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15 Reasons Why You Should Not Start Businesses with Friends

15 Reasons Why You Should Not Start Businesses with Friends

In the wake of the great recession, a generation of so-called ‘accidental entrepreneurs’ emerged and revolutionized the small business environment. This has triggered a gradual evolution in the workplace, which may result in an estimated 40% of the U.S. workforce alone being self-employed by the year 2020. Alongside the age of technological advancement, the changing economic landscape has made it easier than ever for friends and family to launch business ventures with minimal experience and financial resources.

However, just because people have the resources to launch a business does not mean that they should. Despite innovation and increased accessibility, the worlds of commerce and industry remain extremely difficult to conquer. From fluctuating financial markets and unique commodities such as gold to industry competition, there are multiple factors that can undermine a fledgling business and ruin a pre-existing relationship between friends and family members.

With this in mind, here are 15 compelling reasons why you should avoid starting a business with friends and family members: –

1. Friendship Does Not Translate into Business Compatibility

When starting a business venture with a friend or beloved family member, it is tempting to believe that your existing relationship will easily translate into a successful commercial union.

This is rarely the case, however, as even people with similar values and philosophies may not share the same approach to completing various business tasks. This can create significant conflict when establishing a business model or cultivating a company culture, which in turn has the potential to undermine even the most durable of relationships.

2. Friends and Family Rarely Plan for Worst Case Scenarios

U.S. attorney Mark J. Kohler specialises in disputes which unfold between friends and family members who have unsuccessfully attempted to launch a business. His advice is therefore extremely worthwhile, and he identifies one of the key issues is a lack of communication between aspiring business partners.

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More specifically, he advises friends and family members to consider all potential worst-case scenarios in detail before making a fixed commitment, so that they can develop viable contingency plans and prepare their friendship in the event of failure.

3. It Can be Difficult to Create Clearly Defined Business roles

The majority of friendships are formed organically, which means that there are no predetermined roles or structural hierarchies. The same cannot be said for business partnerships, which are forged by choice and constructed to include individual roles and responsibilities. This almost always requires one partner to take an authoritative, leading role, which can create imbalance in an existing friendship and ultimately cause unrest.

There may be a tendency among friends and family members to avoid this entirely, but this may expose the business to a critical lack of leadership.

4. Your Business Goals May Differ from Those of Your Partner

On a similar note, your motivation for launching a business may differ to that of your friend or family member. For example, while you may aim to realize the long-term goal of launching a successful business, your partner may want nothing more than to earn some additional money to supplement their existing income. This is entirely opposed to the foundation of commercial partnerships, which should be formed from a common goal and fixed business aspirations.

Such a gap in expectations can be devastating, as it can trigger arguments, undermine business growth and compromise friendships.

5. The Price of Failure is Far Higher

According to industry statistics and successful entrepreneur Theo Paphitis, an estimated 50% of all small businesses fail during their first 24 months of trading. Such failure often comes at a considerable cost to small-business owners, although this is often restricted to financial losses.

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For those who partner with a friend or family member, however, the failure of a business venture can create a strain that even established relationships are unable to cope with. This means that the cost of failure is even higher, as it can compromise both your personal and professional lives.

6. Financial Arrangements and Friendships Make for Uneasy Bed fellows

There is an old adage which suggests that you should never lend friends or family members’ money, and the same principle can be applied to launching a business venture. This is because each partner may be required to invest some of their personal capital into funding the venture, which in turn creates a financial arrangement that binds two friends in a legal contract. The issue with this is obvious, as a single act of negligence or irresponsible behavior by one individual can impact heavily on their partner.

If you consider the financial cost of successful personal injury claims that arise as a result of carelessness, for example, it is easy to see why friends should avoid funding a joint business venture.

7. You May Struggle to Plan Holiday’s and Breaks Away

Whenever you start an independent business with a beloved family member, you are placing an incredible strain on both your personal and professional time. Booking holidays or breaks away together in the sun can be particularly difficult, as this may expose your business to a lack of leadership at a critical juncture. Unless you have a trusted employee who can hold the ford and lead strategically in your absence, you may need to stagger your holidays and take separate breaks.

8. You Will Place a Huge Strain on Your Finances

While there are many reasons that you may choose to launch a business venture with a partner, benefiting from an influx of capital is one of the most prominent.

The cost of establishing a business can be considerable, so it is natural to share this financial burden with a trusted partner who can also add experience, strength and leadership. Starting a business with an immediate family member is an entirely different entity, however, as you may be drawing capital from a more restricted source and placing a greater strain on your finances.

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9. Friends and Family Business Ventures Usually Lack Expertise

Aside from the ability to provide an initial investment, a carefully selected, independent business partner can also bring considerable expertise and experience to your venture. You may need to compromise on this when partnering with a friend or family member, however, as there is a limited share of equity and it is important to retain the incentive to succeed. By sacrificing invaluable business knowledge, you could enter the marketplace without the necessary tools to succeed.

10. Emotions Can Often Override Good Business Sense

While the national divorce rate in the UK is set to decline thanks partially to the dwindling popularity of marriage, it is still estimated that 42% of all marital unions will end in divorce. This underlines the challenges facing married couples in 2015, especially when you consider the financial pressures caused by rising property prices and stagnating earnings.

The same principle can be applied to familiar business partners who are emotionally invested in one another, as periods of hardship can damage the relationship and cause both parties to act irrationally. It is therefore easy for emotions to override sound business sense, and this can quickly sound the death knell for any commercial venture.

11. It Can be Hard to Appraise Your Partner’s Performance

While honesty should be the bedrock for any successful and meaningful friendship, it can be hard to administer a frank and withering appraisal of those closest to you.

According to Wayne Rivers, who is the President of the Family Business Institute, this can cause a significant issue when friends and family members partner in business. More specifically, it often leaves faults unaddressed and causes operational issues to continue longer than they should. While third party assessments can be sourced and paid for, the potential impact of negative criticism can still damage existing relationships.

12. Relationship Breakdowns can Divide Entire Families and Friendship Groups

While we have discussed the impact that a failed business can have on the relationship between friends and family members, it is important to consider the consequences once conflict has begun to take hold. The fall-out between two family members or close friends can trigger huge divides, and cause even the tightest-knit of groups to splinter and form rival factions. This can lead to an ongoing and acrimonious dispute that involves multiple parties, while leaving a family or friendship group in tatters.

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13. Relationships Can Suffer Even When the Business Venture Succeeds

Entrepreneur and Moz founder Rand Fishkin has some interesting opinions on the partnership of friends or family members in a business environment. He claims that while relationships are likely to suffer under the pressure of a failing business, there is also a strong possibility that they will also crumble if a venture proves to be successful. After all, the relentless pursuit of success can take its toll in a competitive market, and attainment can also change each individual’s outlook and create distance within a relationship.

14. Changing Circumstances can upset the Equilibrium of any Partnership

Over time, the market that your business operates in can change significantly. So too can your personal and financial circumstances, meaning that new challenges must be met with a flexible and suitable response. This can create significant inequity within a relationship, however, especially if one partner is suddenly forced to carry greater responsibility without reward.

If a business requires additional investment but one member of the partnership has fallen on hard times, for example, the other will need to fulfill this financial commitment without gaining any additional equity. This can cause considerable resentment and create a huge divide between once close allies.

15. The Business May Not Always be a Priority

Similarly, changing personal circumstances can alter our priorities and force us to spread our time more thinly. The advent of marriage or parenthood consumes a great deal of time, making it far harder to prioritize a business venture that has already been established with a friend or family member. Even if two partners have entered into an agreement with the same outlook and goals, these can quickly change in the face or rearranged priorities.

This situation can also occur gradually over time, leaving businesses exposed and left to decline without direct action being taken.

Featured photo credit: Paul Inckles / Flickr via flickr.com

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Last Updated on June 18, 2019

5 Types of Leadership Styles (And Which Is Best for You)

5 Types of Leadership Styles (And Which Is Best for You)

It takes great leadership skills to build great teams.

The best leaders have distinctive leadership styles and are not afraid to make the difficult decisions. They course-correct when mistakes happen, manage the egos of team members and set performance standards that are constantly being met and improved upon.

With a population of more than 327 million, there are literally scores of leadership styles in the world today. In this article, I will talk about the most common leadership styles and how you can determine which works best for you.

5 Types of Leadership Styles

I will focus on 5 common styles that I’ve encountered in my career: democratic, autocratic, transformational, transactional and laissez-faire leadership.

The Democratic Style

The democratic style seeks collaboration and consensus. Team members are a part of decision-making processes and communication flows up, down and across the organizational chart.

The democratic style is collaborative. Author and motivational speaker Simon Sinek is an example of a leader who appears to have a democratic leadership style.

    The Autocratic Style

    The autocratic style, on the other hand, centers the preferences, comfort and direction of the organization’s leader. In many instances, the leader makes decisions without soliciting agreement or input from their team.

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    The autocratic style is not appropriate in all situations at all times, but it can be especially useful in certain careers, such as military service, and in certain instances, such as times of crisis. Steve Jobs was said to have had an autocratic leadership style.

    While the democratic style seeks consensus, the autocratic style is less interested in consensus and more interested in adherence to orders. The latter advises what needs to be done and expects close adherence to orders.

      The Transformational Style

      Transformational leaders drive change. They are either brought into organizations to turn things around, restore profitability or improve the culture.

      Alternatively, transformational leaders may have a vision for what customers, stakeholders or constituents may need in the future and work to achieve those goals. They are change agents who are focused on the future.

      Examples of transformational leader are Oprah and Robert C. Smith, the billionaire hedge fund manager who has offered to pay off the student loan debt of the entire 2019 graduating class of Morehouse College.

        The Transactional Style

        Transactional leaders further the immediate agenda. They are concerned about accomplishing a task and doing what they’ve said they’d do. They are less interested in changing the status quo and more focused on ensuring that people do the specific task they have been hired to do.

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        The transactional leadership style is centered on short-term planning. This style can stifle creativity and keep employees stuck in their present roles.

        The Laissez-Faire Style

        The fifth common leadership style is laissez-faire, where team members are invited to help lead the organization.

        In companies with a laissez-faire leadership style, the management structure tends to be flat, meaning it lacks hierarchy. With laissez-faire leadership, team members might wonder who the final decision maker is or can complain about a lack of leadership, which can translate to lack of direction.

        Which Leadership Style do You Practice?

        You can learn a lot about your leadership style by observing your family of origin and your formative working experiences.

        Whether you realize it, from the time you were born up until the time you went to school, you were receiving information on how to lead yourself and others. From the way your parents and siblings interacted with one another, to unspoken and spoken communication norms, you were a sponge for learning what constitutes leadership.

        The same is true of our formative work experiences. When I started my communications career, I worked for a faith-based organization and then a labor union. The style of communication varied from one organization to the other. The leadership required to be successful in each organization was also miles apart. At Lutheran social services, we used language such as “supporting people in need.” At the labor union, we used language such as “supporting the leadership of workers” as they fought for what they needed.

        Many in the media were more than happy to accept my pitch calls when I worked for the faith-based organization, but the same was not true when I worked for a labor union. The quest for media attention that was fair and balanced became more difficult and my approach and style changed from being light-hearted to being more direct with the labor union.

        I didn’t realize the impact those experiences had on how I thought about my leadership until much later in my career.

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        In my early experience, it was not uncommon for team members to have direct, brash and tough conversations with one another as a matter of course. It was the norm, not the exception. I learned to challenge people, boldly state my desires and preferences, and give tough feedback, but I didn’t account for the actions of others fit for me, as a black woman. I didn’t account for gender biases and racial biases.

        What worked well for my white male bosses, did not work well for me as an African American woman. People experienced my directness as being rude and insensitive. While I needed to be more forceful in advancing the organization’s agenda when I worked for labor, that style did not bode well for faith-based social justice organizations who wanted to use the love of Christ to challenge injustice.

        Whereas I received feedback that I needed to develop more gravitas in the workplace when I worked for labor, when I worked for other organizations after the labor union, I was often told to dial it back. This taught me two important lessons about leadership:

        1. Context Matters

        Your leadership style must adjust to each workplace you are employed. The challenges and norms of an organization will shape your leadership style significantly.

        2. Not All Leadership Styles Are Appropriate for the Teams You’re Leading

        When I worked on political campaigns, we worked nonstop. We started at dawn and worked late into the evening. I couldn’t expect that level of round-the-clock work for people at the average nonprofit. Not only couldn’t I expect it, it was actually unhealthy. My habit of consistently waking up at 4 am to work was profoundly unhealthy for me and harmful for the teams I was leading.

        As life coach and spiritual healer Iyanla Vanzant has said,

        “We learn a lot from what is seen, sensed and shared.”

        The message I was sending to my team was ‘I will value you if you work the way that I work, and if you respond to my 4 am, 5 am and 6 am emails.’ I was essentially telling my employees that I expect you to follow my process and practice.

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        As I advanced in my career and began managing more people, I questioned everything I thought I knew about leadership. It was tough. What worked for me in one professional setting did not work in other settings. What worked at one phase of my life didn’t necessarily serve me at later stages.

        When I began managing millennials, I learned that while committed to the work, they had active interests and passions outside of the office. They were not willing to abandon their lives and happiness for the work, regardless of how fulfilling it might have been.

        The Way Forward

        To be an effective leader, you must know yourself incredibly well. You must be self-reflective and also receptive to feedback.

        As fellow Lifehack contributor Mike Bundrant wrote in the article 10 Essential Leadership Qualities That Make a Great Leader:

        “Those who lead must understand human nature, and they start by fully understanding themselves…They know their strengths, and are equally aware of their weaknesses and thus understand the need for team work and the sharing of responsibility.”

        The way to determine your leadership style is to get to know yourself and to be mindful of the feedback you receive from others. Think about the leadership lessons that were seen, sensed and shared in your family of origin. Then think about what feels right for you. Where do you gravitate and what do you tend to avoid in the context of leadership styles?

        If you are really stuck, think about using a personality assessment to shed light on your work patterns and preferences.

        Finally, the path for determining your leadership style is to think about not only what you need, or what your company values, but also what your team needs. They will give you cues on what works for them and you need to respond accordingly.

        Leadership requires flexibility and attentiveness. Contrary to unrealistic notions of leadership, being a leader is less about being served and more about being of service.

        More About Leadership

        Featured photo credit: Unsplash via unsplash.com

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