Should my first business deal be with family?

[gabeb1920]

I know that most people will reply with a simple 'no' just from the heading but please hear me out. Here is my situation:

I live in Sydney Australia working a 9-5 as a system administrator at a local hospital. I've been learning programming on the side for the last few years with plans of changing jobs to become a software developer. Recently I've been considering pursuing my own online business of some kind and have had an opportunity present itself. I'd just like a bit of advice if that's ok.

My father-in-law has a engineering/hardware physical store which was quite successful a few decades ago but has now declined to the stage where it is barely profitable. He has been trying to sell it for the last 1-2 years with little interest due to the declining resource sector and a complete lack of advertising. (There could be other factors but as I am completely ignorant of business I'm not sure.) Also note that he is over 60 years old and his business partner is his uncle who is 90 and still comes in every day to work!

A couple of weeks ago he asked me on a whim about building a website to attract customers to the business. I said it'd be a good idea but that it might be costly to hire someone. I didn't say I could do it as at the time I didn't feel confident that I could do it justice. However after reading some things on these forums as well as other sites I think I could fairly easily build a Shopify site for the business and do some basic SEO to bring both in-store customers and some online sales.

One important note is that they currently don't do any postage sales currently so all their business is in-store. If we pursue online sales we'll obviously need to set that up the delivery as part of the business process.

I'm planning to present this to him as a low/no risk venture as the business is fairly cash strapped from what I know. I'm thinking that I'll sell it to him that I'll pay to get the site setup and monthly costs so there's no initial outlay for him. I'll make the money back by asking for 50% of profits from any sales made online. I'm also thinking of offering some sort of special which customers can bring in-store if they've seen the website and I'll take 50% of the profit from those sales too.

I'll leave all the postage aspects to the business but we'll obviously add postage costs to the order via the online store. This will really be all the extra work the business will have to take on.

I figure that we'll run it as a 6 month trial and re-evaluate then. If things are going well then I might take-over on a monthly fee for some SEO work/website updating. I'll need to make sure that my agreement is with the business as if the business is sold then the new owners will need to respect the arrangement.

Oh and also there's a pretty good chance that when they do sell the business will close as the buyers might only want the land/storefront.

Wow! Sorry about the long post! Anyway, here are my questions:

1) Do you think this business model is worth pursuing? Creating online stores for local small businesses? If this goes well I can imagine that my father-in-law would have a lot of referrals as he's pretty well known in the local area.

2) Are the risks of the business closing and the risks of working with family too great? I haven't discussed these ideas with him yet so there's the risk that he'll agree but not be too enthusiastic about it so I'll be forever waiting on him to provide content. Could be other issues?

3) Is the idea of me fronting up the costs for a 50% take of the profit from sales an ok idea? Having never done this before I'm not sure and would appreciate any advice

As a final note I'm at the very least going to talk with him about this as there's no risk to at least talking!

This will also be good practice for me in negotiating with clients and actually building an online store so I'm kinda ok with fronting all the costs even if I don't make any money from the site, though I would be disappointed if I didn't make anything. Is it too naive to think that I'd make some profit from my first online business project?

Anyway I'll leave it here. Please let me know your thoughts as I'm very very new to all this and am always trying to learn/improve. Any help is appreciated!

Cheers

Gabriel

 

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[hughjasle]

I can only say what I'd do.

I'd do it for free.

That is, if they even care to do it. Don't push it on them. Family is tricky to work with. Can't just cut ties, or - don't want to just cut ties when things go south.

I have and continue to help family members with my expertise and skills for free... because they are family.

Especially when just starting out. Do it for free and learn the process THEN you can confidently go forward and get business knowing how to do it.

just my .02

 

[Time]

I agree with @hughjasle about doing it for free and learning the process. And yes, family is tricky to work with.

Don't underestimate the amount of work you will render though, you might be disappointed how short 6-months especially if you do it alone and from scratch, or if you don't plan to do it full-time.

 

[gabeb1920]

Thanks @Time and @hughjasle for your replies.

Seems the consensus is to do it for free or perhaps not even at all with family and just pursue genuine business clients instead.

Thanks for the advice

Cheers

 

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[AgainstAllOdds]

Agree with those above. You don't have a skillset yet to market. However, it's not a bad thing to ask for a percentage once things get going.

Also, shipping can be easily automated with fulfillment centers. Look up http://shipwire.com. They have a center in Sydney.

 

[Justin Gesso]

I don't necessarily think dealing with family is a bad idea. If you are honest and transparent about your work, and you believe your father-in-law would be too, that's okay. Many people operate in an environment where friends and family are a key part of the equation. I work with friends and family regularly. We already have trust and a great relationship, so if they need my service and I can provide it at a good value, then great for everyone.

A couple of examples: I have my real estate license and my parents want to sell their house. If we have a good relationship, why wouldn't I be the one to do it? If a friend wants to get their great idea published on the internet, and I can effectively help with that, why not me?

And same goes vice-versa, if I know the right guy to get the job done, I go with the person I already know and trust.

I would just recommend hashing out the business relationship upfront as best as possible. You can also insert a statement into your agreement such that either of you can pull the rip-cord at any time, no hard feelings. But hopefully that doesn't come up and you can both grow your businesses better together.

 

[Kung Fu Steve]

Thanks @Time and @hughjasle for your replies.

Seems the consensus is to do it for free or perhaps not even at all with family and just pursue genuine business clients instead.

Thanks for the advice

Cheers

Either do it all out or don't do it at all. Nothing strains relationships (family or otherwise) more than promising something and not coming through.

This is a great opportunity to learn business by growing the family shop. But without knowing you (and just by reading a couple silly sentences on the internet) the only conclusion I can come to is that you have 0 experience in doing this (not necessarily a bad thing), but less than half-committed to the idea.

And anytime you're 99% committed to something, you will fail. And in this particular case, you failing means you'll be penalized by damaging the family relationships.

 

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[Jeremy Groover]

There are a few things that throw up a red flag.

-Pulling 50% out of every online sale. What I suggest to make this more appealing to you father-in-law is you should have to meet a quota at first. Say that you wont start pulling profit for you until you reach $X,XXX amount each month. Or say you will use the first $X,XXX amount to up keep the website and then after a further amount you will start getting paid. This will not only allow him to expand more rapidly, he will also be more likely to support the idea.

-"I'm also thinking of offering some sort of special which customers can bring in-store if they've seen the website and I'll take 50% of the profit from those sales too." Are you saying that the offer will be 50% off of profit for the customer or you will take 50% of profit as a commission? You should never disclose what your profit margin is. This will entice people to go find a better deal where they think you aren't making so much off of them.

-On the same subject as the above bullet- Don't be so quick to discount yourself. Just because they see a website doesn't mean they should get paid for it. The website is a convenience, leave it at that. You don't have to throw around free money to get people to buy from you. Maybe offer the product on the site for a small % cheaper and then make the money back up in the chipping cost. That is a physiological way of having your cake and eating it too. They think they are getting a good deal, and you still win without them losing. That is a WIN-WIN situation.

-Trial for 6 months. If you going to do this then stick it out. After the website is setup how much could it really cost to keep it going for a small 1 store show? $100.00 a month? This will take months to even get this setup. Professional pictures need to be taken of the merchandise or at least stock manufacturer pictures are needed. Not to mention everything else that will be needed. I suggest maybe having some window clings made for the store front and some fliers that go in every customers bag to promote the website.

-If he has it on the market and you have "no control", I personally would not waste my time. I would never start a project like that for a company that has been up for sale for 2 years and you dont know if the next owner will keep the business or use the land. What I suggest doing is talking to him to turn this into a residual income for both of you. Ask him to take the business off the market, convince him to see what you can do. Maybe don't pull any profit for 6mo-1yr then get some sort of agreement (IN WRITING) on what you expect in return. Re-establish the business, hire someone to work there. Let your Father-in-law and his brother enjoy there older years. You all collect the benefits. If you already have an established business at your fingertips, either get it to a position where you will make a killing in a short amount of time or let it rake in the pennies for a long period of time while you wont on other thing. OUTSOURCE OUTSOURCE OUTSOURCE. Don't be afraid to hire someone to work the store and the website. Oversee the process from time to time and let the money work for you.


My $0.02

 

[gabeb1920]

Thanks again for all the feedback, it's really helpful to get some different opinions

@AgainstAllOdds - You're partially right about not really having a skill set. Or rather I partially have a skill set to market. I have built websites before but never a commerce site and I haven't actually done any paid work for website development. I guess I just got a little too drawn in by the thought of money but you're right. I should just learn from this to start with and not think about the money.

@Justin Gesso - Good advice as well. Family can work but I do think it is more complicated with family than other cases. Definitely want to hash out the plan first!

@Kung Fu Steve - Again you are partially right, I have some experience with building websites but zero with ecommerce sites and zero getting paid for it.
In fact zero with any effort to run my own business! The whole idea of getting customers, figuring out prices or hell even coming up with an idea have me scared to death!
As you said this is an opportunity that has presented itself in an area where I have some expertise while also helping with the family business. Other than this opportunity I don't really have concrete ideas for a side hustle.
And I deliberately said 'side hustle'. I have a 9-5 which I like well enough and I'm not in a position financially to make the leap to full-time entrepreneurship, besides which I'm still trying to find a business to pursue! Is it possible to be 100% committed while not devoting 100% of my time?
I don't feel committed because I'm not sure it's a good idea. That's why I'm here asking the question!

@Jeremy Groover - Thanks for breaking down the business model ideas. Even if I don't pursue the idea with the family business it's still good to know if the business model/idea is any good.

• I like the first suggestion about having a quota first. Less risk for the business that way.
• The idea with the vouchers was so that we could attribute the sales to the website. Because some customers wouldn't order online but may be prompted to visit in-store after seeing the site it'd be good to have a way to measure the full impact of the website and not just through the online sales. The percentage was that I was thinking I'd charge the business 50% of the profit from all sales which could be attributed to the website, both online and in-store sales coming from the site.
• The trial for 6 months comes from the lack of commitment as @Kung Fu Steve pointed out. As I mentioned above as well I don't have any experience building an ecommerce website so I'm not really sure how long it would take. Good points about the need for good quality photos of the items for sale.
• I think this is a big reason for my lack of commitment. I don't even know for sure if my father in law wants this done or if it was just a spur of the moment kind of thing! Perhaps the idea of using the business name and setting up a completely online business which outsources the delivery might be something to consider. Though I'm not sure if the kind of equipment they sell would be popular enough online to be worth it. I'm guessing this would mean 'key word research'. I haven't done this before but would be good to learn how. Do you know of any good reseources to learn how to determine the online viability of a product?

Thanks again for all the great advice!

Cheers

 

[Time]

I was on the same situation but maybe slightly better, as my close relative agreed to pay my bills for a year to quit my job.
I built everything from scratch(e-commerce, sync inventory, mobile app, SEO, social media marketing) by myself as the brick-and-mortar business is situated in a developing country. No bigcommerce, shopify, etc.
I had my crazy amount of hairs pulled and all-nighters from the experience. But I am so damn happy, very rich in foresight as of today and percentage in sales.
Did the business became profitable after a year or so? not really or maybe, not even. For another years to come? I highly think so. As I already built the foundation.
Best decision I've made in my whole life.

Hope I gave you a useful information and best luck on your decision!

 

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[Jon L]

Here's another thing to consider: there's a reason why the shop has been in decline for so long. That reason may be something that you're completely unaware of. Here's a list of potentials:

*people are stealing from the company
*owners have a fatalistic/negative attitude and its slowly driving away employees and customers
*not the right mix of products for the area
*shop is not kept up enough to continue to attract customers
*people are going elsewhere to buy their goods - major big-box retailers, online, etc.

likely, its some combination of the above and other things I haven't thought to include in the list. If each factor brings down the company by 1-2 percent per year, over the course of time, you have a mess.

Remodeling the Bridge of a sinking ship is an exercise in frustration. Building a website for a failing company where the owners don't care enough to truly investigate and change what's going on in order to turn things around...is not a good idea.

It sounds like you're trying to save the company with this website. I wouldn't do it.

If this website were part of an overall strategy to turn the store around, then that's a different story. But, before you get involved with something like that, you need to see that your family is committed to the business itself. (merely showing up for work is not commitment)