10 Challenges for a Family-Owned Start Up Business

No start-up business is without challenges. But for family-owned start-ups, the owners must confront challenges differently. None of these challenges need prevent the business from succeeding. But they must be anticipated and considered carefully in order to put together a plan of action. Here are a few important issues that can arise.

Things are a bit too casual. We all love casual Friday. But for those who work remotely, every day is a casual day. And with some family-owned businesses, “casual” can go too far. The entire structure and culture of the business can become too informal. And the lack of clear policies, documentation, and defined objectives can interfere with progress.

Gaps in training. Informal company procedures can impact training, wherein workers are not adequately trained for their jobs.

The line between family and work life becomes blurred. It can be difficult for workers in general to leave home life at home. That problem is magnified when family members work together. For example, timely advice from a spouse or sibling may be not be forthcoming if they are involved in a family business disagreement.

Hiring pressure. Family-owned businesses are often pressured to hire more family members than is reasonable. This can become a liability when those without the proper education or experience want in on the action.

Capital sourcing challenges. When a business is kept strictly within the family, owners can struggle to gather the capital and resources required for growth.

Lack of diverse viewpoints. Family members often share experiences and viewpoints, and therefore hold a uniform vision of the business. On the surface this may seem like an advantage. However, this can also make them vulnerable to operating in a bubble.

Higher turnover in non-family staff. Workers may sense promotional preference for family members, or resent perceived laxity in rules for those employees. This can lead to a higher turnover rate than would otherwise be expected.

Misunderstandings over the value or division of the business. Various members of the business might hold differing opinions of the value of their contributions. This can result in disagreements over owner stakes, as well as compensation for labor and investment.

Unclear exit plans. What happens when one family member wants to move or retire? Other owners might assume that shares should be kept within the family. Expectations must be clearly communicated and set forth in legal documents.

Leadership and succession challenges. Leadership of the business will eventually change hands due to retirement or death of an owner. The details of succession should be ironed out ahead of time in order to prevent families from dissolving into heated debate or possible court action.

A skilled business planning attorney can help families identify, analyze, and solve these complicated issues before a problem arises. Contact our office for assistance, and we can help you ask and answer the challenging questions.

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Michael Kimball, Esq.

Mike Kimball offers practical, timely, and economical legal solutions that move projects along and allow you to focus more on your core business objectives. He has years of experience partnering with companies ranging from Silicon Valley startups to firms in aerospace, biotech, construction, and many more. Mike’s in-house experience includes Yahoo!, Krux Digital (acquired by Salesforce), and Commerce One. He has worked on transactions with Eurostar, Red Bull, Major League Baseball, NASDAQ, Goldman Sachs, Liveramp, Amazon, and NASCAR.