Will Your Family Fail You? 5 Rules for Becoming Successful Family Startup

October 17, 2013

11:00 am

Are all family-owned business bound to fail? It’s approximated that 70% of all family-owned businesses fail or are sold before moving on to the next generation. Why is that? Well, for one thing, the dynamics are certainly different, and relations are more than merely business, and one risks the possibility for spoiling family ties.

For Krista Morgan and dad, Bruce, they knew that starting a company together would come with certain good and bad consequences; yet, despite this, the two cofounded P2BInvestor, a social funding startup that provides crowdfunded receivables loans to growing businesses who need working capital.

In fact, Krista asserts that the most common startup advice that she completely disagrees with is this notion of starting a business with family. “There are challenges, but starting a business with my father has been a great decision. Having family to lean on when things [get] tough (as they did) [means] we [don’t] give up.”

P2BInvestor closed their Series A round in August, allowing them to take their site off beta. The company has been doing well, which could be attributed to the Morgans’ great working relationship – but the same can’t be said of all family-backed startups. So, how can you help your family startup survive? Follow this guideline:

1. This is a Business, So Treat It Like One

“Shareholders and investors [will] show concern that you’re too connected…they’ll show concerns of it being a ‘family business,'” says Krista. For P2BInvestor, the Morgans have managed to appease those concerns by truly treating their startup as any other business. To further this point, the two don’t hire anyone from within the family.

2. Divide Your Roles and Responsibilities

“When you start a company with your dad, he gets to be the CEO,” jokes Krista. At P2BInvestor, Krista serves as CMO, while her dad serves as CEO, with each responsible for various aspects of the business. Such a division of responsibility helps to avoid unnecessary conflicts.

3. Bring In People From the Outside

On the creative side, bringing in someone from the outside can help produce new ideas and a different perspective that can sometimes get lost in some family startups with founders with similar minds. It also provides an outsider look over the entire process. At P2BInvestor, former E*TRADE financial executive, Todd Mackay was brought on as a third cofounder.

4. Draw Clear Relationship Lines

“Not all people may feel comfortable working for a family business…they might treat you as one unit.” In order to prevent such an awkward situation with employees, it’s important to emphasize that each of you is your own unit, entitled to his or her own thoughts, opinions, and decisions.

5. Don’t Forget That This is Your Family

Always remember that – at the end of the day – you’re working with family. “[In a family-backed startup], there’s that level of trust that is unlike other startups.” No matter what happens in or with your startup, you’ll always have them around to support you.

P2BInvestor was recently featured at Tech Cocktail’s Denver Startup Showcase & Mixer during Denver Startup Week.


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Ronald Barba was the previous managing editor of Tech.Co. His primary story interests include industry trends, consumer-facing apps/products, the startup lifestyle, business ethics, diversity in tech, and what-is-this-bullsh*t things. Aside from writing about startups and entrepreneurship, Ronald is interested in 'Doctor Who', Murakami, 'The Mindy Project', and fried chicken. He is currently based in New York because he mistakenly studied philosophy in college and is now a "writer". Tweet @RonaldPBarba.

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