Tag Archives: Friends

Is It Wrong to Hire Family Members? Six Considerations

Situation: A small but very profitable business was founded and has been run for two generations as a family-owned and operated business. To boost performance, the CEO hired a general manager with a good background who is not a family member. The general manager has told the CEO that he feels that there are too many family members in the business. The CEO likes hiring people she trusts, particularly friends and family that she has known for a long time. Is it wrong to hire family members?

Advice from the CEOs:

  • Don’t try to change what you’ve already done – plan for the future.
  • Acknowledge the GM’s idea. Tell him that you appreciate his suggestions. Suggest that he test hiring more non-family members to cover one of your low risk market segments. Measure the performance of this team versus the other teams within the business.
  • The challenge with family members is accountability and objectivity. The question for the family owners is whether they have the freedom to act in the interests of the company. Can they put family ties aside when someone is not serving the interests of the company?
  • The essential question for the family that owns the business is – what do you want to maximize? If it’s loyalty and longevity – keeping the family together, employed and in harmony – they can be good. If it’s profits and performance – family and friends can be difficult if emotional ties cloud business objectivity.
  • The upside to family is loyalty and trust. That said, family and extended family friends are different. The latter don’t have the same ties or sense of loyalty.
  • Can you keep employees for too long? Yes. Make sure that you evaluate all employees every year. Establish job and performance standards and make sure that all employees – family and non-family – are held to the same performance expectations.

Do You Need To Rely on Venture Capital Funding? Three Questions

Interview with Charles Bellavia, CEO, ElectraDrive

Situation: High tech entrepreneurs frequently see venture capital funding as a quick route to enabling their ventures. However VC funding is highly variable by tech sector and company cash needs, and few companies are ever funded. Do you need to rely on VC funding and what are the alternatives?

Advice from Charles Bellavia:

  • The first question to ask is what you want from VCs. In the past they brought both contacts and funding. Now, generally, they just bring funding. So ask three questions.
  • Can you fund the company out of your own pocket?
    • Far more companies are funded by founders, friends and families than by VCs. However self-funding demands conditions.
    • Cofounders should have alternate income sources so that they can operate without salaries for periods of time.
    • Watch the life stages of start-up cofounders. Avoid joining a start-up when your kids need your attention, especially during their teen years. Can you forgo regular income if you are paying for college? If an annual 2-week summer vacation is important, don’t join a start-up.
  •  What is the minimum funding needed for the company?
    • What funding do you need just to prove your technology and generate cash?
    • Focus is key. People will suggest variations. You have to know your path and whether variations will help or distract.
    • Stay with your core idea and think in terms of product generations. Build fitting variations into future plans if they will delay initial launch.
  •  How do you keep project workers motivated?
    • Plan for turnover. Know who is key to the project, and where you need back-ups.
    • Start-up life is all consuming. When the picture on the wall is crooked, everyone jumps to straighten it out.
    • Have fun and make it fun. This needn’t be expensive, like parking lot pot-luck barbeques with a CD deck and music.
    • Be generous with simple, low cost recognition. Acknowledge employees for who they are and where they came from. This is especially important when you have diverse employees and builds camaraderie. One company has pot luck lunches and employees are asked to bring their national dish; the food is wonderful and helps employees to appreciate one another.

You can contact Charles Bellavia at cfb@electradrive.net

Key Words: Funding, Venture Capital, VC, Bootstrap, Self-fund, Friends, Family, Income, Salary, Founder, Life Stage, Focus, Core, Iteration, Turnover, Fun, Recognition