Thinking of going into business with your siblings?

Family-owned businesses are common across the globe. Parents run businesses with their children or hand them over to children - sometimes siblings even choose to go into a business together. For these sibling-owned businesses, success depends not only on the product or service being delivered, but also largely on the existing relationships between them.

Family-owned businesses have existed since humanity first started working for goods or money, but they have been recognised as different from those owned and managed by non-family members. A growing body of research on family-owned businesses has been undertaken both in the US and Europe, and recently in South Africa.

Some years ago, Nelson Mandela Metropolitan University established a Family Business Unit to research South African family businesses, and one of its co-founders, Prof. Shelley Farrington, has conducted in-depth research into sibling-owned businesses.

After interviewing almost 400 siblings in sibling-owned businesses across the country, Farrington found that there were certain conditions that need to be met if siblings are to work together successfully. These include having complementary skills and also supporting each other, but there are other psychological factors that are far less obvious.

For instance, the older sibling - who is typically the childhood leader - will not necessarily be the best boss in business. Farrington herself is involved in a business with her two brothers, Andre and Charl. It is Charl, the younger brother, who has emerged as the leader, even though Andre was the uncontested childhood leader whom the other two followed unquestionably. Charl's position as leader in the business has introduced a new dynamic in the sibling hierarchy.

If you’re going into business with siblings, don’t expect their character traits to magically change. Someone who is lazy won’t suddenly become productive; someone who is rigid won’t become flexible overnight. And if you’ve never had a good relationship with your siblings, don’t think this will change when you go into business together.

Farrington notes that the impact of good parenting and a happy and stable childhood cannot be underestimated when it comes to the success of a sibling-owned business. If children are never taught how to handle conflict in childhood, they won’t be able to do so in a business environment later on.

What’s more, if parents involved in a family business are always the arbitrators between their children, problems may arise when the parents die or step down. In some cases, businesses collapse after parents leave and siblings have to deal directly with one another.

Fairness is a huge factor in a sibling-owned business, especially in the areas of workload and compensation. Fairness influences everything, from financial performance to the growth of the business, and job satisfaction.

Should spouses of siblings get involved? Farrington suggests preferably not, as family businesses tend to run better when spouses keep their distance. The same can be said of non-active sibling shareholders.

However, one factor key to sibling success is the involvement of non-family members. In most cases this forces sibling business partners to be more professional. Farrington notes that before the involvement of non-family members in her family business, meetings were usually on Sundays with kids on laps. After employing an outsider, they had an agenda and took notes.

Battles fought in the playpen may end up in the boardroom. This is especially true in businesses owned and managed by siblings. So before you go into business with a sibling, think long and hard about whether you will work well together, because if things turn sour, your personal relationship could suffer.

Prof. Farrington’s research has identified the following factors that spell success for a sibling-run business: Develop complementary skills; each with their own area of expertise over which each sibling has authority.

The leader should be the one who is knowledgeable, involved and a visionary; not necessarily the oldest.

A shared dream about where the business is going. Nurture a relationship based on trust, respect and open communication.

Play fair, especially with workload and compensation.

Get a few non-family members on board and keep the involvement of spouses and non-active sibling shareholders to a minimum, if at all. Non-family members positively influence business performance. The others have the opposite effect.

And like with any other successful business, siblings should ensure working conditions are adequate and suitable and not just “make do” because it’s family.

Take note of these factors and aim to work them into your arrangement to give your venture the best chance of success.

Paul Leonard is regional head at Citadel.

This article originally appeared in the 7 July edition of finweek. Buy and download the magazine here.