The definition[1] of Nepotism is considered to be when people with power or influence favour relatives or friends, especially by giving them jobs or promoting them. But isn’t it how many start-ups commence?

When founding a company, cash is tight and the ability to attract talent is limited. Founders don’t have room for recruitment mistakes and the fit of every new employee is imperative for success. Hence, it is only natural that they try and find friends as their co-founders and reduce the risk by hiring friends and family members as their first employees. However, after capital raise and as part of the scaling up process, this practice, that might make life easier and safer at the start, can become a risk for future success.

 The practice of hiring friends and family members ensures that we recruit and promote those that are like us. We have a lot in common, which makes it easier, but it also means reducing the diversity of thinking and cognitive diversity. At later stages, it can create some cultural issues and affect loyalty, engagement and talent retainment. So, let’s break this down and look at when it is safe to hire friends and family members and how to avoid the risks it brings with it.

 When hiring friends/family is good for the start-up

  • Finding the right co-founder is crucial. It is not only about the hard skills that each founder brings to the business but ensuring that the co-founders can work together and build a high performing team. Approaching friends and family, means that the founders probably already have a good idea of what their strengths are and how they get along.
  • After raising initial capital (from family, friends and angels), recruiting the first few employees is a difficult task as well. You often don’t have enough money to pay competitive salaries, you don’t have a reputation of a “cool” employer yet, you don’t have posh offices with beers and food and taking a position with a small start-up can be considered as a big risk. The number of candidates that are interested in the job is smaller and founders often feel they have no choices, but to compromise on skills. If already compromising, why take the risk of bringing someone you don’t know?  It is safer to take someone that you already have personal relationships with, that you trust. Family and friends are more likely to also understand the cash flow constraints and won’t ask for increases or leave you easily when they gain experience and become competitive in the employment market.

When hiring friends/family risk the business

  • Hiring people like us, means risk falling into group think. Even when initially it looks like each friend brings different approached the table, the great relationships unconsciously can cause us to tend to agree or avoid conflicts in order to maintain the relationships.
  • Throughout life, we are exposed to many people and select those we feel close to. We collect our friendship group at school, university, sports and other interests. This means that our friendship group tends to have lots in common- such as age, interests, academic background, gender and culture. Recruiting our friends means that unintentionally we surround our team with limited cognitive diversity, which is at the basis of innovation. And what about potential clients? You want your team to be able to understand the needs of your diverse potential clients. Cognitive diversity is not just nice to have; it is a must! It is a core ingredient for successfully scaling up.

Once your team has passed the stage of recruiting the first handful of team members, continuing with the practice of bringing friends and family members can cause a cultural fraction of the team.

Past the initial stage, even if you don’t mean it, even if you recruited or promoted the best-suited candidate, others may perceive it as nepotism. Trust issues can arise and turnover of talent can begin. After all, they perceive it as nepotism, which means that for them (and their career path within the start-up) there is a glass ceiling. Why work hard above and beyond if there is no promotion or clear future for them?

With nepotism there are two important points to remember:

  1. It is not about your intention, but about how it is perceived by the team
  2. Regaining trust after it is breached by perceived nepotism is extremely difficult

So, what should you do?

  • Check that the team has a diversity of thinking and use techniques to avoid group thinking as part of the decision-making processes.
  • Make a conscious decision when the time would be to start recruiting talent from outside your network.
  • When recruiting the first employee out of your network, acknowledge and be open about the current relationships.
  • Be INCLUSIVE and allow everyone to influence in meetings and take part of the decision making. Be careful from influences of individuals outside meetings.
  • Pay a careful attention to the start-ups’ culture of transparency, inclusiveness and look for feedback about what “you don’t want to hear” and why you are wrong, rather than why you are right.

If you are a founder or employee that has experienced similar situations, I’d be very interested to hear and learn about your experiences and what worked and what didn’t work for you and the organisation.