Two relatives as partners


8

I'm trying to get started with my business idea, but I'm looking for at least one partner. I've found one, who I know vaguely, but he wants his brother in too.

Although both seem competent enough, I'm a bit reluctant to work in a three way split scenario with two relatives possibly teaming up against me. It is a worst case scenario of course, goal is to get the business running, not to fight.

How do you feel about such a scenario?

Partner

asked Mar 17 '10 at 05:52
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User2387
111 points

5 Answers


14

The only thing worse than a friend for a partner is a relative. I was warned against it and ignored the advice. I paid dearly. I would never do it again.

answered Mar 17 '10 at 06:50
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Jane
256 points
  • +1 for Jane's advice. THIS IS A REALLY BAD IDEA. Why? Because it turns out that blood really is thicker than water - if there is any dispute between the three of you, the need not to wreck a family relationship on the part of the other two will override what's best for the business. THE ODDS OF THIS GOING NASTY FOR YOU ARE REALLY TOO HIGH. (I too have seen this in another context and didn't believe it until I saw it with my own eyes.) – Steve Wilkinson 9 years ago
  • Thanks for the advice. It is indeed risky, I know. – User2387 9 years ago
  • You would be begging them to gang up on you. – Tcolling 9 years ago
  • unknown - in my view it's not risky, it's foolhardy - if you do go ahead, I really hope by some miracle that it works out for you. – Steve Wilkinson 9 years ago
  • +1: You're also risking them bringing family politics and weird personal dynamics into the startup. Most big companies have rules against spouses working closely together, and the reasoning applies here. – Bob Murphy 8 years ago

5

You should be evaluating each partner on their own merits. It's great if your partner can find you another who is worthy, but you should determine on your own whether or not you want the third wheel.

This should also be a warning to you about working with this partner. You have not yet committed to him, and he's making possibly unreasonable demands of the business.

In regard to control, you don't have to split the company equally between the partners. It's your company alone initially, and then you make an offer to the partner. You can offer 10%. Or 50%. Or 90%. It's up to you to make the offer, and up to your potential partner to decide whether or not to accept it.

answered Mar 17 '10 at 06:02
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Elie
4,692 points
  • I agree, and I was also feeling that that were already a lot of demands to start with. On the other hand, he's right when he says that there will be more than enough work for three. And they will be putting most of the money on the table in exchange. – User2387 9 years ago
  • The money is irrelevant. – Alain Raynaud 8 years ago

1

I have had personal experience with this. In fact, continue to do so as my own relative is currently 'dead wood' in a startup I am trying to launch.

My advice on this would be simply don't do it. It helps not having your own relatives in so you do not lose a relationship and it also helps avoid any nasty situation where a relationship between the other partners does not backfire onto you. The existence of a familial relationship tends to sometimes also portray the wrong impression - that complacency is ok, which it is NOT in a startup serious about succeeding.

answered Apr 16 '11 at 10:03
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Rajive Jain
11 points

0

I was warned about the issues that arise when you do business with family and friends early on as well. I wrote a pretty detailed blog post about this that covers 5 major concerns that you should take into account when doing business with friends or family:

  • 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.
  • 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.
  • 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.
  • 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.
  • 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 each point please go to 5 Steps to Follow When Doing Business with Family or Friends.

answered Mar 18 '10 at 00:00
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Usman Sheikh
1,728 points
  • Thanks, this is a valuable overview. I've been through most of the steps, partner choice and equity splits seem to be the most difficult part. – User2387 9 years ago

0

The fact that you are not comfortable right now and you are asking for advice should be enough reason for you not to do this. Follow your gut.

answered Apr 17 '11 at 02:49
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Ricardo
4,815 points

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