While there are a few family dynasties (Vanderbilt, Walton, Mars, Koch) worth centi-billions and they undoubtedly found great success working within the control of the family’s expertise, there are risks that should not be overlooked.
Lets start with the benefits of working with family and friends:
- Collaboration is much more fluid
- Mindsets & goals are aligned
- More relaxed and comfortable environment
- Financially, there are tax advantages and the whole family benefits together
These can all be very advantageous when starting or growing your business, however, it is rare to have each friend/family member 100% dedicated to the company’s long term goal over their own personal gains.
Let’s use your own family as an example, and if you are an only child replace this example with your closest friends: Have you ever been jealous of your brother or sister? Do you argue often, and if so are they sometimes over insignificant issues? Now, what happens when a family member starts slacking and continually fails to produce results? How will they react when you need to fire them?
As you can see, things can get very sensitive very quickly and we see it every day in family businesses.
And if none of these questions swayed your opinion, just think about how often people change after they start acquiring money. Money is a great tool that can be used to cure diseases, solve world poverty & hunger, it can improve the lives of billions of people, and can fund amazing innovations for society. However, as we know money isn’t always used for good. When people aren’t careful they can become addicted, and their greed for money takes control over their lives.
This isn’t uncommon and is the root cause for unhappy millionaires and billionaires – chasing their tail in an endless pursuit to have the biggest house, the nicest car, the fanciest watch. This is an endless black hole that will only suck you dry of your money and energy. People inevitably change when money is involved, its just a matter of in what way they change.
The point in time to be the most careful about doing business with friends or family is when you are just starting out. This a critical point in time when you don’t have a lot of money or resources to give away.
The majority of the time when a friend or family member wants to support your business, they ask for a discount or they ask for a free sample of your product or service. When you’re starting out, you absolutely need positive cash flow for the business, not only to survive but to grow to a more sustainable setting.
As a business owner, it is your fiduciary duty to serve your investors and your customers first, and in order to do that, you must make tough decisions that are in the best interest of your company. Besides, the more you are able to grow your company, the more you will be able to provide for your friends and family in the long term.