More and more people are going into business for themselves, either buying established businesses or building a new one from the ground up. In fact, over 600,000 new businesses are set up every year in the US alone.
Having the right people around you at this time is vital to the long-term success of your enterprise.
Going into business with family or friends can seem like a great idea, but it is something that you’re going to have to think through to decide if it’s the right idea for you.
Table of Contents
- 1 Business With The Family or Family Business?
- 2 Pros
- 3 Cons
- 4 How To Reduce These Risks
- 5 Key Points
Business With The Family or Family Business?
There’s a big difference when it comes to working with your family. Launching an idea with siblings or cousins is very different from a traditional family business which often mimics the perceived hierarchy of the family, where the older members of the family own and run the business and younger ones rise through the ranks and are groomed to take over when they retire. This traditional model is very different and has its own advantages and disadvantages.
However, going into partnership with someone in your family, or a close friend can be a great experience if you can plan ahead in advance. It’s exciting to come up with a business concept and coming up with a business name that you all love.
Commitment & Accountability
When you’re working with people you know and are connected to, then you feel a greater sense of commitment to the job. Not only is your financial future riding on this job but that of someone you care about is too.
In most businesses, people come and go, even in leadership positions. Overall, businesses run by families or close friends have a more stable structure than other businesses. This kind of stability is a positive thing for a company.
This longevity lets businesses plan much further ahead when it comes to strategy.
It’s important that the people you are working with closely share the same goals and values. Going into business with someone you know beyond their professional persona will hopefully lead to fewer surprises. If there are certain differences, then you know this in advance and can decide whether or not they are deal-breakers.
You Already Know How To Communicate With Each Other
A key part of business includes knowing how to communicate effectively, which is often easier with people we know well. You develop a kind of shorthand, playful, or even sarcastic style that we wouldn’t dream of using with anyone else in a professional setting.
Effective communication is great for solving issues quickly before they become insurmountable.
You Are Aware Of Strengths & Weaknesses
The better you know someone, the more you know what they are good at and what they aren’t so good at. It helps you divvy up the responsibilities properly. For example, if someone isn’t particularly good with people, you might have them in a non-customer-facing role.
It Can Be Fun
Being the boss at work can be isolating for many people. So being able to spend time with people we care about at work as well is a fantastic environment to be in. Founding a business with family or friends means you don’t feel this isolation and instead already have a bond with someone you like to spend time with.
Only Participating Out Of A Sense Of Duty
When you are part of a traditional family-run business, that has been around for generations, the expectations on younger family members can be intense. While some people love the idea of having a role in the business and getting a head start in their careers, others may reluctantly work there, but only out of a sense of duty to family. In any business, you want people who are eager to make it a success. These expectations can often cause issues within families.
When a family member isn’t engaged at work, they probably aren’t going to do a very good job, which can cause awkwardness between family if the person is fired or is seen by employees to be underperforming without any consequences. Neither of these situations is sustainable for the business.
Difficulty In Separating Family & Business
Not all relationships are smooth sailing. From time to time, there are going to be disagreements or even full-blown conflicts between family or friends. Whether these start at work or at home, it’s almost impossible not to let these issues bleed over into your personal or professional life.
In an ideal world, your skillsets will complement each other. Your weaknesses will be their strengths and vice versa. But problems will occur if you are both very similar, or one person doesn’t have a particularly useful range of skills or just isn’t up to the job. Often when we know and love someone, we can tend to overlook their weaknesses. These aren’t insurmountable issues and can be improved by ensuring you’re hiring in the appropriate talent and undertaking necessary training and coaching.
Running a business on familiarity and trust isn’t always the best way to go about things in the long term. You should still have a professional business that is mindful of all laws and regulations.
Unfortunately, not all businesses last. Many startups fail within the first five years and if the COVID pandemic has taught us anything, it’s that the unexpected can happen at any time. If your entire family is financially dependent on one company, then this could be catastrophic if the company fails.
Business partnerships sometimes fail, and it’s never pretty. There’s a strong chance that your relationships could be irreparably damaged. This relationship damage can go much further, other family members and friends may feel like they have to choose sides.
How To Reduce These Risks
Many of the potential downsides above can be mitigated by doing some due diligence and planning in advance.
When you’re thinking of going into business with someone you know, it’s best not to make assumptions about the direction of the business and how you’re going to run things. Set out these decisions on paper, and when it comes to anything involving money or leadership, have it legally documented so that there is no ambiguity.
Resolve Conflicts Early
Some conflicts or disagreements are going to be inevitable when setting up and running a business. How you deal with these can be the difference between a small bump in the road and a full-blown conflict.
Raise issues early – if you’re concerned or upset about something that has happened, raise this early, rather than stewing over it. Explain your position calmly and in a non-confrontational way.
Don’t be quick to argue – the moment someone goes on the defensive, the chance to resolve a situation almost disappears, open dialogue is the key. Try to listen to all points of view before you respond. Keep the conversation civil and don’t resort to any unprofessional and inappropriate attacks.
Set regular time aside for discussions – business today is a blur of meetings, computers, and smartphone screens. You and your business partners need to put uninterrupted time aside to discuss issues.
Define roles and responsibilities – if someone feels that they are carrying more of the workload than the other, they can really start to feel resentful and undervalued. Set out all roles and responsibilities in advance so that each of you knows what is expected of you.
Document what should happen in particular situations – what happens if someone wants to exit the business? Will they be expected to retain their shares but relinquish and control, or will they be expected to let the other owners buy them out? Situations like these can cause the breakdown of relationships due to conflict, so having it laid out in advance will remove this obstacle.
What is the exit strategy? Everyone needs to agree on the ultimate future of the business. Do you plan to build it up and sell it or is the intention to pass it on to family?
Launching your own business is an exciting time and can be life-changing. Building and sharing this success with family or friends makes it even more special. There are many instances where families have been in business for generations or success stories like Facebook, which was devised by a group of friends in college.
While there are pros and cons to doing it this way, it’s very much dependent on a number of factors including the sector you’re in and the people involved. Though many of the issues you face are common, the people involved are still unique and the relationships all have their own shared history.
In order to give yourself the very best chance of making it work, you need to be honest about the direction you’re going, your vision for the future, and each person’s responsibilities. By covering these bases in advance, then you’re one step closer to being a success story rather than a cautionary tale.