Harper Lee may have been a legend in literary circles for To Kill a Mockingbird, but that influential novel also contains a nugget that any entrepreneur should ponder when deciding whether to work with family members or close friends.
Jem, the older brother of main character Scout, opines: "You can choose your friends, but you can't choose your family."
With the holidays just concluded, plenty of people dealt with relatives for better or worse. Still, sitting through a three-hour meal isn't too big of a chore - but working day in, day out with relatives can be.
Yet many people start family-owned businesses, so let's take a look at four reasons why it's a good idea - and four reasons why it might not be.
1. Loyalty is likely to be the same for everyone, and the goals probably will be similar. Enjoying a level of intimacy with principals is important because it engenders a built-in support system. In other words, it's isn't just a paycheck. In addition, there likely will be added stability; an outsider may be an excellent employee, but he/she is going to be looking out for themselves first and foremost and could depart for a better opportunity at any time. Family members are there for the long haul.
2. By working with family members, you also enjoy a greater degree of flexibility. Your brother-in-law serving as CEO is probably going to be more understanding when you want to take a long weekend to celebrate your anniversary than a complete stranger or when you rush to the hospital because your son has broken his ankle playing football.
3. A family-run business often is an ideal marketing point. Customers seem to like patronizing a family-run organization more so than a faceless corporation. Just think how often you see businesses that proudly tout their family connections. Putting a face to a name is important, particularly when you are just starting out.
4. Especially in the early stages, a family-run business may enjoy lower operating costs. Outsiders aren't going to work for free or minimal compensation as the business tries to find its feet, but family members have more emotionally (and likely financially) invested and can wait to enjoy the proceeds when the business succeeds. You're also more likely to be able to run the business from a family member's house, if need be, saving on rent.
1. The fact that someone is a relative doesn't automatically mean they'll be the right fit for your company. Plenty of relatives turn out to be lazy, dishonest, unreliable, misguided or just plain stupid. If you have to fire that relative, the process will be that much more difficult because they're family. And imagine the repercussions within your extended family - that annual Christmas party may turn out to be kind of uncomfortable.
2. Next, consider sibling rivalries or other family divisions. When you were 12 and your brother was nine, you may have settled differences with a punch or two. That might be standard operating practice for kids arguing over what TV show to watch, but it doesn't fly in the business world, when disagreements mean real money. The rivalries may not involve siblings at all. What happens when it comes to succession and your kids want to take the company in a radically different direction - or aren't interested in the business at all? Can you deal with the former or accept the latter?
3. Here's something you probably haven't considered as a potential problem: a lack of perspective and alternative viewpoints. Having everyone getting alone and pursuing the same business philosophy would appear to be a good thing - or is it? If everyone working in the business has similar life experiences (or lack thereof), it could create blind spots that could sabotage your operations. In this case, an outsider's perspective could be helpful.
4. Family-run businesses often lack a clear corporate structure, in part because of the all-hands-on-deck mentality and partially to maintain a belief that everyone is of equal importance. That's good for keeping family members happy, but not so good for regulatory agencies and overall professionalism. You also run the risk of having employees who are not family members feel neglected when nepotism is obvious.
If you're not scared off by now - or reassured that your family members can work together - what's the best way to reduce the risks inherent in business that are family run of feature close partnerships of friends?
Perhaps a spreadsheet where you consider the issues discussed above is in order. Are you finding the principals have a lot in common or are there more disagreements than you imagine?
Pay particular attention to risk tolerance, which is something that can go a long way in gauging how well you can work together - and also is crucial in determining what kind of financing options work best for you. You'd be surprised about how many companies are paralyzed by executives who have different philosophies about how much risk they're willing to accept.
Working with family members and/or close friends may still be your dream scenario, and there are plenty of examples of success, so don't be scared off by the potential problems discussed here. Just be sure to pursue your due diligence to head off problems that otherwise could be avoidable.