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.