Why Can't We Be Friends?
Small companies may be informal, but there's a big difference between being a boss and being a buddy.
Published January 2004
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COMMENT ON THIS ARTICLEPenny Baker always considered himself the "huggy, touchy" type. Indeed, the 38-year-old Austin entrepreneur--a former car salesman whose first business consisted of selling "Bad Cop, No Donut" T-shirts in the back of Rolling Stone magazine--is the opposite of stuffy. So in 1997, when he founded National Bankcard Systems, he wanted the provider of credit card terminals and Internet payment systems to be as friendly as possible. He hired close friends for key positions and socialized with his staff on a regular basis, going out for happy hour or dinner as often as four nights a week. The company thrived, growing to 75 employees and $5.3 million in sales in just three years.
But Baker began to sense that his huggy, touchy managing style was no longer working. A number of employees, all of them perfectly pleasant as drinking buddies or dinner companions, had grown complacent, behaving as though they had earned some kind of tenure. Even some longtime friends were slacking off. "I figured if I hired my buddies, they'd work their butts off for me," Baker says. Instead, he had to fire two of them. The last straw came one night at happy hour when one of his salespeople--the brother of a college pal--got drunk and proclaimed that he could do a better job than Baker and was starting a rival business. It was then that Baker realized he had a lot to learn about the difference between being a friend and being a boss.
The fact is, there are no clear-cut rules when it comes to mixing business and buddies. At big corporations, with their often elaborate and rigid hierarchies, this isn't much of a problem. But small companies tend to be far less formal, often behaving more like families. That puts entrepreneurs in a tough spot. Act too chummy and you risk losing employees' respect. But behave too formally and you sacrifice the team spirit and bonhomie on which small companies thrive. "When you show employees that you care about them as people, they may feel an emotional attachment to you and work harder," says Glenn Okun, a professor at New York University's Leonard N. Stern School of Business who advises CEOs. "But there's also a significant risk involved."
In Baker's case, "hugginess" felt perfectly appropriate when his company was small. But once National Bankcard reached new levels of size and sophistication, he knew it was time to separate the ranks. "It's not that I think I'm better than my employees," he says. "But I don't want people to feel like I owe them anything because we're friends." The happy-hour incident only served to drive that point home. So Baker changed his approach. He still prides himself on being a nice boss who encourages employees to have fun--say, throwing officewide pizza parties to celebrate strong sales. But he says he keeps employees at "arm's length" now, behaving in a more businesslike manner, and avoiding any involvement in their personal affairs.
Baker keeps employees at "arm's length" now, behaving in a more business-like manner and avoiding involvement in personal affairs.
Baker has also handed off nearly all human resources functions, including hiring and firing and employee evaluations, to his COO, Pete Estep. The transition was difficult for some longtime employees. But Baker thinks the company is actually stronger now. "Employees like a steady ship, " he says. "I knew I needed to build a stronger foundation for them." Since changing his approach, staff turnover has decreased about 35%, he says. Meantime, he's instituted a "no-friends" hiring policy.
Of course, forming close, personal bonds in the workplace sometimes can be a smart management strategy. Employees with a strong connection to their bosses are more likely to be loyal, work harder, and stick around longer, says Denise Rousseau, a professor of organizational behavior at Carnegie Mellon University, who recently asked top executives at 80 start-ups about their human resources strategies. Most of the CEOs surveyed, she says, found a friendly and congenial office atmosphere to be a competitive advantage. Such an environment "can beat off alternative job offers and itchy feet," Rousseau says, and is as effective a motivator as bonuses, raises, and other typical perks. That's especially true at small companies, where entrepreneurs often expect employees to work long hours and be willing to wear many different hats.
That said, Rousseau is not suggesting bosses open up about the nitty-gritty details of their personal lives. "But if you're having a bad week because your son's been sick," she says, "better to let them know than have them wonder if the company's in trouble." Meanwhile, explaining your personal motivations for founding the business encourages employees to buy in to the company's mission. And taking an interest in employees' home lives or kids' soccer teams conveys that you're interested not only in their professional success, but in their personal struggles, as well--another great motivator, Rousseau says.
