Starting a business isn’t an easy venture. It takes planning, a lot of money, and hundreds of other things to turn a start-up dream into a real-life business. To save money and surround yourself with people you trust, you will likely ask for your family’s assistance. That’s always a terrible idea.
It makes sense to work with those we like and trust, and there is no better fit than our friends and family. I’ve always done it, and you’re probably doing it too. In fact, I’ve rarely met an entrepreneur who didn’t have a close friend or family member working with them.
It is not uncommon to hear words of warning against working with family. Experienced entrepreneurs warn against going into business with family and friends, having witnessed or experienced the negative fallout of relationships and deals gone badly.
But there are also many successful entrepreneurs and business owners who have worked with family and friends every day.
So what’s the one single answer to this question? It might shock you, but there isn’t one. Instead, there are a few patterns that come to light from the myriad of information that is available.
These patterns highlight what’s needed for any relationship, let alone one associated with a business — things like transparency, honesty, and trust. In the end, there are two answers to this question.
First, there are legitimate reasons why you should NEVER go into business with family and friends. And secondly, if none of those reasons apply to you, there’s a right way to chase your entrepreneurial dreams with family as partners.
With this in mind, here are some reasons why you should not mix Family with business: –
Emotions Can Often Override Good Business Sense
Like a time bomb ready to explode — working with family creates moments of friction. You have passion. They have passion. Let’s face it; we sometimes speak differently to family than we do others. Thus, explosive business conversations can take flight.
If two people go into business together, even if there’s a shared personal bond, the relationship’s crux is business. The personal feeling never equals success. When going into business with family, it’s almost impossible not to let personal issues creep into the equation. Does your brother really not like your marketing idea, or is he pissed because you’re not bringing the family over for Easter? Does your brother-in-law not like the office space you picked out, or does he not like the fact his mom might like you more than she does her own son?
It is, therefore, easy for emotions to override sound business sense, and this can quickly sound the death knell for any business venture.
Establish Boundaries and Keep Them
As entrepreneurs, we know this as an undeniable truth: our businesses can invade every square inch of our lives. But in reality, successful entrepreneurship means we must put up a wall. Call it the wall of ‘we don’t allow business in here.’ And this is especially true for family-run businesses.
When starting a company, countless hours are devoted to building it from the ground up, but there are breaks needed to avoid going absolutely insane with anything. Those breaks usually come in the form of downtime with the family. It’s hard to have downtime with the family when the family is part of the business. If your partner at home is also your business partner, the talk of business NEVER goes away. If you’re hanging out at a BBQ, your uncle is GOING to ask how his investment is coming along.
You know that business you’re launching! There will be no mixing business with family members as business partners because there will be no pleasure — it will be business 24/7.
Relationships Come First, Except When the Business Comes First
You just caught a family member stealing from the business. Or, more likely, you have a friend or family employee not pulling their weight after months of “working on it.” Since these actions impact your business, you must lower the hammer and let them go.
If or when you decide to favor a family member over the business in this kind of situation, “you fan the flames of distrust with your other employees.” Further, you give birth to a culture of nepotism and favoritism. So you must work hard always to make decisions that benefit the business.”
Set The Bar High(er) For Family and Friends
It’s easy to fall into the trap of thinking family can accomplish anything. Entrepreneurs who hire family are already behind the eight-ball in the eyes of others. Nepotism and favoritism rumors will swirl about regardless of what action they take.
But in a constant effort to ensure non-family employees are treated fairly, it’s advisable to set the bar higher for family. “We might praise a regular employee for a particular task, but a family member employee will have to perform the same task to a higher degree to earn that same praise. While this might not seem fair to the family member, overall company morale should ensure there is no favoritism to family members.”
Communicate Clear Measures of Success Up Front
Wise business personnel set clear and measurable goals for every new hire on day one. For example, every employee, including family, should be assigned the things expected of them. Written down and measurable, they are held up in public view as goals for success. They should have clarity in their roles, know what’s expected of them, and have public accountability.”
It can be Hard to Appraise Your Partner’s Performance.
While honesty should be the bedrock for any successful and meaningful friendship, it can be hard to administer a frank and withering appraisal of those closest to you.
More specifically, it often leaves faults unaddressed and causes operational issues to continue longer than they should. While third-party assessments can be sourced and paid for, the potential impact of negative criticism can still damage existing relationships.
When You Shouldn’t Go Into Business with Family and Friends
If you can’t risk making someone uncomfortable by documenting a financial business transaction, how do you expect to communicate effectively or ask any questions that may upset your business partner?
Main Street is filled with the corpses of close relationships killed by business deals that ended in lawsuits. The reason they end up there is that the partners in question weren’t prepared to separate their business aspirations from their actual abilities to run a business profitably.
Successful businesses are done based on the decision makers’ ability to put logic ahead of lofty dreams. Unfortunately, relationships are not based on logic; they are emotional, so the risk of things going bad is high.
When working with a family member — or anyone else, for that matter — you should be candid and critical with the people who are close to you. If you think you and your family member can’t handle criticism, getting them involved in a business venture is not a good idea.
Those who are starting a business or asking for money think about how you would tell a family member or close friend that the money they gave you, which signified their trust in you, is now gone or in jeopardy of being lost. If you can’t think of what you would do in that situation, think twice about asking for that money.
The Right Way to Mix Business with Family and Friends
If you and your friend or family members are clear on the potential consequences of running a business together, then read on. The following tips come from multiple sources, many of which are provided by people that started businesses with family and friends. All of them should help guide you through the best practices of moving a close relationship into a financial one.
- Set Rules and Boundaries Early: The key is to write down what each party expects so you can be on the same page from the beginning. You’re guaranteed to have two different points of view, and no one can read minds, so talk about your hopes, concerns, and what-if scenarios and write them down.
- Create a Legal Agreement: A legal agreement defines what happens if the deal or business does not work out. You don’t want a court to divide your assets and investment for you, so create the proper agreement early to safeguard all parties involved.
- Relationships Come First: Smart entrepreneurs lay down the law right from the start: the relationship comes first. Your spouse. Your kids. Make the decision and have the conversation before you begin working together. If the relationship gets in trouble, fix it. Trust me — it’s not worth losing family over a business. Let this rule be the guiding light in how you deal with family and friends.
- Define What Success Is: This should not be hard to do, but it often never gets discussed. Whether you are giving money or time, or asking for it, make sure you and other stakeholders know what you are working towards and what types of successes to expect.
- Talk about Time Commitments: Like defining success, everyone should know how much time and effort it will take to reach success. But don’t be overambitious, as businesses almost always take longer to develop and grow than their owners and partners may want to believe. Set a wide window, even if you’re sure it won’t take that long.
- Don’t Be Afraid to Disagree: Business relationships require a ton of honesty because there are always many hard questions that need to be answered and decided on. Disagreements, therefore, should never be personal. They are simply part of how a business works and should be treated as such.
- Become a Great Communicator and an Even Better Listener: One would think it would be easier to work with family and friends, but this is not the case. A relationship that is years old has many emotions tied to it. Some emotions are conducive to business, and some are not. Therefore, it is essential to hear what the other person is saying, and it’s equally important to be clear when speaking to other people. Your point will only be heard when you make the other person feel like they are truly being listened to, so listen attentively.
- Don’t Talk About Work: If you are working with family and friends, learn to separate your work life from your home life. Your relationships will be better for it, especially if you work with a spouse.
- Don’t Blame Others: At the end of the day, especially a very hard day, take responsibility for your choices and actions. If you gave a family member money, and it’s now gone, that was your choice. If you take money, you have a responsibility to make decisions and live with them. Be accountable, and never point fingers. And above all, find better ways to learn from your experience.
Looking back to the question: why even risk it? If it’s such a landmine of potential disaster, why not just make a rule not to hire (or partner with, or take money from) any family? And the answer is you could very well make this decision. Working with family and friends is not for every entrepreneur. And I know a few who wouldn’t even consider it. But if you can adhere to the rules and tips above, working with family and friends can be a positive experience.