Cofounding with Family: How to Avoid #AwkwardHolidayDinners

by Yvonne English

So, you’re going to start a business! Congrats! (Insert confetti here.) Assuming that you’re not going it alone, the next decision is whether or not you’re going to bring on a cofounder. Since you’re looking to partner with someone you trust and know well, it makes sense to choose a family member, right?

What if I told you that Noam Wasserman, a Harvard professor, researched 10,000 startups over a 10-year period and then…he wrote a book? (Wait…Harvard professor does research and writes a book? That’s a shocker.) In all seriousness, the real eye-opening conclusion with regard to socially connected founders was that, for each family tie that you add to a founding team, you increase something ominously called the HAZARD RATE (basically, the likelihood of a cofounder departing) by 28.6%? And you have to think that, when a cofounder departs under these circumstances, it’s not usually pretty.

Despite that fact and the practically universal belief that you shouldn’t do business with family, a lot of people decide to go into business with a family member. Why? The reason is that everyone believes that their familial relationship is different. It’s special. (“We’re not like everyone else!”) While I’m sure that your relationship is special in its own right, I need to refer you to a quote from one of my all-time favorite movies, When Harry Met Sally, “Everybody thinks they have good taste and a sense of humor but they couldn’t possibly all have good taste.” Are you willing to risk your special relationship?

Okay, you’re still reading despite a Harvard professor’s warning (Tough luck, Noam!) and a relevant witty movie quote, so I’m going to assume that you’re forging ahead. If you’re going to do this, allow me to provide you with a few words of advice.

Tip #1: Rethink doing business with your family member.

It was too easy. I really couldn’t resist.

Tip #2: Clearly Define Roles.

This is not a time to be shy. Have a long talk about what you’re each going to do. Create written job descriptions so that responsibilities are clearly defined. The more you are able to delineate roles, the more you decrease the likelihood of a misunderstanding occurring in the future. It’s also easier to get work done if everyone is on the same page with regard to who is doing what. Pro Tip: If the thought of having a long conversation about roles makes you uncomfortable, this is a red flag.

Tip #3: Build a Wall

Not a literal one…although, come to think of it, that might not hurt. (Ha!) The wall that I suggest here is a Chinese wall between your personal and business relationships. You need to create a safe space for your personal relationship. That means that you need to set aside sacred time where work issues are not discussed. No exceptions. You could choose a day of the week (“No Work Sundays”) or even a time of day (“No Work after 8:00 pm”). You must do this deliberately or your personal and business relationship will morph into a weird emotional Jabba the Hutt-like creature. Nobody wants that.

Tip #4: It’s all about the Process.

Define (again, in writing…notice the pattern here…) what happens if you disagree. Who has the final say? You may want to think about having a voluntary neutral advisor (or an advisory board) who can cast a tie-breaking vote. If one of you is clearly the majority owner, you may assume that this isn’t an issue, but, since you have the wrinkle of being related, the dynamics of your familial relationship will definitely affect expectations, so have this talk no matter what the equity split is.

Tip #5: Be Inclusive.

If you two aren’t the only ones involved in the venture, you need to go the extra mile to make everyone comfortable. Try to create a structure where everyone feels included. You and your family member have a super tight relationship (remember, you’re special!), and it’s easy to unintentionally exclude someone. When employees are involved, you should define reporting roles and have clear (dare I say “written”?!) conflict resolution policies to diffuse potential awkwardness due to perceived nepotism.

Tip #6: Start with the End in Mind

I know, your business relationship is going to be awesome. This belief is exactly why you’re an entrepreneur. However, you need to discuss what to do if the unthinkable happens, and the relationship and/or business suffers. You need to agree (now…not when it happens) on a plan of action if one of you decides to leave the company. This is uncomfortable. I’m basically telling you to get a pre-nup for your business, but this conversation (and subsequent written agreement) is vitally important. It might just save your relationship and/or your business. Be explicit about what happens to company shares, assets, etc. You can revise this agreement as time passes and your roles/contributions to the business change, but you absolutely need to have this discussion before any equity is assigned.

I’m not trying to scare you, and (confession time) the truth is that I have worked with my husband in the past, and, while it wasn’t easy at times, we love working together. When it works, it’s an amazing thing. However, I have seen many companies and families torn apart by misunderstandings and bad working relationships, so proceed with caution. Hopefully, the tips above can get you started on the right foot so that your family holidays are only awkward for the usual reasons.