Is Family Business a Good Idea?

Oh what a conundrum! Family business: Should I, or shouldn’t I? In my opinion there really isn’t a right or wrong answer to this question. It is simply a matter of personal preference. I have observed extremely successful family enterprises that strengthen relationships and flourish across generations. I have also witnessed business ventures that were responsible for the total destruction of what were previously very close families. Whatever decision is made with respect to bringing family members into a business, it is a decision that should not be taken lightly. In this week’s column I’ll share my thoughts on the topic of family businesses. Let me begin by sharing some personal history with my involvement in family businesses. In addition to advising numerous family held businesses over the years, I have personally been involved in two family businesses. I have witnessed the good that can come from helping family members grow and prosper, and I’ve seen the harm that can come when greed becomes more important than right thinking. While my experience with family businesses wouldn’t keep me from involving family members in business ventures in the future, I also wouldn’t be quick to rush into such a venture. That being said, the following five points should be kept in mind when considering inviting family members into your business: 1. Think it Through: Family should be about unconditional love, security, and continuity of relationships, however business is often driven by conditional relationships, greed, and ego. While business interests and family relationships can successfully coexist, the conflict of interest described in the statement above can often be terminal. If you cannot live with the possibility that things may not turn out on a positive note, and family relationships may be damaged, then I would strongly advise caution about including family members in your business venture. 2. Seek Alignment Up Front: Its easy to assume that family members should all have the same values, but that is not always the case. Don’t just assume you family members share your values; confirm it is so prior to their inclusion in your business. While it is certainly easy to involve family members in your business, parting ways is rarely easy, and usually comes with more than its fair share of emotional turmoil. Spend the time up front to align expectations and talk through all the “what ifs” surrounding family involvement in the business. Spend more time talking about what happens if things don’t work out rather than the upside of potential success. 3. Document Everything: There is often a tendency to believe that since you’re dealing with family there is no need for formal business agreements…WRONG! Document everything when it comes to dealing with family members so that in the event of a dispute, sound business logic and prudent governance will prevail over emotions, revisionist history, or suddenly flawed memories. 4. Don’t Give Anything Away: My thinking on this topic applies to responsibility, titles, compensation, and ownership interests. In general I have found that human nature is such that people just don’t value something that they have not earned (this can be particularly true of family members who can often display an undeserved sense of entitlement). The goal here is not to make things unduly difficult on family members, nor is it to make money off of family members. Rather the goal should be to teach them that along with the privilege of ownership comes requirements for investment, risk, responsibility, and commitment. 5. Keep Things Close: While family should be family, this assumes value alignment, right thinking, and prudent behavior. The reality is that your chances for success in family businesses rapidly diminish the further removed you are from your immediate family. The harsh reality is that your immediate family are much more likely to remain loyal in good times and in bad times than nieces, nephews, cousins or in-laws. The unfortunate reality is that conventional business logic often does not apply when dealing with family businesses. It is important to realize that even when you do everything correctly that things still may not work out when dealing with family businesses.