Why do entrepreneurs hire family and friends? sometimes they're avoiding the hard work of hiring; sometimes they're doing a favor. But they're almost always making a mistake. Underqualified employees hang on too long. And when they leave, relationships are strained and sometimes destroyed.

Applied Computer Technology is a case in point. Instead of conducting interviews to find the most qualified candidates, Cindy Koehler, co-owner of the Fort Collins, Colo., computer manufacturer, hired three friends just out of college. "They wanted to help, and at the time that seemed like enough."

That decision set the tone for the relationship -- personal, not professional. "We didn't define expectations," Koehler says. "We didn't realize there was anything more to managing employees than paying them."

Because Koehler didn't establish a separate work relationship, she and her new employees continued to act like friends. But friends take liberties. Friends indulge shortcomings. And after problems arise, friends pout.

Koehler no longer talks to one former friend, and the other relationships remain strained. Now, though, she can rattle off all the hallmarks of good management. "Have a job description, make a formal job offer, and hold formal reviews. Communicate how much you will pay, when the hire can expect a raise, the time-off policy, and the performance standards."

But Koehler's first rule is, Don't mix work and friendship: "If your support group works for you, where do you go for support when you leave work?" -- Reported by Stephanie Gruner

* * *