Business Myths Debunked: The Family Business -- by Nate Winter

America is in love with the idea of a family business. In one sense, the best way to learn and run an honest, successful business is to grow up in it. But it goes deeper than that.

The idea of a family business is almost a trademark of the American dream. Building something yourself is a sign of the self-sufficiency and rugged independence vital to the American consciousness. Working with your family members translates to family values, another big one for Americans. Throw in an apple pie and you've got a big old American cliché staring you right in the face.

The romantic aura surrounding family businesses harkens back to a simpler time before big corporations, shopping malls, and chain restaurants. The heart of America was in small towns and city neighborhoods—tightly knit communities where everybody knew and supported each other. We find comfort in that notion of America, which is precisely where the family business comes from.

And the family business always starts small—- America loves that. Having been the David that beat Goliath in the Revolutionary War, America loves to root for the little guy, the under dog, Rudy. This leads us to the crux of the American Dream: people who work hard can make their own success. The family business is a powerful manifestation of this idea.

But, above all else, the family business is about closeness. A family working together to succeed can't help but be extremely close. It usually indicates that the younger generation respects its elders and maintains the strong morals they've been taught. This, again, is extremely reassuring that the traditional values America espouses are alive at well.

But, despite all these heart-warming emotional associations with family businesses, they are simply a bad idea. Speaking purely from a business perspective, a family business is dangerous because it mixes business and pleasure. The emotional interests of family present an inherent conflict to the rational, logical sense it takes to run a business. Making business decisions with regular, non-family employees is difficult enough. Adding an extremely personal and unavoidable family dynamic into the mix can make things even worse.

It can cause undue toleration of under-performing employees. Aging executives might not be as competent as they were in years passed and young employees might lack the responsibility or dedication necessary to perform adequately. To do what's best for the business would be to let these employees go if their performance doesn't meet acceptable standards. However, the emotional motivations of family might allow an incompetent older employee to continue working for fear of hurting his pride or to keep a careless younger employee in an attempt to teach her responsibility. In a large company, these employees wouldn't be tolerated, however family businesses tend to be small and run informally. This means there is no outside pressure (say from investors) to tighten up the ship.

There are myriad other conflicts that could arise based on a family business from power struggles to mistrust to complete dissolution of the company. However, boiled down to the heart of the matter, a family business makes critical business decisions difficult, which compromises the optimal functioning of the business.

While this inherent conflict comes as little surprise, the promise of a family business remains a siren song for a handful of cultural reasons. Resist it if you can, or work with family at your own peril.

-- Nate Winter