What are the pros and cons for starting a business with family?
Starting a business with your family members and friends can be exciting and full of advantages. It can also bring extra stress and potential problems down the road. Is it for you?
Keep reading to find out the real perks and disadvantages and why you should and shouldn’t do it.
The Ultimate Guide To Pitch Decks
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The Pros Of Starting A Business With Family
There are many advantages to this strategy. Here are just some of them.
1) Companions You Know On The Journey
Picking partners and cofounders is always a precipitous decision for entrepreneurs. Often the biggest risks come from getting into a business marriage with someone you don’t know that well.
Someone you haven’t lived with for years and really understand in terms of how they react under pressure, their real goals and values and talents.
Many startup entrepreneurs do end up moving in and sharing an apartment and meager meals together for years. You never really know if you are going to get a bride or groomzilla until after the honeymoon wears off.
The benefit of launching with family is that you already know them very well which is a critical factor when evaluating the pros and cons for starting a business with family. The good, bad and ugly. You know what drives them, what they are good at and how to get along.
This enables to you pick great companions to take the journey with you. This can make all the difference in how long you can hang in there.
As one of my recent guests on the Dealmakers Podcast put it, the best cofounders are those who make the highs twice as high, and the lows only half as low.
2) You Want Them To Benefit Financially When You Do
Naturally, you want your family to benefit financially as you are growing your startup and making millions of dollars.
It’s even better when they are putting in the work with you instead of just asking for handouts solely on the back of your hard work and risk.
3) Show Them What’s Possible
It’s ironic how entrepreneurs frequently doubt themselves when it comes to launching a startup of their own. Yet, they would encourage their friends and family members to go for it.
The thing is, words are cheap. People follow the example of what you do. Not what you say. So, if you want to inspire your family or friends to what’s possible, bring them along on your journey. That may be siblings, kids or even your parents.
4) Access To Capital
Friends and family should always be your first stop on the startup fundraising circuit. Otherwise, other potential investors are going to want to know why no one else you know or are related to believe in you enough to help finance you.
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Friends and family startup capital is obviously some of the easiest to get. You might barely need a pitch deck and a few minutes to win them over.
You’ll love seeing them benefit when things go well. When things are tough, they should be your most lenient lenders and shareholders.
The Cons Of Starting A Business With Family
There are some potential disadvantages to this strategy as well. Here are just some of them.
1) It Can Ruin Your Most Important Relationships
Your personal relationships with family and friends should always come first over money and business which should be at the top when balancing the pros and cons for starting a business with family.
That can get hard when you are in business together. Especially, when your business seems like it is failing or they just aren’t pulling their weight. Pointing fingers when things don’t turn out as expected is the typical thing.
As part of the pros and cons for starting a business with family kee in mind that business break ups can get ugly. You don’t want that happening with your brothers and sisters, kids or spouse.
Make sure you prioritize your personal relationship and agree you’ll still get along, even if this business doesn’t turn out how you expected.
2) Difficulty In Separating Business & Personal Time
Starting a business with your spouse or other family members can be the best thing you ever do. It can also add a lot of extra pressure on relationships.
In this scenario, you are always on. When you are in the office it is business. When you are at home it is a business.
Holidays and weekends can be consumed with business too. Be very intentional about protecting your personal time, unplugging and really enjoying each other. The business may not work out. Hopefully, your relationships will always be there.
3) Giving Up Too Much Too Early
Angel investors, VCs, and partners tend to take up a lot more equity and voting power than those who come in later. It’s not uncommon for family members to say they’ll just split the company 50/50 and rush in.
They forget to leave stocks for the employee option pool and for big investors later on. That can lead to a lot of dilution and arguments.
4) May Not Be Experienced In Business
Lastly, as part of the pros and cons for starting a business with family, remember that it can be great to bring your family and friends along on your business journey. Yet, it can be painful later if you’ve given up a lot of having this dead weight on your cap table.
This is especially true when they are not experienced in business, your industry or the roles you need to fill. All when you really need all the money and equity you can get to bring in top talent, advisors, and investors.
When thinking about pros and cons for starting a business with family, overall going into business with family and friends can be great but it can also be a complete disaster.
Regardless, know the pros and cons for starting a business with family. Get a handle on how to minimize the potential downside and increase the upside. Look at the big picture and protect both your future business and your personal relationships.
Remember that storytelling plays a key role in fundraising and you will need capital to scale things up. This is being able to capture the essence of the business in 15 to 20 slides. For a winning deck, take a look at the template created by Silicon Valley legend, Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.
Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.