By Kathryn Keefer
Inviting friends, neighbors, or family members to sit on your startup’s board can lead to several challenges, some of which might not be expected when going into business with familiar faces. It is important to recognize issues that may arise when working with someone you know personally, as it might guide you to look elsewhere for board members.
Diversify your board for broader perspectives and greater expertise.
As mentioned previously, diversifying your startup’s board of directors enhances the ability to solve problems and grow the business from unique perspectives. It is likely that people close to you (those who most likely share similar characteristics, experiences, or perspectives), could limit your board’s ability to brainstorm creatively. Further, family and friends may not come with the level of expertise or technical experience you might need to make your business successful.
Set clear boundaries to keep the board running smoothly.
Working with friends or family may seem ideal for some people but it can lead to issues both within a business and personal relationships. The boundary between a personal relationship and a business relationship can become blurred, which can lead to tension in both areas. Separating work issues and personal matters can be difficult, and it becomes even more challenging when your personal life and professional life are mixed together. It is crucial to establish and maintain boundaries when working with people you know to discourage business issues from affecting personal matters and vice versa.
Be selective with who gets to sit on the board to prevent power and influence from turning ugly.
Family members and close friends often assume informal influence over a startup. But once they hold a board seat, the relationship becomes governed by fiduciary duties, not feelings. Board conflicts that start as personal disagreements can rapidly turn into legal, financial, or reputational crises.
Learn from other founders' fallout stories.
Most founders have heard about the fallout between college roommates and best friends in the tech scene. While those are the stories that make headlines (and get turned into movies) because the companies are well-known, some other examples may hit closer to home and should be heeded as warnings.
Lifeway Foods started as a small, family-founded company. As it grew, multiple family members held leadership and board positions: the parents founded it, the daughter became CEO and board chair, the son held an executive role, and the mother remained deeply influential.
Eventually, disagreements over strategy and leadership escalated into a full-blown boardroom battle. A faction of the family tried to remove the CEO (their own daughter/sister), while others launched lawsuits alleging mismanagement and unfair control tactics. Major shareholders began choosing sides, and the company spent years entangled in costly internal warfare.
Family relationships often create the illusion of a unified vision. But once a business introduces money, power, and board votes, family loyalty can fracture quickly. When family members sit on the board, disagreements become legal disputes rather than dinner-table conversations and the company can be severely disrupted.
Baucom’s Nursery, a longstanding family business in North Carolina, is another example. Legal conflict erupted when members of the family accused others of fraud, misuse of funds, and abusing their positions on the board. Some family members believed they were being cut out of critical decisions. Others claimed that relatives were treating the business as a personal bank account.
This resulted in a sprawling lawsuit filled with allegations about improper board actions, lack of formal governance, and unclear expectations among relatives who believed they were all “owners” in different ways.
Disputes often begin when roles aren’t clarified early and can grow worse when people assume family ties grant them board influence. Without clearly defined governance and boundaries, even simple disagreements can escalate into allegations of fiduciary breaches.
Be choosy about what's best for your business.
Whether you decide to work with people you know or find qualified strangers, it is important to remain objective and set boundaries. Knowing someone personally can impact judgement and lead someone to hire a friend or family member even if they aren’t the best person for the job. Staying objective and thinking with the startup’s best interest in mind will help create a reliable and productive board of directors.