Wednesday, 8 November 2017

Why one should not do business with friends or relatives?

Economic recessions creates accidental entrepreneurs and self employment due to large scale job losses. Technological advancements and the changing economic landscape makes it easier for friends and relatives (including family members) to launch business ventures with minimal experience and financial resources. Just because people have the resources to launch a business does not mean that they should. Even with innovation and increased accessibility, the worlds of commerce and industry remain extremely difficult to conquer. Multiple factors can undermine a fledgling business and ruin relationships between friends and relatives.
  1. Friendship does not translate into business compatibility.
    It is tempting to believe that your existing relationship will easily translate into a successful commercial union. This is rarely the case even as people with similar values and philosophies may not share the same approach to completing various business tasks. This creates conflicts 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 relatives rarely plan for worst case scenarios.
    Between friends and relatives who have unsuccessfully attempted to launch a business, one of the key issues is a lack of communication. Friends and relatives rarely 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 / relationship in the event of failure.
  3. It can be difficult to create clearly defined business roles.
    The majority of friendships / relationships are formed organically with no predetermined roles or structural hierarchies. In business, it always requires one partner to take an authoritative leading role, which can create imbalance in an existing friendship / relationship and ultimately cause unrest. There may be a tendency among friends / relatives to avoid this entirely, but this exposes the business to a critical lack of leadership.
  4. Your business goals may differ from those of your partner.
    Your motivation for launching a business may differ to that of your friend or relative. While you may aim to realize the long-term goal of launching a business, your partner may want 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 which can trigger arguments, undermine business growth and compromise friendships.
  5. The price of failure is far higher
    An estimated 50% of all small businesses fail during their first 24 months. Such failure comes at a considerable cost to small-business owners, although this is restricted to financial losses. For those who partner with a friend or relative, 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
    In business, each partner may be required to invest some of their personal capital, which in turn creates a financial arrangement that binds two friends / relatives in a legal contract. A single act of negligence or irresponsible behavior by one can impact heavily on their partner. If you consider the financial cost of such personal injury that arise as a result of carelessness, 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 friends and relatives, you are placing an incredible strain on both your personal and professional time. Booking holidays or taking breaks can be particularly difficult, that expose business to a lack of leadership at a critical juncture. Unless you have a trusted employee who can hold the fort 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.
    There may be many reasons for you to choose to launch a business venture with a partner, benefiting from an influx of capital is 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 friends and relatives is an entirely different entity, as you may be drawing capital from a more restricted source and placing a greater strain on your finances.
  9. Friends and relatives 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 relative. Since your share of equity is limited, 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 override good business sense.
    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.
    Honesty should be the bedrock for any successful and meaningful friendship  but it can be hard to administer a frank and withering appraisal of those closest to you. This can cause a significant issue when friends and relatives partner in business. 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 relationships.
  12. Relationship breakdowns can divide families and friendship groups.
    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.
  13. Relationships can suffer even when the business venture succeeds.
    There is a strong possibility that relationships can also crumble if a venture proves to be successful. 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 can change significantly and to meet new challenges partners must be flexible with suitable response. This can create significant inequity within a relationship especially if one partner is forced to carry greater responsibility without reward. If a business requires additional investment but one member of the partnership has fallen on hard times the other will need to fulfill this financial commitment without gaining any additional equity causing considerable resentment and create a huge divide between once close allies.
  15. Business may not always be a priority.
    Changing personal circumstances, like marriage or parenthood, can alter our priorities and force us to spread our time more thinly making it harder to prioritize a business venture that has already been established with a friend or relative. Even if partners have entered into an prior 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.

Don't do business with friends rather do friendship with businessmen.

More than anything, envy and jealousy among people is the primary pulling down factor in any relationship. More so in India lacking resources, education and ethics. Hypocrisy i.e. inconsistency between thinking, speaking and actions also contributes to problems & failures.

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