There’s a long-held saying that entrepreneurs should never do business with friends and family. As the founder of a business community that’s built on the value of professional but informal relationships, I strongly disagree with this statement.
New research now supports the idea that informal connections can be good for business. A report from the Economist’s Intelligence Unit found connections made via informal communities or activities are a more important form of support for entrepreneurs than incubators, accelerators and government agencies.
The research suggests new business owners rate informal meet-ups and virtual communities over other factors in overcoming challenges, including lack of finance and dealing with fear of failure.
As an entrepreneur, there is power in connecting with peers from a variety of backgrounds who genuinely empathise with your situation and can provide advice and feedback on a wide range of topics.
There are clearly also many benefits in doing business with someone who shares the same passion and understands your challenges and vision. Frankly, business owners are more open to accepting advice from those who not only have ‘been there done that’ experience, but who are genuinely sympathetic to their cause.
The following guidelines can help ensure business owners profit from doing business with friends.
1. Resist the urge to work for free
In the early stages of running a business, cashflow can be scarce and bartering, or trading goods and services instead of money, is common. However, while working for ‘mate’s rates’ or for free can seem an attractive short term option, in the long term it can get very messy and has the potential to derail professional and personal relationships. Regardless if the transaction is financial or otherwise, it’s important that any partnership provides real value to both parties and that clear expectations and boundaries are set around the business relationship.
2. Get it in writing
It’s important that any professional partnership, with a family member, friend or otherwise, is clearly documented. Building contracts and partnership agreements into your existing business systems and making signing a formal document ‘just another step in the process’ can help remove any awkwardness around the situation.
3. Communication is key
Communication is important in any relationship. Sometimes friends try hard to avoid conflict or confrontation around a business problem, but letting a conflict simmer in the background has the potential to erode your relationship and damage your organisation. Building clear expectations around the frequency and format of communication and updates and determining how you will manage conflict at the start of the partnership is crucial in guaranteeing success.
Any new relationship, professional or personal, involves an element of risk. However, doing business with someone who you not only admire professionally but also genuinely like is worth the investment.
You can help us (and help yourself)
Small and medium businesses and startups have never needed credible, independent journalism and information more than now.
That’s our job at SmartCompany: to keep you informed with the news, interviews and analysis you need to manage your way through this unprecedented crisis.
Now, there’s a way you can help us keep doing this: by becoming a SmartCompany supporter.
Even a small contribution will help us to keep doing the journalism that keeps Australia’s entrepreneurs informed.