All in the family

Some of the biggest brands in the world economy began as family businesses, and many of them are still run by a boardroom of brothers and sisters.

“Never work with friends or family.” It’s one of the most repeated adages in business. Working with people you know or are related to is considered unhealthy. It’s not good to mix work and family. It will destroy relationships.

I disagree.

Some of the biggest brands in the world economy began as family businesses, and many of them are still run by a boardroom of brothers and sisters. Steuart Walton serves on the board of Walmart, founded by his grandfather Sam Walton in 1962. Steuart’s father Jim, the world’s 17th wealthiest person, and his uncle John were both board members. The family of BMW founder Günther Quandt still owns 46% of the company. Brian Roberts, the Chairman and CEO of Comcast, is the son of its founder Ralph J. Roberts, and several family members work at the company. Bill Ford is the Executive Chairman of the iconic car company founded by Henry Ford more than a century ago. The Agnelli family still own large parts of the Fiat company founded by Giovanni Agnelli in 1899.

The list goes on. Family-run businesses are the backbone of the US economy and those of many other countries. In Japan, the 15 largest family-owned businesses generated turnover of $144 billion in 2020 and employed more than half a million people. Takenaka Corp., the oldest, was founded in 1610.

A recent survey by the Grand Valley State University found there are 5.5 million family businesses in the US, accounting for more than half of the country’s GDP and employing nearly two-thirds of the national workforce. According to studies reviewed by Grand Valley’s Family Owned Business Institute, family businesses contribute at least 70 percent of global GDP and outperform non-family businesses in the US and Europe. The institute also found that 85 percent of startups worldwide are established with family money.

Secret sauce

People and relationships are the secret sauce of the startup economy. In the tech world, particularly in an ecosystem as small and interconnected as Israel’s, there is rarely more than a single degree of separation between anyone. At any tech event, or business meeting, it is usually harder to find people you don’t know than those you do.

Much worse than people you know are those you don’t. The startup world is teeming with smart, ambitious talent – but a few of them, sadly, are jerks. The most effective way I know to filter out problematic people is by getting to know them and building relationships before you take them on – not afterwards, when it may be too late. The best way to do that, I have found, is to hire people you already know to be talented, competent and good to be with.

It turns out that I have built a 40-year career in high tech based on friends and family. I want to credit my father, the late Dr David Medved, who invited me to join his fiber-optic startup when I was fresh out of UC Berkeley. Together, we built a family business and sold it. He taught me that as you meet people during your career you nurture relationships and, when the time comes, you invite the right people to join you on the journey.

As we expand our headcount at OurCrowd toward 300, I take great comfort in looking around the room and seeing people I have known or worked with for decades. They include colleagues from previous companies, and several CEOs of startups I previously invested in who are now helping to manage our startup portfolio and our investors. I invested in their companies because I valued their expertise. Why wouldn’t I hire such talented people?

Recruitment filter

Of course, we also employ staff I am not personally acquainted with. But the senior executives at OurCrowd who I didn’t know before – and who I am delighted to have on my team now – were rarely strangers to everyone in the building. Most of them came to us through personal networks and connections with other people in the company, a recruitment filter that acts as a useful tool in weeding out people problems.

When you are managing other people’s money, and investing in young companies that provide livelihoods to thousands of employees, you must be able to rely on the people to whom you entrust the supervision of those assets. Knowing those people for a long time is the best way to be sure that you can trust their stewardship.

Some of my biggest misses have occurred when I listened to the old adage and did not invest in companies started by friends. The worst mistake I have made was not to follow a portfolio approach based on people. If you have a friend or someone you’ve worked with and they come up with an idea and you’re not crazy about it and you pass – that can be a big mistake. The person is the important part. The business can always pivot if it doesn’t take off. You might be wrong about the idea. If you feel right about the person, you should go for it.

I like working with friends and family. It reduces conflict, increases confidence, and helps us all sleep better at night.