All in the
October 27, 2000
** Listen to this column
on your computer, iPod or other audio player **
Imagine this scenario…one day, out of the blue, your brother or
sister comes to you with a new business idea. This might be some hot,
high-tech, Internet new economy startup or opening a new retail establishment
at the local mall. Regardless of the type of business, there are a few
issues that are very important when you contemplate going into business
with a family member. This week I will offer a few ways to insure that
your new partnership doesn't put undo strain on your family and vice versa.
Two separate relationships
As cold as it might sound, even when you are in business with a relative
you must do everything you can to divorce the business relationship from
the family relationship. Any decision that is made simply because of family
connections is deadly for a business. Business decisions should be made
because they are good business, not because of familial responsibilities.
Nothing will move your company to bankruptcy more quickly then ignoring
this simple rule. More importantly, everyone must agree with this concept
from the beginning. If they can't, you are better off partnering with
someone who does, family or not.
Who's in charge?
Another gray area in family businesses is the concept of who is actually
running the company. Long before the first contract is ever signed everyone
involved needs to understand their role in the business. There are many
ways of arranging the power structure of a business. For example, you
might be CEO (chief executive officer) while you sister is CFO (chief
financial officer). You control the production of your products or services
and she controls the money. That said, it can be difficult to have a family
member in a truly subordinate role to another family member. This often
stirs up resentment very quickly. One possible solution is to have family
members on the board of directors or as investors, but not actively involved
in day-to-day business.
Another scenario involves trading off on leadership. This is the way that
my sister, Denise, and I arrange it when we work together. Denise owns
a computer training and consulting firm in Palm Desert, California. When
she needs me to perform some work for her, she is in charge. I abide by
her rules and act as any other employee. Conversely, when Denise is providing
a service for one of my projects, I am in control. She then agrees to
meet my deadlines and perform work to my satisfaction. While it can be
difficult to be both employer and employee, as long as everyone understands
and agrees to the arrangement up front it can work out well for everyone.
The biggest mistake
One of the biggest mistakes that can be made in any family business is
allowing family members to ignore the rules and requirements that other
employees are required to observe. Time and time again I see companies
where family members arrive late, take long lunches, ignore dress codes,
utilize company resources for personal projects and generally behave more
like owners than employees. While this might suit the family members,
it quickly raises the ire of non-family employees. It can be very difficult
to retain employees in an environment like this. No one likes to feel
like a second class citizen. When a family member is hired at the same
level as a regular employee they must agree to abide by the same rules
and requirements as any other employee. This means they can't shirk difficult
work, or pass their workload off to another employee. Eventually the word
will get out and your pool of employees while dry up, leaving you to rely
only on family members for your staff.
Being in business with your family can be another rewarding aspect of
family life as long as you insure that everyone involved -- whether they
become an investor, a director, a principal executive, a manager or simply
an employee -- understands that business is business, family is family
and any confusion of the two will lead to failure. Addressing these issues
before the company is formed will help you to build it on a firm foundation
so that the family business becomes as sturdy as the family homestead.
Available from CafePress.com