Inside Jobs

What's the hidden cost of hiring relatives as suppliers or advisors? Family feuds.

Your uncle's family has a real estate business, and you've got a family business that needs to expand its quarters. Should you hire the relatives to be your brokers?

You and your cousin start a business together. Because capital is at a premium, you use your father, an accountant, to do your books; your aunt, a public relations specialist, for marketing advice; and your sister, a Wharton grad, to help you create a business plan. What could be better than intelligent and loving help that's freely given?

Your family owns a successful restaurant, but it doesn't have room to absorb all the siblings, nieces, nephews and cousins who'd like to work there.Some members of the family branch off and form their own bakery, hoping to supply restaurants in the city with breads and cakes. Should you hire them to supply your establishment with baked goods?

Contracting with family members to provide services for your company sounds like a great deal. You're working with people who care deeply about you and whom you can count on to give you the best rates. You're also helping kin--without having to put them on the payroll.

"Chances are it won't work out," warns Leslie Dashew, a family business advisor and head of The Human Side of Enterprise, an Atlanta organizational development consulting firm specializing in family-run businesses. The biggest problem? Underperformance, says Dashew. You may pay less for goods or services if you're a relative, but as a result, you may not get the same service as a client that pays full price. If you don't, it's hard to complain to kin, so you may have to swallow the annoyance, which builds up resentment, or put it on the table, which can jeopardize your personal relationship. On the other hand, if you pay full-market rates for the family member's products or services, you might end up wondering if it's really worth it.

Hiring your family members as consultants or suppliers is different from hiring them as employees. As employees working for the same company, you're all pulling in the same direction. You all want your company to prosper because everyone benefits. Family members working in other companies have different priorities, however. They're worried about their own businesses, not yours.

Patricia Schiff Estess writes family business histories and is the author of two books: Managing Alternative Work Arrangements (Crisp Publishing) and Money Advice for Your Successful Remarriage (Betterway Press).

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This article was originally published in the May 1999 print edition of Entrepreneur with the headline: Inside Jobs.

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