Downsides of Starting a Business with Family and Friends

May 4, 2016 | By | 1 Reply More

The idea of starting a business with family and friends can be enticing. You already know and trust each other. You like each other’s company, and may share each other’s sense of values and ideas of where to take the new business.

However, partnerships can be risky, more so when personal relationships are at stake. Starting a business with your friends could either end up as a great success or bring a whole lot of heartache. When a business partnership among friends goes bad, it is really bad: you could lose both business and the relationship.

starting a business with family and friends

A Quora.com user named John Wu opined that starting a business with friends “should be avoided if possible.” As he explained:

Conflicts and misunderstandings will definitely arise, and hard feelings are almost always the result. Add money and liability to the mix, and things can get very ugly down the road.

Conflicts and misunderstandings could start when one person feels that the workload is uneven, or one person is getting compensated inappropriately to their contribution. You may find that your family or friend is not performing as expected, and instead, is just a drain on the company’s resources. Add to the mix the conflicts that money could bring.




Another Quora user Nana Anh Ta made a list of other reasons why it is difficult to do business with family and friends:

  • Work is all over your place, including supposedly quiet dinner gatherings
  • Work follows you to sleep
  • You start hating people you love because of work
  • When there are troubles at work, both your house and your workplace is a mess
  • You can’t fire your family member or cut their salary down
  • People turns their back to each other because of money
  • When you lose a coworker, you might also lose a family member or someone you love

It is important to think long and hard if your relationship with your family or friends can survive working together in a business. As Bryce Christensen explains:

Family relationships clouds business feedback and decision-making with the effects of the relationship.

Business generally requires collecting information for making good decisions. While some good decisions can be made by having a gut feel for the situation, having better information generally is superior to gut feelings.

Now take that information and add complicated family dynamics to both the transmission of feedback and the business decisions themselves.

Some families have a dynamic that is conducive to providing feedback and making business decisions, but many (perhaps most) do not.

For example, a family that has strong loyalty and a strong ethic of valuing each member’s contribution may do very well in business because the loyalty encourages making sure feedback gets back to decision makers. But a family that has trust issues and some members that focus more on themselves is likely to have to make decisions that impact the family relationships instead of just working relationships.

 
>> RELATED: Friends as Business Partners: How to Maintain Friendship in a Partnership
 

However, if you still want to start a business with family and friends, there are a number of things that you can do to make it work:

  • Be prepared that you may not agree on everything. It may surprise you that your best friend – who you thought you know everything about – may have different ideas of how to run the business. Understand that this something that may happen and plan accordingly how to resolve conflicts.
  • Talk and be affront with each other about your vision for the company. It is important to ensure that you are on the same page with your friend about the business and that your vision aligns with his view of where to take the business.
  • Write things down, clearly: who gets (or pay) what in any situation possible; who invests, who owns and what everyone is expected to bring to the table; and what they are expected to do as the company grows
  • Decide at the onset who is going to be charge of what in the business. Put in writing very clearly defined roles and expectations.
  • Assume that the partnership is going to end someday and have a plan in place. Decide upon exit clauses for each person. If one person wants out or wants the other person out, there should be an agreed upon process. After someone has contributed many hours and dollars to an effort, they have a very hard time letting go, especially if the business if profitable.
  • Spend time to hang out outside of the business, not as a business partner but as a friend.

 
>> RELATED: How to Borrow Start-up Capital from Family and Friends
 
When you are starting a business with family and friends, realize that you will be putting that relationship or friendship to test in a way that it may never recover. Before you start, think about what is more important to you: keeping that friendship or ensuring that you grow your revenues.

 

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Category: Challenges of Working at Home

Comments (1)

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  1. Samantha Stauf says:

    Its important to have those decisions, not just with the family member that will be a business partner, but with every family or friend who ends up working for you. It should be established beforehand that the job is not a free ride. In order to make the venture succeed everyone needs to pull their weight.

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