- As the second largest privately owned company in America employing more than 100,000 personnel, Koch Industries operates as a privately-held energy conglomerate in the U.S. A bitter struggle over money between the Koch brothers and cousins led to lawsuits and a cash-out of $1.1 billion in the 1990’s.
Weighing the Factors for Starting a Business With Family
Now that we’ve covered some examples of what can happen when you start a business with family from both perspectives, let’s examine some of the pros and cons so that you can make the decision for yourself.
Drawing on personal experience, the experiences of entrepreneurs I know, and from the advice of the world’s top business leaders, here are 7 pros and 7 cons to starting a business with family members.
7 Pros of Starting a Business With Family
- You’re in the zone when it comes to internal relationships and collaboration. You’ve spent plenty of time with your family, you know and understand their interaction style and you’re less likely to be caught off-guard by unforeseen character flaws that could spell disaster for a company.
- Your co-workers are more than just peers or business partners. They’re friends you count on and family members who genuinely care for you, so business relationships with family members are likely to be much more empathetic.
- Key people are also stakeholders in more than just the success of the business. They’re united by a common goal and likely willing to make great sacrifices for the success of the company.
- The mood in the workplace is more relaxing because you’re comfortable with people around you and there’s no need for small talk.
- Because all of the family members know each other well, there is typically less pressure when it comes to financial performance and more flexibility on the period within which to realize returns on your investment.
- Family-owned businesses often deploy brands that have a stronger market appeal because they convey tradition, hard work, and craftsmanship. Think Levi’s, Gucci, Beretta, Ford, Nike, Hasbro, and Mars. Part of the success of these companies can be tied back to their family appeal.
- It’s easier to get the ball rolling if you’re launching a company fast because you won’t have to bother with interviewing potential partners, checking backgrounds or following up on the certifications and qualifications you’ve been told.
7 Cons of Starting a Business With Family
- Things can become too comfortable, which tends to slow down the growth of the business in the long run, reduce the drive for excellence, and undermine professionalism in the workplace.
- Conflicts in the workplace may carry over to your personal life, creating serious rifts between family members if the disagreements are momentous enough. Some conflicts persist and sometimes extend to court litigation, permanently damaging relationships between siblings, parents, children, and relatives.
- Fresh ideas may be harder to come by, as outsiders and non-family members within the business may find it more difficult to join the closed loop of family decision makers.
- Unfair business practices, such as having little-to-no system of meritocracy in place, tends to emerge in family-owned businesses where the succession of the company is all but guaranteed to the next family member in line. This can seriously turn off highly talented candidates and employees that would otherwise be motivated to excel and move up within the organization. Moreover, unqualified or ill-equipped family members can still become leaders, which results in mediocre business performance.
- Leadership succession may become a source of serious conflict if clear guidelines have not been established well in advance. Squabbles between siblings and other key members in the company can create permanent rifts in family relationships.
- Too much family tradition and common upbringing may promote closed-mindedness, intensify the resistance to change, and impede both creativity and outside-the-box thinking. Family-owned businesses are less likely to innovate unless they bring in outside help to stir up the environment.
- Leaders may encounter a reluctance in making important decisions that negatively impact a family member. If a family member who’s an employee or partner isn’t pulling their weight, isn’t delivering on the promises they’ve made for the company or otherwise, it’ll be a tough conversation when it comes down to addressing a potential change in position for that person.
The Bottom Line
Clearly, family-owned and managed businesses have significant risks as well as benefits. If you’re planning to start a business with family, whether it be with your parents, siblings, or other relatives, think it through very carefully. Don’t consider a family-owned enterprise as an automatic win-win situation for everyone — but neither should you dismiss the advantages of a family business out-of-hand.
To be safe, scout the terrain, know what to expect, and be prepared for surprises.