Don’t Start A Business With Your Family

Many times, startup entrepreneurs consider drawing the startup team from their friends and family.  This is only natural because these are close contacts in their social circle.  However, we recommend, based on our experience: don’t start a business with your family.


There are many reasons for this that we have seen in our practice as investors and as members of startup teams ourselves.  One of the most common is that it is very difficult for family members to keep their relationships separate and distinct. What we mean by this is that it is very challenging to compartmentalize family issues and keep these completely separate from the business.  When the business goes well it may positively affect families, and when the business goes poorly this may also affect families.  Further team dysfunctions related to long held family grudges, issues that are bygone / don’t relate to the business, and other social considerations may make the business go poorly. 

 

 

If you remember, we claimed previously that approximately 65% of businesses that do poorly do so because of team dynamics.  In our experience this percentage is higher in businesses started by families.  Team dysfunctions seem to be magnified and can be challenging.  This end of the spectrum includes the fact that sometimes teams composed of relatives have too much baggage to discuss and so may be mired in both old family politics and history.

 

On the opposite of the spectrum, it can be difficult for teams of relatives to discuss those unmentionable issues that affect the business.  If one family member has an alcohol issue or another family member has childcare issues, or if someone just isn’t putting the time in that is required, these things can become hard to discuss and may go unmentioned.  The same difficulties with discussing things beyond the scope of the business can arise from not discussing certain topics that do relate to the business because of family dynamic issues.

 

Starting a business with family seems to decrease the probability that the business will take off. Importantly, most startups do, in fact, not succeed.  Approximately two thirds of startups don’t go on to be successful going considerations.  Given the fact that two thirds of startups don’t make it, and two thirds of the ones that fail do so for team considerations, I would say it is setting up both family and business for failure when we attempt to start a business with family as doing so seems to only increase the risk of failure overall.  Of course, as with all things, there are exceptions to these broad rules. However, I would say those should be recognized as exceptions.  It is worthwhile to think carefully, at the very least, before moving ahead with family.

 

How did we learn this lesson?  Well I will share with you that we made the mistake of starting business with family members early on.  Worst of all, we knew the data about starting a business with family members and we did it anyway thinking that our family was somehow the exception.  We were wrong.  We did this on two occasions and, as usual, we invite you to learn from our experience with this blog rather that having to repeat our experience yourself.  This saves you time, energy and capital.

 

Have you ever started a business with family?  How did it turn out?  We are always interested to have lively discussions about your experiences with startups and innovative business models particularly as they related to startup teams.   Let us know more in the comments field.

Thought Leadership Has An Upside And A Downside

A thought leader is similar to a bellwether:  it is a person who is sort of a leader of the pack.  They are people who are often at the forefront of a movement or a set of ideas.  It is important to realize, though, that being a thought leader has upside but also has downside risks.  For example, the cutting edge idea that you may espouse may not make it to prime time.  Being at the forefront of your field has a lot of benefits and it’s important to recognize the downside risks of you possibly getting behind an idea that fails spectacularly.

 

How does one become a thought leader?  A thought leader is often someone who represents a non -consensus viewpoint.  Note the key elements of this include that they represent this idea or cutting-edge thought.  They need, in short, an audience.  Finding and growing an audience is one of the biggest challenges of becoming a thought leader.

 

In healthcare, particularly Surgery, there are many mechanisms in which to do this.  In Trauma and Emergency Surgery, for example, giving talks at professional meetings, participating in committees within professional organizations such as the Eastern Association of the Surgery for Trauma (similar national trauma surgical society), or networking via online communities can help you establish yourself as a thought leader.  Other routes include social media visibility, and yet another includes publishing papers in journals or even becoming an editor for a journal.  These are just some of the ways to be at the forefront of research in trauma and emergency surgery, and in healthcare being at the forefront of research is often equated with being a thought leader.  However, these are not the only ways in which you can become a thought leader.  You can even provide consultant work to hospital service lines, be the messenger or proponent of an idea that is already in existence or basically establish your name and reputation as someone at the forefront of the field.

 

As mentioned, one of the other important elements of becoming a thought leader is representing a non-consensus viewpoint.  That is, if every speaker represents the same view point it is unlikely that anyone will be perceived as a leader.  Looking at a problem or issue in a new way, focusing on an issue that is common to people in the field, and clearly representing this non-consensus viewpoint in a non-confrontational way can help establish you as a thought leader.  Representing a unique viewpoint makes being a thought leader very different than just being an expert on some topic.

 

In our angel investment practice, one criterion on which we evaluate new potential business models is the presence of a non-consensus viewpoint.  We are interested in a team that thinks the market, or a solution to some issue a consumer has, is going in a different direction than what many others think.  They need solid data (experiential or otherwise) to substantiate their claim.  If a business team demonstrates a non -onsensus viewpoint that has sustainable competitive advantage, that is it, the position can be protected, established, and grown, the idea is much more attractive.  Clint Korver, from Ulu Ventures, also described the search for non-consensus viewpoint in a recent online course on NovoEd.com entitled Venture Capital 101.

 

In short, being a thought leader requires multiple facets including finding and reaching an audience with your unique, non-consensus viewpoint in a non-confrontational way that demonstrates the utility of this non-consensus viewpoint. Having a novel or interesting viewpoint on a topic that doesn’t matter about which you can tell no one is exactly the opposite of becoming a thought leader.  In business model innovation, becoming a thought leader can have significant utility as you look to influence stakeholders to get on board with your business model.  Representing a non-consensus viewpoint in an effective way can help propel you into a position where you are much more likely to get funding for your business model or be looked up in your field as an important thought leader. Such a visible position has a strong upside yet also has downside risk.

Scalability Is A Key Concept For Your Business

One of the most challenging elements in business model innovation is the concept of scalability.  When the team and I evaluate new business model ideas, one of the parameters on which we evaluate them is scalability.  Scalability is the term attached to how easily the business grows up as its inflow grows.

 

As a general rule, service-intensive companies are tougher to scale up.  An example of a service-intensive company may be one, for example, that is contingent on the individual talent / professional knowledge of some core team member such that replicating that position in the business model is difficult.  Specific examples include a law firm, physician’s office, or an architectural drafting company.  When the initial team member, let’s say a physician in this case, becomes busier with administrative tasks as the company grows, it is difficult to replicate that physician’s participation in providing the actual service that the company is meant to do.  So, issues with scalability arise.

 

Said differently, it is much harder to scale businesses that are services in part owing to the reason that an individual team member’s talent provides the core for the business.  Usually when we find a business model where scalability is a challenge or when we design a new business model that is a service, we focus, intentionally, on ways to make the business more scalable.  Some of these include planning for the volume of business at which we will add employees or independent contractors to be able to provide the service as the initial team member becomes progressively busier with administrative work.  It can become very difficult if we wait for a team member to be overloaded before offloading tasks from them, and so a clear discussion about how to scale up, at the onset of the business, is useful.

 

We usually say that an issue with scaling up is one of the “good problems to have” because it indicates the business is growing and the model is likely reaching a customer need / market.  So when we perceive issues with scaling we try to remind ourselves that this set of issues is better than the set of issues where no one is buying the product or service.

 

Non-service business opportunities maybe much more easily scalable.  A model that sells an online info product, for example, may be much easier to scale.  A recent online search for examples of highly scalable models revealed www.providerlifestyleexperts.com as a nice example.  Startups that focus on a website for sales are often contingent on band width, server speed and other issues such as those.  Where scalability is more dependent on technology things maybe scaled easier.  This is not to say that it is straightforward to scale business models that have inventory associated with them.

 

Business models where an object is built or an object has value added to it and is then sold can also be very challenging.  CEO’s such as Tim Cook from Apple and Jeff Bezos from Amazon are masters at logistics and this highlights the importance of those functions in a modern business model that wants to scale up.

 

When you have an idea for a new business it should be fairly clear by now that much more goes into a successful idea than having a good idea.  A good idea is key to success but there is much more around it that makes the idea move forward in a sustainable fashion.  In later posts we will discuss more on typical factors that are associated with the business success or failure.  (FYI The “we” seems to be creeping into the blog a lot.  That is because sometimes, here, I’m speaking for our team of investors and “startup mechanics”.) Interestingly there is a great deal of research, much of which is statistically rigorous, about what makes successful startups across multiple different industries.  These have always been a personal interest of mine and I look forward to sharing those with you in future blog post.