“It is an immutable law in business that words are words, explanations are explanations, promises are promises but only performance is reality.”Harold S. Geneen
Getting into business is like all other major decisions you have to make in life. Like all complicated decisions there are factors which tend to have a more pronounced impact on the decision. Going into business with friends and family is one of those factors. In my experience these tend to be a lot trickier than standard business agreements because they come with their own baggage. Over the years I have been adviced and have learned how to deal effectively with the issues that arise when you go into such a business venture. I hope this will be of some help to you if you are planning on getting into business as well. If there are any other factors which you think should be included in this list please let me know.
- Business Plan Development: Never fall into the trap of getting started with ‘just’ a business idea. Sure you have a greater level of trust with your business partner but that does not mean you would exclude putting down on paper what it is that you plan on achieving through this business. The process of putting down on paper what your idea is, clarifies it, identifies key areas which you need to work on and possible pitfalls you may face. This is a step which needs to be taken before you start any venture. To read more about business plan development please click here.
- Commitment Levels: With a business plan in place you will now be able to judge with greater certainty how much money, time and effort is going to be required by the business. You need to put down clear parameters at this stage as to what each partner is supposed to do. This level of commitment needs to be clarified from the start or you will have an unbalanced partnership which leads to a multitude of problems further down the line. To read more about how to set commitment levels please click here.
- Candor: Establish a culture where candour needs to be an integral part of the venture. The worst thing you can do for yourself and your business would be to keep all the things you want to say to yourself. This will lead to frustration, under performance and morale issues which can jeopardize the success of the business. A culture where you can be open, state your opinions and be comfortable will help you form a considerable competitive advantage and will enable your company to make difficult decisions with a lot more ease. To read more about candor please click here.
- Noise Levels: When you set to do business with friends/family you need to keep external noise levels under strict controls. Noise levels refers to the interference in the business by members of your family or friends. When we divulge too much information outside the core group it ultimately comes back to the core group in a completely changed form. This could lead to several problems between partners, frustrate the team and affect the overall morale. To learn more about how to keep noise levels at your company please click here.
- Equity Splits: This is an issue which is at the core of most problems which are faced by all companies but more so in businesses where friends and family are involved. We tend to be a lot more generous just because a business partner is a cousin, friend or relative. You need to correctly assess what the partners contribution will be and then use a simple model to figure out how much the partners stake is actually worth. To read more about the formula to calculate a fair equity split please click here.
Doing business is tough, especially when it involves family and friends. These couple of steps should provide a basis for a solid framework which would help you work through problems in a structured and fair manner. These steps should be taken as a frame of reference and can be adjusted for your actual scenario. If you require any advice or feedback please let me know and I will do my best to see if I could be of any assistance.