member or members of a single family.” (Barnes and Hershon, 1989)

“A company in which one family owns most of the capital and has total control. The family members are also part of the management and make important decisions.” (Gallo and Veen, 1991)

“The company that will be transferred to the next generation of the family to the command or control”. (Ward, 1995)

“Family business is one in which a family group is able to appoint the chief executive of the company, setting the business strategy of it all with the aim of generational continuity, based on the joint desire of founders and successors to maintain control of ownership and family management.”(Crown, 2004)

“A family business is any business in which several family members assume management or active responsibility as owners. One has a family business if you work with someone from your family in a business belonging to the two or belong to them someday . the essence of a family business is that blood is shared, work and ownership of the company. ” (Jaffe, 1991)

The concept of family business is used when the aspect to be emphasized is linked more to the family institution, the group of people who also share a family relationship, owns, controls and / or directs a particular business, assets or business organization.

Given what is a family business, you need to understand what they control.  The family business maintains relationships at various levels to professional and personal. The complexity of family businesses lies especially those relationships. 

The main characteristics of a family business

Families are a group of people belonging to the same hereditary structure, assembled by genetic inheritance, biological ties and affinities. Its components include, in general, the direct descendants, spouses and cohabitants.

“We define as a family company in which the majority of the ownership or control lies in a single family and two or more family members involved or participated in its time.” (Rosenblat, De Mik, Anderson and Johnson, 1985)

The company is guided by economic objectives organization formed by people who play very different roles (shareholders, managers, workers) interacting with other social organizations in their environment (customers, suppliers, financial intermediaries, and public administrations) and also has with objectives and specific challenges and is imbued with a particular set of values.

Such compounds elements generate the special bond that formed the family business.

Family Business Three Circles Model


To understand more about what is a family business a model of three circles was generated. Each of these circles represents the family, property and business.  The three circles model was developed by Tagiuri and Davis (1982) for the purpose of describing the various situations that arise in all family businesses. This system is based on the company, property and the family, where each circle represents a group of people with particular characteristics in their relationship with the family business. At intersections of the circles it can be found people who own both or all features.

Groups 1,2, or 3 are people who only have a connection with family, property or business. 4, 5 and 6, with the mix of family-owned, company-owned and company-family. Finally, those who are at the intersection 7 are those with the three characteristics. Normally the founder is a person who has all three.

It is the group of people is made up of family members who do not have any property or participating in the company.

2. Family & Ownership

Are the family members who have shares in the family business without work within it.

3. Ownership

Are the people who have shares in the family business without being family or work within it.

4. Ownership & Business

Non family members holding shares and do work within the company.

5. Business

Employees working within the organization who are not family members, or owns stock.

6. Business and Family

Those who work in the company with any position and are members of the family, but have no stocks.

7. Family, Ownership and Business

At the intersection of the three circles those who have shares, some position at the company and family ties are present.

Example of the Three Circles Model

Generate list of people involved with the company. They should include shareholders, employees of trust, family and children, siblings or parents.

Assign the number corresponding to the person. Example: If Antonio is a shareholder and member of the family but does not work in the company is assigned 4 (Family-Owned). Or if Martin works at the company, but not family and nor is shareholder is assigned 3. (Company) so on.

The question to answer, now what do I do with this list? Define the roles is only the first step of many to organize a family business. Get the roles within the diagram to identify where people are standing in the company. The dialogue and constant communication are important to not forget what position they are.

The development of these companies is much more complex than a simple list, so in the following items hope to continue complementing what is the world of the family business.

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Features of Family Business

Setting out a family business strategy is important to maintain a long term and sustainable growth of the family firm. 

Most small businesses are also compared to be family businesses mainly do to the easier family control of a certain size of a business.

Certainly it is that as family firms might be from different industries, they might have the similar distinctive attributes and features.

As we have already mentioned in the three circle model, it defines in a broad aspect the characteristics of the people that surround a family firm, but there are also features of family business that have an impact on the business strategic management.

Important is important for family firms to incorporate on their business plans a well aligned path to the desires of the next business generation in order to maintain a successful business that can last in the future. 

The following features of family businesses have an impact on the business strategy.

Generation stage

Family firms have among its features that it can be categorized according to the business generation they are in.

The first generation are the ones who set the family foundations and build up the business from scratch.

The second generation are the children of the founders, and mainly their aim at the organization is to preserve the family firm, improve it and boost its growth. This generation already has a proven business model that work and had business success, so it should be their focus to establish the business professionalization according to their industry business practices

The third generation has a more complex structure if the great children of the first generation are involved, because we are already involving different micro cultures between them.

That is why family governance structures are important to be set in order to maintain a healthy strategic management and growth.

Leading Family

Family firms are usually managed by high achievers and ambitious people who were the innovators at a point in the market. 

Among the core characteristics of a family of entrepreneurs is that they lead as an example for their communities and aim to be innovative business owners who serve their markets.

Family Values

Another aspect of family firms is that the values that the family has are intrinsically transmitted into the business.

If the family has the aptitudes of being insightful, courageous and resilient, these features will be spread out along the organization.

How the family behaves within their own circle, it will also have an impact on the organizational culture of the family firm.

In a business context where there is harmony in the family atmosphere, it will create a more prosperous environment to grow.

Family Conflicts

Usually, the problems in family firms are not the business itself, but the conflicts that may surge within the family.

The first generation is mainly managed by the married couple or only one person. As the family firms are mainly sole proprietorships, the decisions are taken just by one person.

When the children are still young, they barely have a connection with the business, but as the second generation grows and gets married, that means bringing up couples who have different mindsets.

Now we are talking about dealing with first and second generation families.

Family conflicts will arise, especially if they don’t communicate effectively their personal and professional plans.

If there are people who are inpatient, lazy, bossy, dishonest or selfish, this can bring up discussion within the family nucleus and destabilize the business.

A family who has set right their family values and have children who are conscious about the previous generation’s effort to build up a successful business can ensure the longevity of the business. 

Otherwise, a damaged family atmosphere will be falling down into their own trap making it harder or taking longer to have a successful business.

Family Governance

One important feature of family enterprises is when they have built up a family governance structure.

A family firm that sets a cooperative mindset between the family members can set a better business strategy that is oriented to the future.

When the family governance is authoritative, this can have as consequence rupture in the business communications.

This is why it is important to have an organized, professional, and sincere structure at the different levels, to reduce business conflicts.

Succession planning

Succession planning is needed when the first generation is ready to be relieved by the second generation, or in the case of the next one.

Succession planning is not a process that is handled right away, normally the process can take years since the next generation must be prepared to take control of the family enterprises.

This is one of the main family firm characteristics, since this is a process that happens the most to them.

The family ownership relies within the same group unless another is decided.

A correct succession planning has to be set up on the family foundations with the aim of a sustainable future.

At the moment, on average 70% of worldwide family firms succeed with the succession of second generation, but nearly 13% do the transition to third generation.

To increase this number it involves many factors, because it includes the desires of the family members.

The focus should be that the wealth that is in the family control grows over time with the right family business strategy, even if the brand that they build up disappears at one point.

But those successful brands are the ones who remain under family control, and are included in their business portfolio, regardless of the new ventures that family members have developed over time. 

Family business management tips

When there are family members who are not interested at all in the industry that the previous generation started the business in, then the family should focus on developing an enterprising family who have an entrepreneurial mindset and that is able to find business opportunities.

The characteristics of a leading family firm of being innovators and creatives can easily spot the market needs and seek out how to serve the market.

This way the next generation of entrepreneurs can start their new business, but also taking within them the know-how of their family business strategy.

Having a family member becoming a first generation will give him the experiences of building a business from scratch and in his desired industry, just as the founders.

By building up new businesses, the family enterprise starts to be consolidated and remaining the family ownership of the businesses in the same group.

Acceptance and tolerance

These are some important family values that must be educated across the members, because there will be differences of thought between generations and peers.

Family firms will face different ideas on how to solve problems, and there has to be an agreement on how to proceed to move forwards.

Family firms have to work in communion to be able to move forwards.

Strategic budgeting

Another important tip to do for a great family business strategy is to set the budget for the expenses.

Unfortunately, the issue with family owned businesses is that the business owners think that the family firm cash is their own cash.

Having the family ownership over a business doesn’t mean that they can dispose of the business cash as their own.

It is important to set a budget for the payroll of the family members who are working at the family firm.

As well, it is important to do a business plan about the investment that they are going to do and how much will they allocate.

Long-term planning

One main advantage of an enterprising family is that they can plan for several years and since the family shareholders are the only ones who decide over the business future, then there is more family control.

For sure, it will be a matter to talk with the family members to see what are their desires, but as mentioned, if they have the entrepreneurial spirit, then it is more likely that they will also start their own small business until they grow it into a mature family enterprise.

Frequently Asked Questions about Family Business

A small family business is that one where the ownership relys on the hands of a family and they have less than 250 employees.

Lack of proper administration and commitment of the family members can affect the business itself on a negative way.

Practices such as including non working family members on the payroll, using the business cash flow as family cash flow, not setting a proper business plan, mission and vision are some of the family businesses disadvantages that can affect the organization.

Some 70 percent of family-owned businesses fail or are sold before the second generation gets a chance to take over, according to a 2012 Harvard Business School study. ( Bizjournal, 2021 )

Family businesses often fail and end up in a business divorce because:

Privacy Overview


Family Business Model

The dna and business model of successful family businesses.

Family businesses are not successful by definition. The most successful family businesses live a model that is “radically different”. No matter whether in Hamburg or Palermo, Zurich or Vienna, the DNA of the best family businesses is made up of 10 features that connect these companys beyond any geographical borders. This conclusion is the result of an empirical study involving more than 200 European family businesses.

The Family Business Model is a business model from and for family businesses that needs to be understood in order to derive useful initiatives for one’s own business. It can be analysed, studied and applied in practice.

Do you want to analyse your company without much effort, without external consulting, without workshops and in an easy way? Thanks to the online Family Business Model Tool you can identify the strengths and weaknesses of your company in the specific DNA strands of the business model, lived by the best family companies. The Family Business Model Tool was designed to do just that! Answer the questions about the 10 successful DNA strands and receive your personal evaluation.

Family Business Model Tool

You also have the opportunity to analyse the Family Business Model with selected executives of your company and family members. In return you will receive the desired number of individual Family Business Model Tool accesses. Anyone can answer the questions personally. You will receive a weighted average result of all participants and each participant will also receive his individual report. The Family Business Model Tool helps you to analyse your business and focus on strategic focal points, whether you want to do this alone or with your confidants.

Create the opportunity to work specifically on the topics of your future success.

Would you like even deeper insights into the world of the DNA of the best family businesses? Then we recommend our book “Radically Different. The DNA of Successful Family Businesses.” (you may find it here in italian or here in german ).

Weissman International: [email protected] Markus Weishaupt: +39 335 78 55 913 Armin Rainer: +39 333 84 15 655 Roman Rauper: +41 81 523 29 00

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family business model definition

family business model definition

Indian family business

Understanding the three circle model and an overview of family businesses in india.

family business model definition

This article is written by Gayathri, pursuing a Certificate Course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho . The article has been edited by Aatima Bhatia (Associate, LawSikho) and Zigishu Singh (Associate, LawSikho).

Table of Contents


The Three Circle Approach is a worldwide recognised standard model for successfully conducting family businesses. This is made up of three primary components: family, company, and ownership, and it is the foundation of any family firm. Strong communication and long-term commitment are seen in the business. Each circle; family, business management, and ownership has its own governance structure and developmental stages.  Renato Tagiuri and John Davis are said to have created the model in 1978 at Harvard Business School.

However, to know the title “ Understanding the Three Circle Model for Family Business and it is relevance in today’s time ”, especially when compared to the Indian context can be cleared by knowing – Birth of 3 circle Model, How 2 circle model becomes 3 circle model, Understanding 3 circle model, Time Tested, Indian Family Business– Understanding, Business main communities, Present day times, Financial Performance, Conflicts and Legal entanglements, Contribution to India’s GDP, Conclusions and Recommendations.

family business model definition

Birth of 3 circle model

The Three Circle Model is a globally accepted standard model for operating family businesses successfully. This has Family, Business and Ownership as its main components and these form the pillar of any family business. These circles are exclusively inter-dependent and resultant of all. This results in strong communication and commitment for the future. Each circle – Family, Business management and Ownership, has its own governance structure and has its own stages of development. Each member of the family contributes to different stages of development. It is claimed that the model was first developed at Harvard Business School by Renato Tagiuri and John Davis in 1978. 

How did the 2 circle model become the 3 circle model?

The Two-Circle Model recognised the interdependence of family and business, as well as the need for family and company goals and interests to be aligned. This approach also made it easier to comprehend the uncertainty that individuals and the system might experience because of the clashing of family and corporate norms. The two circles fell short of capturing the interactions and tensions they observed in the family business systems which ranged from a fledgling retail operation owned and run by its husband-and-wife founders to a late-generation manufacturing empire owned by cousins with a large number of non-family executives. Examination of various family business situations revealed whether the three circles can appropriately characterise these systems. The Three-Circle Model not only fits non-family employees who were awarded minority shares, but also helped anonymous public owners of listed family companies understand their perspectives, aims, and concerns. With the advent of the third circle- ownership- additional attention could be given to topics that were not expressly addressed by the previous two circles. The term “success” referred to the process of transmitting leadership and ownership from one generation to the next. Owner buyouts have helped to resolve certain difficult situations. Bringing in outside investors to help a family business grow was sometimes necessary. The family business system, which is the integration of all three subsystems, has now been fully defined by connecting the family, company, and ownership circles.

These three rings have been sketched for forty years by academics, business families, and their advisors to get insight into the inner workings of their family businesses and business family connections. The three circles can be used to describe all family business systems, and each family business system can be described uniquely using this framework.

This design (along with the addition of the ownership circle) also served as the basis for Tagiuri and Davis’ definition of family businesses: “A family business is one whose ownership is controlled by a single family and in which two or more family members, through their managerial positions, ownership rights, or family duties, have substantial influence over the company’s direction and policies”.

A three-circle perspective was required to arrive at this definition. The model of ‘3 Circle Model for Family Business Management’ is depicted in Figure 1.  

Understanding 3 circle model

The Family Business System’s Three-Circle Model depicts three interrelated and overlapping groups: family, ownership, and business Management. 

In a family business system, an individual is assigned to one of the seven sectors formed by these three overlapping rings. Within the top circle, only an owner (partner or shareholder) will sit. The left-hand circle will be occupied by family members, while the right-hand circle will be occupied by employees of the family business. You will only be in one circle if you only have one of these roles. If you have two jobs, though, you will be in an overlapping sector, sitting in two circles at the same time.

You’re in the bottom-centre sector if you’re a family member who works in the firm but has no ownership position. You will sit in the centre of the three overlapping circles if you are a family member who works in the business and is an owner.

“Think about different responsibilities that family members have: being a family owner, or a family employee,” Davis continues, “and think about where critical people are placed in the system.” Role overlaps and potential role confusion are shown by these overlap areas in the Model.” 

Each of the Model’s seven interest groups has its own set of opinions, aims, concerns, and dynamics. The Model reminds us that each sector’s viewpoints are valid and should be acknowledged. No one point of view is more valid than another, but the various points of view must be combined in order to determine the future path of the family business system. The functioning and reciprocal support of each of these groups are critical to the long-term survival of family business systems.

Seven separate interest groups (or stakeholders) with a connection to the family business can be depicted using the Three-Circle Model:

Time tested

How can a 40-year-old model still assist us in understanding and managing difficulties in today’s family business systems, when so much in business, technology, wealth, family, and society has changed?

Part of the reason why the Model has endured the test of time and remains relevant today is that it is adaptable in its original form. The Model provides for this as society’s notion of “family” evolves. In-laws, blended families, divorcees, adoptions, domestic partners, and whomever the family refers to as a member of the “business family” due to ownership ties — all these positions are consistent with the Model.

Similarly, the ownership circle can allow a wide range of possibilities. The Model enables changes in ownership when a family firm goes public or invites a private equity partner. The Model considers if the corporation issues several classes of stock (voting and non-voting) and holds some of the shares in a trust. The Model accommodates joint ventures, mergers, acquisitions, and other sources of money that affect the ownership circle today since families have many different financial options.

Many businesses have changed dramatically during the last 40 years, but the Model’s business circle is adaptable: it can represent one or numerous enterprises, holding companies, joint ventures, and more. It can also refer to a circumstance in which a family firm has sold its operating company and is now managing its financial assets as a separate corporation. The family may be in a new line of work, but it is still their line of work. The “company” circle can be renamed the “family office,” and the paradigm remains valid.

The changing environment will continue to shape enterprises, ownership groups, and families as the pace of change, globalisation, technology breakthroughs as disruption increases around the world. The Three-Circle Model will continue to adapt to this change.


Recorded business evolution and growth activities are seen with the exchange of goods from around 5000 B.C. exchange of goods for goods are known as the barter system. The barter system is not called business as no purpose of making profits is seen. People were satisfying the requirements of each other. The beginning of a business is seen from the time of the Indus Valley Civilization.

The period of Indus valley civilization was 3300 BC to 1700 BC.  The first known civilization from where the roots of business started. Agriculture was the main occupation of the people. They used uniform weights and measures and traded with other cities. Besides farmers, other classes of people such as barbers, carpenters, Ayurveda doctors, goldsmiths and weavers existed. The business happened from generation to generation. Family businesses were seen during the Maurya Empire (321 to 185 BCE) and during the Islamic period (1206- 1750). Hence the family business seems to have existed in India for ages. It is a known fact that many communities in India are called by the profession’s name and families have even tagged the initials which they have acquired from generations.

Main business communities in India

Sindhis have a long business history, dating back to the Indus valley civilizations of Mohen Jo Dharo and Harappa. Trading coins were discovered alongside antiquities and modern architectural prototypes, giving Sindhis the identity of a peace-loving and money-making community. Sindhis are from Sindh, which is located on the banks of the Indus River in modern-day Pakistan. In fact, the term Indus is an anglicised version of Sindhu, from whence the phrases Hindu, Hindustan, and India were derived. As a result, when India was partitioned in 1947, most Sindhis came to India and were identified as Hindu Sindhis.

The sinking roots of a group of Bania/Jain merchant castes from Rajasthan’s Marwar (Jodhpur), Bikaner, and Shekhawati desert tracts into the economic environment embracing nearly the entire country is a remarkable event. The Agarwals, Oswals, Maheshwaris, and Khandelwals of this area – loosely grouped under the term ‘Marwari’ – were confined to their homeland as local shopkeepers and moneylenders, if not army food suppliers and financiers for various Rajput princely regimes, until approximately the 16th century.

The latter function was critical in extending their reach to new regions. They sometimes accompanied Rajput forces connected to Mughal armies as ration suppliers and paymasters, which opened up possibilities for setting up shop all throughout the Gangetic plains and the Deccan. Even the several independent, but cash-strapped, princes that sprang from the ruins of the Mughal Empire were financed by Marwari bankers as early as the 18th century. As a result, the Jagat Seths became treasurers to the Nawab of Bengal, just like the Gopaldas Manohardas financed the Kingdom of Benares and the Ganeriwala and Pittie families cultivated a relationship with the Nizam of Hyderabad. They usually lent against the security of ijara, which are land revenue-farming rights allocated to a certain region.


Gujaratis’ creamy layer accounts for 9.34 per cent of the country’s total. Gujaratis appear to be one of the most powerful communities in terms of wealth creation. Gujarati is a business language. They enjoy doing business and want to take it to new heights. Why are Gujaratis so successful in business? One can find evidence of Gujarati merchants trading with the Mediterranean and Arab nations or empires if you go back 2000 years. Ahmedabad, in Gujarat, is known as the “Millionaire Capital of the World.” 

Gujaratis are interested in business management. They adhere to the first and most fundamental business guideline, which is to “never allow emotions to govern money-related decisions.” Every year, you can hear cheery corporate messaging about how these Gujarati brands are promising and rising swiftly. Gujarat’s industry has reason to celebrate, as eight Gujarat-based companies have been named category leaders in attractiveness on India’s most Attractive Brands list for 2015.

Bania comes from the Sanskrit word banijya, which means “to trade.” It’s something the community has done for centuries. A few things have, of course, changed. As employees, some Banias have achieved international acclaim: Anshu Jain is the CEO of Deutsche Bank, while Ajit Jain is Warren Buffett’s personal favourite at Berkshire Hathaway. Nitin Nohria is the Dean of Harvard Business School, whereas Dipak Jain is the CEO of Insead. Vanias are also known as Banias or Mahajans. Vania is derived from the Sanskrit term ‘Vaniji,’ which means ‘merchant.’ Agarwal, Dasora, Dishawal, Kapol, Nagori, Vagada, Modh, and Nagar are among the Vania gotras (clans). Many of these names are derived from the names of the places from whence they originate. The Agrawal get their name from Agar Town, despite the fact that they are mostly found in North Gujarat. The Jharola are from Rajasthan and Maharashtra, and they inhabit eastern Gujarat. Vania’s titles include Shah, Shroff, Parikkh, Chokshi, Seth, and Gandhi.

“Among the commercial community of North India, there are three main groups— Agarwals , Oswals (who are Jains), and Maheshwaris,” writes K.K. Birla in his autobiography Brushes with History. The Agarwals and Oswals are large families; the Maheshwaris are smaller but more closely knit.”The Agarwal community is divided into 18 gotras (or 17 and a half, according to some). Bansal, Goel, Garg, Jindal, Kansal, Mittal, Singhal, and other surnames will be familiar to most Indians because they are a tremendously prosperous community. If the BJP wanted to attack Kejriwal’s gotra or family lineage, they should have targeted Bansals rather than Agarwals. This is also not very clever, because, as we will discover later, the Bansals are brutally adept at business and are hardly troublemakers. Outside of firsthand experience, I learned most of what I know about the Agarwals through Bhartendu Harishchandra’s Agarwalon Ki Utpatti (Origin Of Agarwals) and the Anthropological Survey of India’s People Of India series. The Agarwals are the only community that appear in at least five volumes, demonstrating their extensive presence.

The Agarwals are “the highest and most important sub-division of Banias,” according to the work on Uttar Pradesh (Volume 42, Part 1) “. The Marwaris are a branch of the community that migrated to Rajasthan. The others spread east to Uttar Pradesh, Bihar, and other states. According to this volume, Agarwals’ written script is “Perso-Arabic.” “. According to the book, their name was derived from the aromatic wood of the Agar (agallochum, which is used to make incense), which they traded-in. Another suggestion is that the name Agarwal comes from Agroha, a historical town in Haryana’s Hisar district. The Agarwals claim genealogy from the 18 sons of Agra Sen, a Scythian ruler who may have also been the name’s origin.

The Agarwals are “ranked lower than the Brahmans, the Kayastha, and the Vaishyas,” according to Volume 16, Part 1 (on Bihar) of the Anthropological Survey of India”. “The majority of the Agarwals subscribe to the Vaishnava school of Hinduism”, according to the report, however “a substantial number follow the teachings of the Digambar sect of Jains.” It concludes by stating that the Agarwals are “one of the country’s most respected and enterprising mercantile communities.” According to the Rajasthan volume (Volume 38, Part 1), the Jain Agarwals were converted by a man named Lohacharya, and Agarwals “write in Devanagari script.” This volume says that the “largest section professes Jainism,” which I find difficult to believe unless it exclusively applies to Rajasthan’s Agarwals. The Bania caste and the Agarwal community are conflated in Volume 23, which is about Haryana, with the remark that “Banias are also called Agarwals and Gupta.” The king’s name is spelt Ugar Sain, and he is said to have had 17 sons. According to this volume, a few Agarwals also practise Sikhism.

Maheshwaris origin starts from Raja Khandelsen, the monarch of Khandela in Rajasthan, and his two queens, Rani Suryakuvar and Indrakuvar are the heroes of the legend. The king had no offspring, thus there was no one to carry his name or country, and the queens were unable to conceive despite performing innumerable pujas (prayer rituals), yagnas (fire rituals), and charitable gifts. After sharing his grief with Maharishi Yagyavalk, he discovered that his current circumstances were the result of a curse he had received in a past incarnation. 

Such is a history of Maheswaris who turned into a powerful trading community, many of them turned into a family-run businesses and contributing to India’s GDP

Present day times 

The family business after India’s independence is run as Hindu Undivided Family (HUF). In India, major names like Rahejas, Hiranandanis, Virwanis have reformed the real estate sector. In the field of education, Mumbai’s top colleges are run by the HSNC board. Major names in Bollywood film financing are also Sindhis like the Bhagnanis, The Taurani’s of Tips Industries, Karan Johar and his mother Hiro Johar.

If you are into wearing denim jeans, there is a 45% possibility that it was made in a factory owned by Sindhi possibly, in the Sindhi majoritarian township of Ulhasnagar.

In recent times, the family business community comes from the families of Sindhi, Marwari, Gujarathi, Banias, Agrawals, Maheshwaris. Some prominent companies are trading Internationally and contributing to India’s GDP. Each community, though not having a fixed business model, has been very successful in doing business and contributing to India’s growth. 

Financial performance 

In a research study on Indian family businesses , the financial success does not appear to be totally consistent with the prevalence of family businesses unless the family involvement in business is majorly through ownership and management. The Family firms account for 63% of the two-digit National Industrial Classification (NIC) codes in the list of 302 organisations, having operations through a broad range of industries.

Univariate analysis of the two groups, the family and non-family business was done using the samples of companies, which provides mean, standard deviation, minimum, and maximum values of all the important variables for understanding the performance indicator and other factors regarding the performance. The statistical results are depicted in Figure 2.

The results show that despite the prevalence and significance of family firms in the Indian economy, they do not seem to be performing better than their non-family counterparts. This could be due to a variety of reasons. The advantageous position of a family in the business can have certain repercussions for the business.

In comparison to its actual share of ownership, the controlling family has a disproportionate percentage of control. If there are specific sorts of shares that enable control with limited ownership, or if holding corporations are used for pyramiding objectives, this can happen. 

family business model definition

Conflicts and legal entanglements

Cause of challenges .

Most legal challenges that arise in a family business stem from unofficial familial relationships. The complexities of decisions made from love and affection are frequently challenging and lead to disagreements. If one manages a family business, here are the top three legal issues one should be aware of:

Organizational Structure: The majority of family businesses operate because of a strong family relationship or to take advantage of particular legal advantages. A HUF Deed, for example, is typically issued with the goal of obtaining tax exemption. It’s tough to get rid of something once it’s been made. It is indisputable that some family enterprises begin as a side business which then grows into larger entities once they have established a successful track record. It provides them even more reason to ensure that an appropriate structure is in place. This is only a small part of the problem.

At the outset of any organisation, deciding which ownership structure to use is a difficult task. In the case of a family business, the problem is made worse because one’s rights and obligations are determined by one’s status in the family rather than one’s contribution.

How to put structure in a setting where everything is run by hierarchy?

Any structure put in place must be carefully considered and implemented. It’s possible that there’s a solid shareholder or partnership agreement in place. The following are some of the points that should be included in the contract:

Policies on Employment: While most organisations have employee rules that broadly clarify what an employee’s job, obligations, and liabilities are, there are times when family enterprises avoid having family members sign contractual agreements.

There is no actionable claim one can file against the other in the future if there is a problem because there is no contract to show it. It is one of the most common blunders made by these companies. There’s nothing wrong with ensuring that family members have agreements in place to guarantee that the business runs well.

A contract must also ensure that family members are treated equally and that employment duties are shared. Furthermore, it will ensure that everyone in the family has the same basic expectations and that no one has any contractual difficulties that could lead to a rupture.

Permits and licenses: Every firm, large or small, is expected to comply with a number of laws, rules, and regulations in order to avoid future legal action. They are the most crucial part of every company. However, in a family business, a lack of such information can be problematic.

Few legal entanglements in the family business

In the case of the Ambani family business after the death of Dhirubai Ambani the sons, Mukesh Ambani, Anil Ambani were so entangled in legal wars At present,  it’s seen that Anil Ambani is financially blown up too much and is out of business now. (“Reliance Natural Resources Ltd vs Reliance Industries Ltd “, 2010)  

The same is the case of (“Lakshmi Saran Agarwal and Others vs Guru Saran Agarwal, and Others “, 2015)( https://indiankanoon.org/doc/178470450/ ), (“A. Maheswari vs A.Jeyaraj …”, 2011)

Contribution to India’s GDP

Even in such a situation, there is a valuable contribution to India’s GDP by the ‘Family Business community’ and are discussed below: 

Sindhis : With a population of only 0.30 per cent, they provide 2.4 per cent of India’s total income tax.  Sindhis contribute 2.0 per cent of the country’s GDP. Entrepreneurship has long been regarded as a primary driver of job creation, economic growth, and national success.

Marwari : The contribution of Marwaris to the nation’s industrial activity is as great as it has ever been. Indian industry relies on families like the Birlas, Bajajs, Goenkas, Neotias, and Singhanias. In reality, this network includes some of the most well-known personalities in the stock market, from Radhakishan Damani, the man behind D’Mart, to ace investor Rakesh Jhunjhunwala, commonly known as the big bull. It’s probably safe to assume that the Marwaris have the Midas touch when it comes to making money!

Gujaratis : with only 5 % of the national population, contribute 7.3 % to the national GDP and 5.6 % of total FDI inflow in the country. 7.2 % of all the all-Indian Universities are in Gujarat.

Banias: accounted for 2.4% of the income tax and 2.0% of the country’s GDP. These people have been active in business for decades and have established themselves as forerunners by winning the trust of the people.

Agarawalas and Maheshwaris : accounted for 2.7% of the income tax and 2.4% of the country’s GDP.

Now after knowing the facts – “ Is it not appropriate to question whether – 3 circle business model” was developed in 1978, when India was having family businesses for ages?

Conclusions and recommendations

The presence of family enterprises among the world’s business organisations is considerable. The extant literature on the performance of family-run firms in relation to their competitors presents a diversity of perspectives. It is opined that this is due to the “3 Circle Model” developed in 1978.

Family enterprises that come from ages clearly play a significant part in the Indian commercial landscape and economy. This is also true presently as only a select few business communities are contributing to India’s GDP. The findings demonstrate that when accounting-based measures of success are considered, there appears to be no substantial difference in performance between family and non-family enterprises in India, however, non-family firms appear to do better when market-based measures of performance are considered.

However, it should be highlighted that putting the advice offered to family-run firms on how to overcome their limitations and try to be global players into practice may not be simple. This is since family values, rituals, and traditions are deeply ingrained in family businesses. They find it difficult to change their business habits and traditions and undo what is comfortable to them. Some business families in the country have found that separating ownership from management did not produce the desired results, and they have been compelled to revert to the previous order because the split and greediness has resulted in a fall in family fortunes. Other business families are similarly concerned about such shifts because of such events. 

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The Family Business Partnership

family business model definition

What is Family Business Governance?

Governance is often held out as the solution to all challenges in a family business. Whilst this may be partially true, it can be difficult to know firstly what is meant by the word ‘governance’ when discussing family business, but also to understand what forms of governance may be useful to your own family business.

This post will answer those questions for you .   

What is Governance?

Unfortunately there is no universally accepted definition of what governance is. There are various different definitions that various different organisations or professions will  use, but none of them really are, tailored to family businesses. 

My definition of governance is ‘the collection of rules, systems, and processes that are put in place to help set and deliver the objectives of the family and the business whilst also holding the business and its key stakeholders to account’.

Now that may not be the most succinct description or something that just rolls off the tongue.

If you want something like that,  Professor John Davis did summarise it rather brilliantly by saying ‘it is bringing the right people together at the right time to discuss the right things’.

Broadly, governance can be split into family governance and business governance, we will concentrate on Family Governance in this post.  

What is Family Governance?

Now, as you can imagine, every business has some form of ‘business’ governance, for example a Shareholders Agreement, Articles of Association and the rules that the Board will have to follow, processes within the business etc.. This is not exclusive to family businesses. Whereas family governance really is specific to family owned businesses. 

As the name suggests, ‘Family Governance’ deals with the family, and I don’t just mean family members that are within the business or have ownership of the business, but generally the family overall. 

It can help ensure that the voices and opinions of everybody within that family ‘system’ are heard .

Family governance is voluntary, so it’s important to understand that these agreements or forums are entered into voluntarily and is not legally binding One way to think of it is as being ‘morally binding’ on the family once it’s been implemented.

There are a number of different family governance forums that each have their own role, but are very often used alongside each other to cover all of the interactions of the family with the business. 

The Family Charter

The Family Charter is a good starting point for family business governance. It can set the tone for all future governance discussions and often forms the foundation for all family governance.  

A Family Charter will  cover the views and attitudes of the business owning family on matters such as 

The process of putting a family charter, or constitution in place should not be one that is rushed or based on an ‘off the shelf’ solution. The process itself can take many months and is based on in depth discussions to reach a consensus as a family on the important issues affecting the family’s interaction with the business. Great care and attention should be paid to this process as it is often the discussions themselves that provide the ‘value’ rather than the final document. 

Family Business Governance

The Family Charter will become a living document and one that is referred back to on a regular basis to ensure that the views of the family continue to be represented by the Charter. 

The Family Council 

A Family Council is a forum that can be useful in managing the communication between the family and the family business. In essence, it is a communication bridge between the family and the board of directors.

Ideally it is made up of family members drawn from different parts of the family with a range of ages and experience.

The Family Charter will usually include some guidance to help the Family Council to understand their role. This helps to improve the communication between the family and the business.

It is not the same as the board of directors, the board are there to manage the business, however the family council is there to communicate how the family are feeling about issues linked to the business.

It is there to provide feedback and advice , which can be taken on board, however the Family Council is not able to make decisions within the business.

The Family council doesn’t set the strategy for the business either, this responsibility lies again with the Board of Directors.

The Council is acting as that bridge between the family and the business, via the board. In essence it can be seen as the family’s ‘representative’ to the board.

Family Councils tend to be introduced as a family grows and it becomes harder to ensure consistent communication across all family members.

The Family Assembly

A Family Assembly is a meeting of the members of the family, whether they are shareholders or not and whether they work in the business or not.

The overall purpose of these meetings is to be able to bring the family together, learn about what is happening in the business but also to help to create some emotional connection to the business for those that may not work in it or be that close to it.

This would normally be once a year and can be used to promote unity and help avoid the ‘us and them’ situation that can sometimes arise when there are elements of the family that are not directly involved in the business and don’t get to see each other much.

They give the wider family an opportunity to hear how the business is doing and to feed back to the board (via the family council) how they are feeling about the business.

They are often structured, but informal meetings organised by the family council. It is important to point out that any discussions or viewpoints put forward are not binding but that doesn’t diminish the validity of the meetings or the views expressed at these meetings and it is always better that these views are heard, in a safe environment than to let them fester.

The family assemblies / retreats will often have a a social element to them but can also include training and education. They are an opportunity to educate everyone but many focus on the next generation and some are even used to identify those who may be the leaders of the future. The training could concentrate on the business side of things, including finances, marketing etc or they could be focussed on the family side of things.

Why is Family Governance useful?

Family business governance focusses on how to get the best out of the ‘family system’ that is unique to family businesses. This isn’t exclusive to those in the family that own shares but includes the whole family.

It helps to create the right forums for discussions to take place in the right environment, with the right people discussing the right stuff, back to Prof. John Davis’ definition.

Family Business Governance

Families are emotional systems and when emotions are involved, very often logic takes a back seat. Effective family governance can help to manage some of this emotion and deal with these common challenges:

Family governance is voluntary but is growing in popularity as the benefits become clearer. During the COVID-19 crisis we are seeing that those with good governance in place are proving more resilient than those without.

How to get Started with Family Business Governance

The most common question I am asked once families decide to embark on the introduction or formalisation of governance within their family business is how to get started. 

As you can imagine each family and each business is different so there isn’t (and shouldn’t be) a blanket approach to any of this. However, my suggestion for a starting point is to firstly look at what it is that you are trying to achieve, what problem are you trying to solve and then look at whether the introduction of any of the above forums will actually do that. 

It may be the case that the way things operate at the moment is actually OK, and that introducing governance may not in itself actually solve anything. 

That is not to put you off, but there is often some form of informal governance in place any way and so being clear on what you are trying to achieve and how you think governance can help with this, is a good start. 

There needs to be an understanding amongst the family that the introduction or formalisation of governance takes time, effort and commitment on the part of all those involved in its introduction.

There are no ‘off the shelf’ solutions and the value in family governance is usually found in the discussions involved rather than in any of the documentation itself. 

I would obviously say this, but if you are looking for help with where to start, please get in touch. I am really happy to talk through whether governance is right for you and your family business.  

Head over to my resources page now to download my Guide to Governance, or you can listen to this episode of The Family Business Podcast  where I summarise my series on Governance. 

Let's have a chat

Inviting an external consultant into your business and your family is a big step, I appreciate that, and it is not a responsibility I take lightly. The first step in moving forward is for us to have a chat about what you are trying to achieve and how I can help. 

Follow this link to book a chat with me. No obligation, if I can help we can discuss how and the next steps. 

Success or Succession?

Success or Succession?

Success or Succession? On this weeks episode of the show I discuss the fact that often the definition of success for a family business is

Professionalising the Family Business

Professionalising the Family Business

What is Professionalisation?  I have to be honest and say that I am not a huge fan of the phrase “professionalising the family business”, for

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family business model definition

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Family Business

Related terms:.

Guido Corbetta , in International Encyclopedia of the Social & Behavioral Sciences (Second Edition) , 2015

Family business is an interdisciplinary field devoted to study the structural and transitional problems of family firms. Family firms can be defined as companies of various sizes controlled by one or more owners tied by family relationship or solid alliances. The recent important theoretical and empirical developments have crystallized a double-edged vision of the family firm, which includes both the positives and the negatives of family control descending. Future studies should propose research designs that take into account the need to go beyond simple – although powerful – variables such as family ownership and leadership. As in most of the managerial fields, the simultaneous search for rigor and relevance should dominate the scholarly agenda over the next few years.

Business groups in India

Michael Carney , in Asian Business Groups , 2008


Family business groups are the foundation of the Indian economy, accounting for most of the GDP and nearly the whole of the industrial economy ( Ward, 2000 ). Indian family business groups are known as business houses, a term that emphasises their household and extended family qualities – a defining feature of this form of business group. Khanna and Palepu (2000a : 867) define Indian business groups as ‘collections of publicly traded firms in a wide variety of industries with significant amounts of common control, usually by a family’. Similarly, ‘group firms are often linked together through the ownership of equity shares. In most cases the controlling shareholder is a family’ ( Bertrand, Mehta and Mullainathan, 2002 : 16). However, India’s family business groups do not conform to Fukuyama’s notorious characterisation of family capitalism as a ‘loose tray of sand’ ( Fukuyama, 1995 ), a characterisation which depicts atomistic family businesses as mistrustful of state institutions and jealously guarding their own interests at the expense of the wider society. Rather, studies of India’s business groups emphasise their embeddedness in a wider set of community relations. Due in part to India’s diverse cultural and ethnic composition Encarnation (1989 : 45) claims that business houses are connected through a multiplicity of relationships among group members: ‘[I]n each of these houses, strong social ties of family, caste, religion, language, ethnicity and region reinforced financial and organisational linkages among affiliated enterprises’.

Many analysts divide India’s post-independence economic development into two distinct phases. In the immediate post-independence phase (1947–91), the state adopted a highly statist orientation and planned to modernise a postcolonial agricultural economy into a self-reliant industrial state by means of centralised government bureaucracy operating in accordance with five-year economic plans. This approach resulted in economic stagnation, and after 1991 the state changed course and gradually implemented a policy of economic liberalisation and re-opened to foreign participation. In this new era, business groups have adopted a variety of new strategies to cope with a more competitive open economy.

Nevertheless, India is a very large country with great regional inequalities and deep urban and rural divide. The creation of a market-based economy is a slow and uneven process. Many regions and industries have not fully participated in India’s economic miracle. Just as in China, where we find a rapidly developing coastal region and a less developed interior, so with India we can expect to find areas of significant development coexisting with areas of deprivation and underdevelopment. Nor should we expect to find a uniform institutional development across the country. We may see the appearance of clusters of highly-developed, world-class enterprises with ready access to a managerial and scientific talent, ample financial resources, and efficient physical infrastructure in certain states and cities. At the same time, we should also expect to find less-developed sectors with little access to capital and human resources, and hampered by poor physical infrastructure. In less competitive industries we are likely to see continued government intervention to guide the process of structural adjustment and to protect firms, employment and dependent communities. In less-developed sectors of the economy we might reasonably expect a continuing role for business group activity.

Business History

Hartmut Berghoff , in International Encyclopedia of the Social & Behavioral Sciences (Second Edition) , 2015

The Survival of the Family Business

In recent decades, family businesses have been reevaluated and acquitted of Chandler’s verdict of being generally inferior to managerial firms and incapable of reaping economies of scale and scope ( Colli, 2003 ). In fact, they are the dominant type of business in most countries. There are many examples of family-controlled and even family-run giant firms and ‘global champions’. Moreover, scholars, noting the persistence of family firms, have noted their diversity and stressed their comparative advantages, such as flexibility and lower transaction costs. Family members are often driven by motives beyond short-term financial gain, and they mobilize qualities like loyalty, intrinsic motivation, emotional reward, and long-term commitment. These findings were indirectly given credence by the corporate scandals of the 1990s and 2000s, which dealt a severe blow to the belief in the potential and integrity of managers.

The debate generally assumes a rigid dichotomy between family and managerial businesses, but there in fact exists a broad array of hybrid forms of governance. The recent literature, stressing variety rather than general developmental paths, leaves the impression that family firms, once they have reached a certain size, complexity, and age, are likely to include outside managerial expertise, and, after a phase of hybrid governance, the family’s retreat begins.

The small and medium-sized firms of Germany’s Mittelstand – many of them family owned as well as global champions in specialized niche markets – are no longer seen as relics but rather as models. However, the classic Mittelstand model began to be transformed in the 1970s ( Berghoff, 2006 ). The new Mittelstand is less dependent on individual families, has more access to external capital, and displays a more international orientation.

Ethnic Chinese business groups in Southeast Asia: social capital and institutional persistence

Organisational structure and management process.

Risk aversion is manifest in a preference for noncomplex technical processes, projects with near-term payback horizons and simple organisational structures. Management is exercised through a senior owner-manager who typically assumes the presidency of the core firm in parallel with holding other senior posts in the major affiliated firms whose presidential posts are occupied by kin or close long-serving business partners. Typically, the top management team will be small with limited numbers of non-kin professional managers; the latter are often excluded from strategic decision-making processes ( Redding, 1990 ; Kao, 1993 ). Where professional managers are employed in senior positions, their roles are considered subordinate to the entrepreneurial roles held by family members or trusted friends ( Redding, 1990 ; Whitley, 1992 ). Redding also notes that groups avoid organisational complexity and tend to subdivide business units to maintain financial simplicity. This solution allows entrepreneurs to ‘carry the paper and pencil in the head’ ( Redding, 1990 : 181).

However, Brown (1995) argues that the financial accounts of Chinese FBGs are typically a ‘morass’ due to an inability to separate family and firm assets. As a result of the widespread practice of guaranteeing loans and credit to constituent firms and business partners, business groups are beset with off-balance-sheet liabilities that are impossible to determine even with extensive due diligence. Brown argues that:

the financial structure, which might have held the structure together more firmly, did not play a large part in pulling the parts together into a cooperation. The purposes of the accounting system were to track sales and purchases and to prevent fraud. ( Brown, 1995 : 2)

Figures 9.1 and 9.2 illustrate the corporate and organisational structure of a medium-sized Thai family business group. The majority of the group’s revenues and assets are concentrated in steel distribution and real estate businesses ( Tanlamai, 1996 ). However, as illustrated in Figure 9.1 , the corporate structure emphasises many of the firm’s diverse technology affiliates and subsidiaries. Its subsidiaries and involvement in numerous joint ventures is indicative of a highly-flexible deal or project-based structure that allows financial assets to be easily shifted between separate legal entities ( Carney and Gedajlovic, 2002b ). Sahaviriya’s organisational structure, depicted in Figure 9.2 , describes a simple product structure consisting of two support offices, an office of the executive and a financial and administrative group.

family business model definition

Figure 9.1 . SVOA’s shareholder structure

Figure 9.2 . SVOA’s organisational structure

The structuring of the larger group’s assets across smaller units with individual legal identities is a mechanism for asset mobilisation. It also reduces the enterprise’s visibility, which can be a crucial defence mechanism when operating in hostile environments ( Hodder, 1996 ). Moreover, this structure provides for a means of achieving monitoring and feedback on unit performance when subsidiary managers are not trusted or when the organisation’s capacity to perform a thorough internal auditing function is inadequate ( Carney, 1998b ).

Managerial processes are infused with paternalistic leadership values ( Westwood, 1997 ); the consequences to the organisational structure include high centralisation, low formalisation and non-complex structural processes. The human resource implications of such structures are significant. Immediate and extended family and trusted quasi-family employees may be expected to be highly committed and motivated members of the management team ( Whitley, 1999 ). On the other hand, the commitment of those employees lacking close relationships with the patriarchy is tenuous. Non-trusted employees in the organisation may be subject to a functional handicap because ‘didactic leadership emasculates subordinates by depriving them of the information necessary to have a clear idea of what is going on in the organisation’ ( Westwood, 1997 : 469). Consequently, these firms encounter difficulties attracting and retaining management talent, and employee turnover tends to be very high with exit decisions precipitated by marginal salary differences.

In Southeast Asian family firms, such characteristics are often attributed to cultural ( Westwood, 1997 ), institutional ( Hamilton and Biggart, 1988 ) and national business system characteristics ( Whitley, 1992 ). However, the simple organisational structures and management processes adopted by FBGs may represent an efficient response to the imperatives of latecomer industrialisation. In the catch-up phase of industrialisation, much of the imported technology was routine, mature and highly codified. Owner-managers did not require a large support staff or elaborate technostructure to assimilate these technologies ( Mintzberg, 1979 ). Export-oriented development required product-market strategies based upon prices and low costs. In these circumstances, owner-managers could utilise centralised organisational structures without any economic penalty. In mature commodity markets characterised by rapid price movements, firms lacking the management capacity to sell directly into overseas markets did not develop extensive planning, control and marketing infrastructures nor seek to differentiate their products through innovation. Moreover, even if FBGs had attempted to attract and retain them, management talent was in short supply.

An overview of food safety and COVID-19 infection

Zafer Ceylan , ... Turgay Cetinkaya , in Environmental and Health Management of Novel Coronavirus Disease (COVID-19 ) , 2021

12.2.2 Animal resources

Breeders play a major role in animal production. With socioeconomic concerns, instead of small-sized family businesses, farms that are formed by the gathering of thousands of animals in closed areas have increased. Diseases transmitted through animal origin have increased because of industrial animal production. CoVs are responsible for respiratory and intestinal infections in animals. 56 , 57 For example, the host animal for MERS-CoV was dromedary camels. Foodborne transmission through consumption of unpasteurized camel milk and raw camel meat was an infection source for humans. 58 Like MERS-CoV, SARS-CoV-2 is also a zoonotic virus and has a genome similarity of 96% to a SARS-related bat CoV. 56 In fact, a zoonotic transmission from animals to humans has been reported in a Dutch mink farm during the COVID-19 pandemic. 56 Around 20 million mink in Europe have been culled in case of further zoonotic transmission possibility. 59 , 60 On November 12, 2020 the Food and Agriculture Organization (FAO) announced guidelines about the exposure of humans or animals to SARS-CoV-2 from wild, livestock, companion, and aquatic animals. 56

Determining disease-resistant animal species by epigenetic studies may be beneficial for future applications. Genomic selection applications for animals that have resistance to diseases, will make a significant contribution to preventing the spread of COVID-19. In this way breeding studies could be carried out for the ones that are resistant to COVID-19. 61 , 62 Animals that are the sources of infection are a concern. To avoid the SARS-CoV-2 that causes disease, while planning animal shelters, attention should be paid to natural ventilation, adequate living space, controlled production and hygiene. All these data show that further investigation is needed for livestock, and precautions need to be taken against COVID-19 on an industrial scale.

Slower, richer, fairer: better economic health in ‘slow cities’

Paul Tranter , Rodney Tolley , in Slow Cities , 2020

7.6 Conclusion

The aim of this chapter was to shed light on the economic realities of life in the future ‘slower city’, for families, businesses and the city itself. It set out to ask if this would be an economically beneficial change and if so, by how much and for whom. In this concluding summary, we can now say that the evidence is clear that the benefits for economic health of the ‘slower city’ are significant, and that these benefits are spread across all of the sectors we examined. Households and individuals will reap rewards from lower transport costs, higher levels of disposable income, greater resilience to economic shocks, lower medical costs, increased accessibility and increased modal choice and of course amenity benefits from greater enjoyment from walking and cycling. Businesses will benefit from more local customers, a more accessible labour force, lower transport and parking costs, less congestion, and increased agglomeration efficiencies. City administrations will find that the many vehicle and municipal externalities that fall on the public purse will be reduced or eliminated, tax yield per unit of land will rise, and agglomeration economies will support city competitiveness. Finally, we must recognise that in a world where over 55 per cent of the population live in urban areas, the slower city will make a very large and essential contribution to reducing the global financial burden of decarbonising transport, which is necessary to prevent climate catastrophe.

Moreover, the health benefits of physical activity are also an important issue for the assessment of the economic benefits of slower city transport. Typically, few of the health disbenefits of driving are included in cost-benefit analyses: if health is examined, the usual focus is on road trauma (injury and deaths), but rarely on the negative health impacts of sedentarism. As sitting is fast becoming ‘the new smoking’ ( Baddeley, Sornalingam, & Cooper, 2016 ), any economic assessment of the costs of speed should ideally consider lack of physical activity in addition to the individual, business and municipal considerations examined in this chapter.

In sum, the economic health case for ‘slow cities’ is very powerful indeed. Individuals, businesses and cities themselves will benefit hugely from the boost to individual city attractiveness through enhancing city branding and identity, promoting tourism, encouraging inward investments and attracting the creative class. Because the economic health case for the ‘slow city’ is strong (just as is the human and the environmental health case), a variety of strategies are needed to achieve a slowing of city transport—and these strategies will be examined in the following chapters.

L. Craig , in International Encyclopedia of Housing and Home , 2012

Unpaid Domestic Labour over Time

Unpaid labour is work that is not remunerated but has an economic value. The term covers a very wide range of activities, including subsistence farming, gardening, drawing water, work in family businesses, food and drink preparation and cleanup, laundry and clothes care, grounds and animal care, home maintenance, household management, cleaning, purchasing goods, purchasing services, looking after children, and caring for others. In developed countries the term unpaid labour is often used synonymously with housework, and usually occurs in a domestic setting. The relationship between home and work is entwined with the issue of unpaid domestic labour, and with gender roles.

Partly because it so often occurs in the home, unpaid labour is not widely recognised as being real work. In contemporary economics, production is usually defined as goods and services that have monetary value. The conceptualisation of economic value as necessarily monetary is related to the technological and social shifts that occurred over the course of the Industrial Revolution. During the period of industrialisation, the economically productive family unit that was encompassed within preindustrial social organisation was largely replaced by the independent wage labourer. With the new capitalist economic order came the idea that wages were the measure of worth. At the same time, and in counterpoint, came the idea that those who did not draw wages were not part of the real economy.

The definition of labour became both gendered and spatially differentiated. As men increasingly did waged work, unpaid work became the more exclusive responsibility of women. Men’s role as breadwinner now took place outside the household, while women’s primary roles as housewife and mother took place in the home. Work and home became identified with men and with women, respectively. The goods and services men provided in the market were considered economically productive, while the goods and services women provided in the household were not. The housewife was no longer regarded as contributing to household prosperity, but as dependent on the wage of her husband. Thus domestic labour lost its place as a recognised aspect of economic life.

Public and private were conceptualised as constituting separate spheres. The public sphere, the province of men, was where economic activity took place, and the private sphere of the home, the place for women, was where nurturing, leisure, and recuperation occurred. Home was a haven from work, not a site of it. The unpaid household labour required to make the home a site in which the worker could rest and recharge his energies was also categorised as leisure, rather than as productive activity. Housework itself had changed little, but the way it was culturally framed, understood, and described was profoundly different. Women’s domestic labour remained demanding and essential but was redefined as homemaking, which in this worldview was by definition nonwork. The partial spatial coverage of economics obscured the work required to run a home, resulting in gender bias.

Domestic labour had become economically invisible, but the duties of the homemaker grew. Over the course of the twentieth century, a campaign of expert information was directed at the organisation of work in the household and at appropriate ways of family living ( Reiger, 1985 ). Housework remained time-consuming. While some household labour was reduced with mechanisation (e.g., laundry), new standards of cleanliness and nutrition meant that in many cases new tasks replaced the old. Similarly, rises in living standards resulting from larger housing increased, rather than reduced, the domestic demands. The higher domestic workload associated with improved living standards was paralleled by a rise in expectations of the time and attention mothers should provide to children. The amount, type, and intensity of care regarded as necessary for children expanded. Optimal child development was thought to be best served by the constant presence of a mother in the home.

The analytical background

In Guerilla Capitalism , 2009

1.5.2 Institutional theory of economic organisations in East Asia

Given the fact that Vietnam shares the Chinese-connection culture with other East Asian countries, the source of literature on economic organisations in East Asian successful economies is worth reviewing here. The various works on East Asian economic organisations (see especially Redding and Whitley, 1990; Whitley, 1992 ; and Hamilton, Biggart and Orru, 1997 ) have one thing in common: they all sought an institutional explanation for the structural pattern of economic organisations and the economic successes of East Asian countries. The important contribution of this source of literature is that they have taken the institutional, historical and political factors (e.g. family structure and government-business relations) seriously and attempted to understand the organisation's relationship to them. Economic firms are seen as ‘embedded’ in their societal context. Different levels and ‘types’ of trust rooted from the family and the village, for example, are considered important variables to the forms and functioning of different types of business organisations in different societies. The role of the state is emphasised.

Redding and Whitley (1990) and Whitley (1992) , for example, make detailed comparative analyses of the dominant forms of businesses in Japan, Korea, Taiwan and Hong Kong. They specify major characteristics for each type of business (Chinese family businesses in Hong Kong and Taiwan, Korean chaebol and large Japanese corporations) and argue that these characteristics are associated with the societal contexts in which they have become established. They identify five main interconnected characteristics of the societal context which have ‘determined’ those forms of businesses:

Authority patterns;

Trust relations;

Nature of the state elite;

Basis of societal elite;

Inheritance system.

Chinese family businesses, for example, “have sprung from an environment of patrimonial authority, general but not specific mistrust, aloof government, a free entrepreneurial environment, and traditions of equal inheritance” (Redding and Whitley, 1990, p.101). The Korean chaebol, however, have emerged from an environment which “is also patrimonial, less fraught with mistrust, has a similarly Confucian moral-based government, but highly interventionist, a somewhat free entrepreneurial environment, and a modified version of equal inheritance” (ibid.). The environment of large Japanese corporations is characterised by a feudal rather than patrimonial pattern of authority, high trust across the society, aloof but influential government, and an inheritance system based on primogeniture.

In a similar spirit, Orru, Biggart and Hamilton, in their various papers, also take into account important societal factors in their explanation of the structure and success of the dominant forms of businesses in East Asian societies (see, Orru, Biggart & Hamilton, 1997 ). Hamilton and Biggart argue that both cultural and economic explanations of the forms and success of businesses in East Asia are important, but neither deals directly with organisations themselves. They point out that the market explanation focuses on immediate factors (e.g. efficiency; demand and supply; and competition conditions) and the cultural explanation on distant ones (e.g. broad cultural values). They offer an authority approach which concentrates on “principles of domination” as an alternative explanation. They argue that organisational structure is situational determined, and, therefore, the most appropriate form of analysis is one that “taps the historical dimension”.

The authority approach is clearly related, but not reducible to culture. It also incorporates historical, political and economic elements into the analysis. They point out that different patterns of organisation in different East Asian societies (Japan, South Korea and Taiwan) are associated with different authority patterns in these societies ( Hamilton and Biggart, 1988 ). Japanese firms, for example, enact a communitarian ideal or logic related to a feudal society and the collective traditions and inter-family collaboration of the Tokugawa village. The Korean firms enact a patrimonial principle partly inherited from patterns of authority and subordination prevalent in pre-modern Korea, and to some extent, Japanese colonialism. Chinese family businesses enact a patrilineal logic partly derived from Imperial China, where village cohesion was weak, and from the particle inheritance system, and so on. The economic success of these East Asian countries is because:

“…they have created organisational arrangements and management practices that give them a competitive advantage. Japan, South Korea and Taiwan all pursue business strategies that suit their social arrangements – their cultures, their traditional ways of organising and managing, and their government structures. Not one of these nations attempts to do everything, and none has attempted to imitate the West. Instead, each has focused on industries and processes in which it has a particular social advantage” ( Orru, Biggart & Hamilton, 1997 , pp.103–104).

In summary, an important contribution of this source of literature on economic organisations and economies in East Asia is that it attempts to place the firm in a broad societal context. It takes into consideration various societal factors including cultural values, history and government in explaining the form and the success of economic organisations in different societies. It provides a general approach in studying different forms of businesses which have emerged in different societies at a general macro level.

State-constructed business groups: the Korean chaebol

Social analysis suggests slow change.

While finance and management researchers have examined the proximate causes and effects of the crisis, sociologists and development theorists have looked for social and political explanations for the dynamics of chaebol growth and evolution. Perhaps the most prescient of these analyses is Amsden’s (1989) analysis of the industrial latecomer thesis. In this view, late-industrialising economies are characterised by the creation of the institutions of imitation, especially at the firm level. In contrast, the early-industrialising economies in Britain, Germany and the USA were innovative, and firms diversified based on skill in a very narrow technological and managerial area. The tendency has been to build core expertise and to diversify only into related fields. In late-industrialising economies the driving imperative is to catch up to the technological frontier and to accelerate their progress; frontier firms develop skills associated with imitation. Amsden suggests that in Korea, the core skill developed by domestic firms is the capacity to enter industries repeatedly via project management. Imitators have no proprietary skills and consequently, they tend to diversify opportunistically or at the bidding of government. Because their level of experience in particular industries does not enable them to develop related products or processes, firms in late-industrialising countries tend to diversify widely and this calls the sustainability of their growth into question.

Successful imitation-based strategies create an administrative heritage or path dependencies that ultimately become obstacles to continued growth. Initially, chaebol growth and technology acquisition strategy spread scarce managerial talent to new industries. However, the logic of linking increasingly unrelated businesses becomes more and more difficult to support. With close government ties and operating under a soft budget constraint, chaebol managers were not confronted with a profit-growth trade-off and had little incentive to restructure their operations. Many chaebol are now financially indebted and in possession of a surfeit of largely generic and tangible assets concentrated in mature overcapacity markets. Consequently, their absorptive capacity strategies, as well as new technology initiation strategies are stalled. While chaebol appear to possess significant organisational capabilities, new and promising businesses are starved of both internal and external capital needed for growth. Like other states in the region, Korea has recognised the importance of technological innovation, as distinct from technological imitation, but chaebol continue to experience difficulties in crafting incentives that would propel them into the initiating phase of the product lifecycle.

Whitley (1999) proposes that family enterprise in Korea has proved to be more enduring and less ephemeral than the family-owned business groups of Southeast Asia. The key difference is that Korean business groups were liberally assisted by the state, whereas the family business groups of Southeast Asia were confronted by more rapacious officials and politicians who demanded their cut of profits. Whitley suggests that efforts to sever and unbundle chaebol ownership ties are unlikely to succeed because owners are unlikely to give up control, especially if they anticipate that units will be acquired by rival groups. Moreover, groups have become strong enough to resist the conditional nature of the finance supplied by international institutions. Whitley observes that the owner-controlled chaebol remain quite strongly tied to the Korean economy and the state:

Despite their growing overseas investments and the weakening of the state’s control of the economy … the highly diversified, centralised, and risk-taking nature of the chaebol does not appear to being greatly modified of past decade although some changes in managerial structures in practices have occurred in some of them. ( Whitley, 1999 : 203)

Whitley predicts that Korean enterprises are likely to adopt more favourable labour-management policies in order to remain competitive with Japan but changes in fundamental ownership relationships are unlikely to occur. He suggests that the state will need to undertake more radical actions than has yet been attempted in order to bring about change in the Korean business system.

Granovetter (2005) observes that while many chaebol -affiliated firms failed after the crisis, the stronger groups were able to resist pressures to change. He argues that the oldest groups were the most resilient because they possess the strongest sense of group identity. Granovetter holds that the strong emotional ties that infuse such groups not only lower transactions costs across group firms, but also produce non-economic motivations among participants for the group’s survival and success. Hence, when the government attempts to break up group affiliates, equity and trading linkages may be just the tip of the iceberg. The resilience of chaebol is founded on a stronger basis of identity than simply equity ownership. An array of factors such as managerial career paths, employee commitments, and links with community and political leaders, provide a continuing axis of solidarity. In this respect, the chaebol must be seen as more than just a collection of individual firms but as a more cohesive whole. In response to the crisis, the chaebol remained solid because they wanted to retain their autonomy. Rather than redeploying their capital to more profitable locations, chaebol reallocated capital ‘in such a way as to increase the leverage available from relatively small holdings’, and this strategy is best described as ‘a network survival strategy’ ( Granovetter, 2005 : 446).

Children Learn by Observing and Contributing to Family and Community Endeavors

Rebeca Mejía-Arauz , ... Itzel Aceves-Azuara , in Advances in Child Development and Behavior , 2015

11 Family Social Organization for Children's Development Through Co-Laboration

Our findings show how in this Indigenous American context, the social organization of the family incorporates and provides opportunities for children to participate at home with household work that is for the benefit of the whole family, sometimes even for the extended family and in the family business or parents’ work. This corresponds with the central facet (facet 1) of LOPI, which refers to how community and family include children as contributors to the range of endeavors in which they engage.

The research we have presented here shows how the facets of LOPI are intertwined, supporting the idea that inclusion (facet 1) and collaborative engagement (facet 3) facilitate interested involvement of the learner (facet 2), and in the process, learning involves transformation of participation that includes transforming skills and knowledge, and also learning consideration and responsibility (facet 4), supported by children's contributions as well as by community expectations and the guidance of others (facet 5; Rogoff, 2014 ). The traditional social organization of the family and community in Cherán not only provides children with opportunities for contributing to the wellbeing of the family (facet 1) but is organized in a collaborative way (facet 3)—that is, doing productive work together or what we call co-laborating. This seems to facilitate children's eagerness to contribute (facet 2) by being able to be a contributing part of a group that values, expects, and guides their contributions (facet 5). In this process, the child learns important knowledge and skills for everyday living (facet 4).

Based on our interviews we suggest that the co-laborative nature and organization of interaction in which children are embedded may instill in children the desire to take initiative in contributing to family and community activity (see also Coppens & Alcalá, 2015 ) while at the same time teaching them to be considerate and care for others. In communities where children are embedded in family and community activity, children co-laborate by working alongside more experienced others contributing in small ways to accomplish complex tasks. The social nature of the interaction makes it markedly different from cleaning one's own room by oneself without any form of social interaction or feeling of contributing to a joint endeavor. The difference in the social context, practices, and ideas may help explain why in some communities children contribute in sophisticated and mature ways while in other communities parents struggle to get children to pick up their socks.

The contrasts we found among the three backgrounds suggest that it makes a difference when parents ask children to engage in joint activity—co-laborating—in contrast to asking them to perform a solitary chore. When children co-laborate with other members of the family without being compelled to do so, they seem to develop initiative that we and Rogoff and other colleagues call pitching in, offering their help spontaneously when it is needed.

The community goals of learning not only skills and knowledge but also important social and emotional aspects of child development as a member of the community can be seen in how the mothers included consideration for others and recognition of others’ efforts in their emphasis on the importance of learning to work. The children for their part seemed to understand the important cultural values inherent in this learning and showed pride in their efforts when others recognized their contributions and considerateness.

In contrast, when parents assign their child to contribute to family household chores as an individual or solitary activity, as was the case in most of the cosmopolitan families we interviewed from Guadalajara, children do not seem to be eager to participate or learn. This is underscored by the fact that parents treat their child's participation more as an obligation than as contribution or help, keeping their children from experiencing their contributions and participation as integrated in the family and community.

Family and community forms of social organization that promote learning to collaborate with initiative as well as consideration and care for others have important social implications beyond the practical benefit for the family and the learning and development of skills for the child or persons involved in work. Through participation, children can learn values of respect, reciprocity, and commitment. In this way, household work can be organized not as solitary, compulsory assigned chores but as opportunity for contribution and for important social learning.

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How three circles changed the way we understand family business.

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30 Years, 3 Lessons

Three-Circle Model Celebrates 40 Years

A family business advisor sits with a founder and his two daughters in a conference room in Chicago, helping the family with an intense discussion they are having about the future of their family-owned brewery. The elder daughter works in the business. Neither daughter has shares in the family company. All three family members say they want what is best for the business and what is also fair to the three of them. But, for all of their agreement on principle, this discussion about future leadership, ownership and inheritance is getting testy and personal.

The advisor picks up a marker, goes to a flip chart, and begins to draw.

The circles he inscribes are a little wobbly, but that doesn’t matter. He labels the circles of the Venn diagram: Family, Ownership, and Business. He places each of the three family members in their appropriate sector of the diagram, and next to each of their names lists their interests and concerns. The diagram helps to clarify the roles and perspectives, and issues to be resolved.

What the advisor has drawn is the Three-Circle Model of the Family Business System , the fundamental framework in the family business field, created by Renato Tagiuri and John Davis at Harvard Business School (HBS) in 1978.

Two Circles Became Three Circles

Forty years ago, Tagiuri and Davis were looking for a framework to categorize the issues, interests and concerns they were hearing from Tagiuri’s executive students who led family companies. In 1978, Davis was a first-year doctoral student and Tagiuri, a senior professor of organizational behavior. Davis had a strong interest in family psychology as well as in business organizations. Tagiuri was a new faculty member in the Owner President Management (OPM) executive program at HBS, where most of the participants owned family companies. Tagiuri invited Davis to become his research assistant so they could both learn about family companies. It proved to be a very successful and enduring academic partnership that lasted over 30 years.

Over the next four and a half years, while Davis finished his doctorate, the duo conducted numerous interviews with family company owner-managers and surveyed hundreds of executive students on various family business topics. They met almost daily to discuss their projects and findings in the lounge of Humphrey House, Tagiuri’s office building on the Harvard Business School campus. They would take over the lounge for hours, spread their papers over the conference table, and discuss the latest survey or interview results.

“Renato would ask me, “ What are we finding in this interview?” John Davis recalled. “I would explain the themes of the interview and the issues that I could spot. Then we would start diagramming the situation, trying to explain why this issue or that problem came about, and how the family influenced the business, and so on. Tagiuri drew circles, triangles, flow diagrams, and stick figures of fathers and sons (at that time there were few women in the OPM program, or in most family businesses).” Davis adopted diagramming as a way to express ideas, and continues to use this method to explain phenomena to students and colleagues. “We would go back and forth explaining whatever, and we came up with very solid understandings and some pretty wise recommendations for that time, like the need for governance to strengthen discipline among family members, although we didn’t call it governance back then.”

There was almost nothing in the literature to guide their exploration. Little had been written about any aspect of family businesses, and the only conceptual model of a family business system was a two-circle framework, which showed the family and the business as two overlapping systems or circles.

The Two-Circle Model recognized the influence of family and business on each other, and the need for alignment of family and business goals and interests. This model also made it easier to understand the confusion that individuals and the system could feel because of competing norms of the family and the business.

But for Tagiuri and Davis, even in the early stages of their work together, the two circles fell short of capturing the interactions and tensions they were seeing in the family business systems they were studying, from a fledgling retail operation owned and run by its husband-and-wife founders to a late generation manufacturing empire owned by cousins with many non-family executives.

So, they were on a hunt for a better framework. And it came several months after they began their research.

On this particular day in the fall of 1978, Davis reviewed a couple cases and Tagiuri took out his pen and drew two circles to represent the family and the business. “That’s part of it,” Davis remembers saying, “But in this system, they are fighting over getting shares in the company. Some of the family members are owners and some are not, and the two circles don’t account for that.”

Tagiuri thought for a moment. “Would this work?” he inquired, sketching out a third circle overlapping both of the first two, and labeling it Ownership.

“That’s it,” said Davis. “Some of these people are owners, some of them are family members, some are both. And some are also managers in the company. And this makes room for the people I am interviewing the most, the owner-presidents who are right in the center.”

Case by case, the pair started to work through specific family business cases to see whether these systems could be adequately described by the three circles. Husband and wife co-founders, Father-son companies, sibling partners, large cousin families with multiple branches, family managers actively running the business, owners and spouses who were not running the business, family employees who had not yet inherited ownership, young children in the family, relatives who had been bought out but were still in the family, non-family employees who were given minority shares, and even the anonymous public owners of listed family companies—all of them not only fit within the Three-Circle Model, their perspectives, goals, and concerns were better understood by it.

The addition of the third, ownership circle allowed more attention to be paid to other issues that were not explicitly recognized by the first two circles. Succession had to do with passing leadership and ownership. Some tough situations were resolved through buyouts of owners. Capitalizing a family business sometimes required bringing in outside owners. Linking the family, business, and ownership circles now fully defined the family business system, which is the integration of all three of these subsystems.

Three-Circle Model of the Family Business System

Elementary it may seem, but for forty years now academics, business families and their advisors have been sketching these three circles to gain insight into the inner workings of their family business and business family relationships. All family business systems can be described using the three circles, and each family business system can be uniquely described with this framework.

It was this diagram (and the addition of the ownership circle) that also framed Tagiuri and Davis’s definition of family companies:

A family company is one whose ownership is controlled by a single family and where two or more family members significantly influence the direction and policies of the business, through their management positions, ownership rights, or family roles.

This definition could not have been derived without a three-circle perspective.

Three-Circle Model Explained

The Three-Circle Model of the Family Business System shows three interdependent and overlapping groups: family, ownership, and business.

An individual in a family business system occupies one of the seven sectors that are formed by these three overlapping circles. An owner (partner or shareholder) and only an owner will sit within the top circle. Family members will occupy the left-hand circle, and employees of the family company the right-hand circle. If you have only one of these roles, you will be in just one circle. However, if you have two roles, you will be in an overlapping sector, sitting within two circles at one time. If you are a family member who works in the business but has no ownership stake, you’re in the bottom-center sector. If you are a family member who works in the business and is an owner, then you will sit right in the center of the three overlapping circles.

Three-Circle Model of the Family Business System

“The Model identifies where key people are located in the system,” Davis explains, “and think about different roles that family members have: being a family owner, or a family employee. These overlap areas in the Model indicate role overlaps and potential role confusion.”

Each of the seven interest groups identified by the Model has its own viewpoints, goals, concerns, and dynamics. The Model reminds us that the views of each sector are legitimate and deserve to be respected. No one viewpoint is more legitimate than another but the different viewpoints must be integrated in order to set future direction for the family business system. The long-term success of family business systems depends on the functioning and mutual support of each of these groups.

Changing the Game

Sitting around the conference table in Humphrey House lounge on the Harvard Business School campus in the late 1970s, Davis and Tagiuri had no sense that they were inventing a game-changer. For starters, there wasn’t really a game to be changed: the study of family business was in its infancy. “There was not only little writing on these systems, there was almost no conceptual thinking on these systems.” Davis explains.

Their intentions were very immediate and quite pragmatic: As they doodled, they were simply trying to develop a useful tool. “We just needed something convenient to be able to organize our thinking about how these systems were structured. That’s all we needed to do at first.”

From those doodles, though, came a model that allowed for deep analysis of family businesses, and led to benefits that are both direct and wide-ranging.

Here are six often-noted impacts and consequences of the use of the Three-Circle Model.

Withstanding the Test of Time

When so much in business, technology, wealth, family, and society has changed, how can a 40-year-old model still help us understand and manage issues in current family business systems?

Part of the reason why the Model has withstood the test of time, and is still relevant today, is that the Model, in its unaltered form, is adaptable . As the definition of “family” has changed in society, the Model allows for that. In-laws, blended families, divorce, adoption, domestic partners, and whoever the family calls a member of the “business family” because they are connected through ownership – all of these roles are consistent with the Model.

Likewise, the ownership circle can accommodate many possible scenarios. If a family business goes public or invites a private equity partner, the Model accommodates that ownership change. If the company issues different classes of stock (voting and non-voting), and holds some of the shares in a trust, the Model accommodates that. Today, as families have many different capital alternatives, the Model accommodates joint ventures, mergers, acquisitions, and different sources of capital that impact the ownership circle.

Many businesses have changed significantly in 40 years but the business circle of the Model is flexible: It may represent one business, or multiple businesses, holding companies, joint ventures and more. It can even describe a situation where the business family has sold its operating company and is managing their financial assets as an entity. The family is in a different business, but it is still their business. Similarly, the “business” circle can be labeled the “family office,” and the model still works.

With the pace of change, globalization, technological advancements, and disruption around the world, the changing environment will continue to shape businesses, ownership groups, and families. And the Three-Circle Model will continue to accommodate this evolution.

How About a Fourth Circle?

Like designing a three-wheeled car or adding a second story to an Eichler house, sometimes a classic design stays around because it simply can’t be improved on—given its purpose.

Over the years, many family business practitioners have sought to improve on the three circles. They have added more circles, and redrawn them as overlapping ovals. “Sometimes,” says Davis, “these models accomplish their purpose. But they tend to be complicated and not do as efficiently what the Three-Circle Model does.”

Davis himself has, over the years, tinkered with adaptations and additions to the three circles. “I played around for a while with the idea of having a fourth circle of wealth holders because in some situations the holders of family wealth differ from the owners of the family business. I wondered if we could try to map wealth holders distinct from owners. The fourth circle just didn't work.”

Nothing seems to have the sticking power of the original Three-Circle Model. It is still the widely accepted, organizing framework used worldwide to understand family business systems. The acid test for the Three-Circle Model, Davis says, is this: “No one in the world now addressing family business issues doesn't use it.”

Simplicity is central to the efficacy of the Three-Circle Model, Davis contends. “Models that have legs – that keep working – need to be simple enough to describe most of what you need to describe, and the Three-Circle Model does that.”

Expedient as it may be, even the Three-Circle Model has its limitations, and Davis is ready to concede that. “You know, it’s just a helpful tool and it’s not the only tool that you need.” He goes on to illustrate his point with another example. “We could describe your family business system using the Three-Circle Model. But your family also has a family vacation house, a family philanthropic foundation, financial investments that are managed collectively, maybe an art collection. All of these assets and activities influence one another and are important to your family but this collection isn’t captured by the Three-Circle Model. I created another framework for that, looking at the family enterprise system , which is a broader term than the family business system.”

A Three-Dimensional Future

So what lies in the future for the Three-Circle Model? Will we be using these same three circles in another forty years’ time?

“I think that the Model will still be the Model,” Davis says. “I think we will make more progress understanding how the family business system fits into the broader family enterprise system. I also think we will use the ability to map systems not in a two-dimensional way, but in a three-dimensional way. In my mind’s eye I can see three intersecting spheres and maybe being able to represent a family business system in three-dimensional space could allow some breakthroughs in understanding. But I don’t think somebody will come up with a fourth circle that compels people to do away with the three circles.”

The Three-Circle Model of the Family Business System was developed by Renato Tagiuri and John Davis at Harvard Business School, and circulated in working papers starting in 1978. It was first published in Davis’ doctoral dissertation, The Influence of Life Stages on Father-Son Work Relationships in Family Companies, in 1982. In 1996, the Family Business Review published it in Tagiuri and Davis’ classic article, “ Bivalent Attributes of the Family Firm .” 

VIDEO: See more from Professor Davis on the Three-Circle Model.


Cambridge Family Enterprise Press, 2018

Professor John A. Davis

John Davis, CFEG

John A. Davis is a globally recognized pioneer and authority on family enterprise, family wealth, and the family office. He is a researcher, educator, author, architect of the field’s most impactful conceptual frameworks, and advisor to leading families around the world. He leads the family enterprise programs at MIT Sloan. To follow his writing and speaking, visit johndavis.com and twitter  @ProfJohnDavis .


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Family Businesses

By Entrepreneur Staff

Family Businesses Definition:

A business actively owned and/or managed by more than one member of the same family

If you own a family business, you probably worry even more than the average entrepreneur about ensuring that your company not only survives, but also thrives to nurture the next generation. Several years ago, researchers David Sirmon and Michael Hitt examined the strategies behind successful family businesses. They found that success is tied directly to how well a company manages the five unique resources every family business possesses:

1. Human capital. The first resource is the family's human capital, or "inner circle." When the skill sets of different family members are coordinated as a complementary cache of knowledge, with a clear division of labor, the likelihood of success improves significantly.

2. Social capital. The family members bring valuable social capital to the business in the form of networking and other external relationships that complement the insiders' skill sets.

3. Patient financial capital. The family firm typically has patient financial capital in the form of both equity and debt financing from family members. The family relationship between the investors and the managers reduces the threat of liquidation.

4. Survivability capital. The family company must manage its survivability capital-family members' willingness to provide free labor or emergency loans so the venture doesn't fail.

5. Lower costs of governance. The family business must manage its ability to hold down the costs of governance. In nonfamily firms, these include costs for things such as special accounting systems, security systems, policy manuals, legal documents and other mechanisms to reduce theft and monitor employees' work habits. The family firm can minimize or eliminate these costs because employees and managers are related and trust each other.

Clearly delineating these unique family resources and leveraging them into a well-coordinated management strategy greatly improves your business's chances of success compared to nonfamily-owned companies.

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