Hiring Friends and Family

Q. My wife and I are starting to get our small business off of the ground. We need to hire someone to make the product we sell. We’re considering hiring a family member who we know can do the job. However, we’re concerned about having family in the business. Do you have any advice for how to make this work?

A. Many entrepreneurs hire friends and family. It’s an easy choice. These are people you know and if they need a job, it’s nice to be able to provide them with one.

However, we caution against this for two reasons. First, your business is your livelihood. You should hire the person who is best for the job. Perhaps that is a friend or family member, but often it isn’t. Second, the time may come when, for the good of your business, you have to make a decision that the friend or family member won’t like (for example, to terminate or layer the person). Unfortunately, we’ve seen this lead to damaged relationships that last a lifetime.

If you do decide to hire a friend or family member, we suggest that you follow the five tips below. They are good management practices with any employee, but they can also help you avoid having to make a decision that will alienate a friend or family member.

Don’t promote automatically – The best widget maker is not necessarily the best manufacturing manager. Too often, entrepreneurs hire a widget maker (let’s call him Uncle Fred). When a second widget maker is needed, he or she naturally reports to Uncle Fred because Fred is experienced at making widgets. If the business thrives, before long, Uncle Fred is managing a staff of widget makers―he has been automatically promoted. Unfortunately, if Uncle Fred doesn’t have the skill set to be a manager, you’ve got a problem. Make sure that promotions into management positions are explicit decisions, not unconscious progressions.

Assess employee’s skills early – Make a conscious decision regarding the ability of your first employees to grow into management positions within the organization. Make this assessment long before you need a manager. Don’t give people management responsibilities if they don’t have the skills to succeed.

Invest if appropriate – You may have an employee who you believe could develop the skills to manage with some training. This is a process. It’s not something that happens in a single seminar. Begin investing long before you need the employee to accept management responsibility. Give him or her opportunities to practice the new skills before being promoted. For example, give him or her responsibility for managing a taskforce or a special project and provide feedback on performance.

Keep salaries in line – One of the biggest problems we see occurs when employees who lack the skills to succeed as managers are promoted and their compensation is increased to match the job title. When such employees fail, the company is left with unattractive alternatives: (1) Let the failed manager continue to underperform (the worst possible choice for the enterprise, but one we see small businesses make too frequently). (2) Terminate the employee. (3) Demote the employee and reduce his or her compensation. (4) Demote the employee but allow him or her to keep the higher compensation. There are no good choices here. Which one is the “least bad” will depend on the situation. The decision is more difficult when the employee is a friend or family member. Our advice is to not raise a new manager’s compensation until he or she is succeeding in the new role.

Set expectations well in advance – Have candid conversations with employees about their aspirations and your perspective on their abilities. If you believe that an employee does not have the skills to become a manager, let him/her know that at some point you will be hiring a manager from the outside. Don’t let employees develop false expectations. It will only result in a disgruntled employee at some point in the future. Of course, if the disgruntled employee also sits at your Thanksgiving dinner table, so much the worse.

There are some real pitfalls associated with hiring friends and family members. If you decide to go in that direction, the tips above will help you avoid uncomfortable situations.