I am taking the course Founders’ Dilemmas at Harvard Business School this fall. We covered a number of items from equity splits to founders agreements, but the topic that was most insightful for me personally thus far has been ‘doing business with friends and family’.
The book Founder’s Dilemmas by Noam Wasserman suggests you do not go into business with family and friends as they are statistically less successful and more prone to conflict, but I am interested in how to make it work. With 90% of U.S. businesses being family owned, there are success stories. Also having a network of talented family and friends I trust and would love to work with in the future, I was motivated to identify best practices for success. Here are a few I identified:
1. Schedule standing feedback sessions
Standing meetings where you and your family or friend can candidly share what is going well and what can be better is key. Repeatedly in the cases when issues initially arose family members and friends let the tension steadily build over time, skirting major major issues until it was too much to bear. In the ProLab case, the CEO and founder worked with her husband and the tension eroded the working relationship between her and her co-founder and led to the end of their working relationship, marriage, and almost the end of ProLab. Having repeated time set aside to air thoughts and concerns could have helped course correct early on.
2. Establish a clear chain of command
Reflecting back on the ProLab case one major area of tension was that her husband felt he was the co-founders boss, because his wife was the majority shareholder. The tension caused the co-founder, who was critical to the operations, to distance herself from her CEO counterpart which compromised the business. Making clear chains of command and established practices for reporting issues as they arise could have saved some headache.
3. Separate reporting where necessary
The founders of intelligent.ly and Smarterer, Sarah Hodges and Dave Balter, joined the class and shared their insight on working together while being in a relationship. They said when both partners are in sync it establishes an powerful and unmatched creative dynamic, but when there is tension at work, it caused repeated challenges personally and professionally. To address this challenge, they make sure they don’t report to one another and give each other autonomy to lead in their respective areas, which has created a successful working dynamic.
4. Create work | life boundaries
This was a tricky topic. Continuing from the conversations with Sarah and Dave, they said it was inevitable that personal and professional conversations overlap. They both loved their work and believed to not share it at home or expect that one area is not going to effect the other is unrealistic. Also the CEO of ProLab, Hillary Mallow, created ‘time’ boundaries for when her and her husband would talk about work and when they would not, but stated that she ‘lost something’ in the transition. When they were in separate jobs work discussions were a key part of their day and sharing in their relationship. Boundaries are important, but change in dynamics is inevitable.
5. Discuss why, when, and how each person would exit
In Smarterer and ProLab one of the spouses eventually left the business before the other. For Smarterer it was a expected and planned. In ProLab, Hillary’s husband was fired (by her). In either case it is natural for people to join or leave a start-up according to the needs of the company, and this should be a topic of discussion early on that will save escalated pain later.
6. Set expectations
When friends and family work together, they need to understand the reality. It is a job. In the Savage Beast case (Pandona), founder Tim Westergren, hired many of his friends to work for him. This was a positive when he was running out of cash to fund the business and people stuck around, but a negative when he had to face the reality that some people needed to be laid off. This tension lead to him being sued and eventually having to lay off many employees when it was far too late. Communicating clear expectations for roles and responsibilities and acknowledging that
…start-ups are risky, no matter who they choose to do them with…
comes with the territory.