By: Joshua Finley
Starting a business with close friends or family can sound like a perfect setup: you’re working alongside the people you know, who you trust to have your back. However, while this approach has undeniable benefits, it also brings unique challenges that can make or break both the business and the relationships involved. Family businesses account for about 30% of all companies in the U.S., according to the U.S. Census Bureau, and the model is both popular and highly influential in the economy. But what are the pros and cons of diving into business with those closest to you?
Michael A. Scarpati, CEO of RetireUS, has experienced firsthand the unique dynamics of running a business with friends and family. Building RetireUS with people he grew up with, Scarpati believes that close relationships are a foundation for a strong, resilient company. “Building RetireUS with people I love and genuinely enjoy spending time with makes even the toughest days feel less like work and more like living the American dream,” he says. But he’s also clear that maintaining these relationships requires a thoughtful approach to business and personal boundaries.
The Benefits of Family Bonds in Business
One of the most significant advantages of working with family or friends is the strong foundation of trust. According to a survey from KPMG, 77% of family businesses feel that their relationships are a distinct competitive advantage, especially when it comes to decision-making and long-term vision. With family members or close friends, trust is often a given, reducing the risk of hidden agendas and fostering open communication. “When your teammates are people you trust deeply, it makes those difficult conversations easier to navigate,” Scarpati explains.
Loyalty is another benefit. Unlike many traditional work settings where employees may leave for better offers, family members or close friends often feel a greater responsibility to stick with the business during challenging times. This shared loyalty can be invaluable, especially in the early years of a startup, where persistence and dedication are key. Data from the Conway Center for Family Business reports that family-owned businesses are nearly twice as likely to survive their first five years compared to non-family-owned businesses.
A strong bond among team members can also lead to a supportive work culture that benefits both employees and clients. For Scarpati, the shared mission of building something meaningful with friends has created a unique workplace environment at RetireUS. “Problem-solving with your best friends doesn’t feel like a task; it’s an opportunity to collaborate and create something meaningful together,” he notes. Clients often appreciate the authentic, family-centered culture, which reflects how the business operates and treats its customers.
The Drawbacks and Potential Pitfalls
However, mixing business with personal relationships isn’t without risks. One common challenge is the blurring of boundaries between professional and personal life. Arguments in the office can spill over into family gatherings, and personal conflicts can creep into business discussions. Studies have shown that family-run businesses often face difficulties balancing professional disagreements with maintaining family harmony. A PwC study found that 43% of family businesses report issues separating business and family roles, leading to confusion and tension.
Financial challenges are another potential pitfall. Money complicates even the closest relationships, and financial struggles within a family business can have lasting effects. If the business faces financial hardship, all parties involved may experience losses that could impact their personal lives. It’s essential to have clear financial agreements in place, including salaries, roles, and equity, to prevent potential misunderstandings. Scarpati emphasizes the importance of establishing open communication and setting boundaries to avoid common traps. “Define roles and respect each other’s perspectives from the start,” he advises.
Tips for a Successful Family Business
Starting a business with family or friends requires unique strategies to ensure both professional and personal success. First, it is crucial to set up formal agreements for everything from salary to decision-making authority. Without this structure, even small misunderstandings can grow into larger issues. Additionally, a clear exit strategy is wise; it lets everyone involved know what to expect if someone decides to leave the business.
Another key recommendation is to work with an external advisor. According to a study by the Family Firm Institute, family businesses that work with outside consultants have a higher success rate, as third-party advisors bring objectivity and expertise to the table. They can help keep family members accountable and offer neutral solutions during conflicts.
The Bottom Line
While building a business with family or friends has its challenges, it also has immense potential for success. The foundation of trust and shared loyalty that comes with close relationships can create a powerful work culture, and a family-oriented approach can be particularly appealing in local communities.
Scarpati’s advice is simple for those considering starting a family or friend-founded business: “It’s about more than success; it’s about building something special with people that you love.” In the end, a family-based approach to business may just be the missing link to a thriving, resilient company, but only if approached with both heart and strategy.
Published by: Josh Tatunay
