If you are true start-up with no capital, most likely you can only afford to hire friends and family. There are a few reasons for this:

1. You need people you can trust.
2. You don’t have the money to hire experienced people.
3. Friends or family are the only people crazy enough to believe in you.

Hiring friends or family is also referred to as nepotism. I practiced nepotism and it really worked out for me, but it has not been easy. The two biggest issues you will run into is: a) getting your friends and family to listen to you and, b) punishing them for not doing so.

It’s very easy for someone you know very well to not take what you say to heart. A lot of times they don’t respect the small but important things like coming in on time or project deadlines. You then have to cross the line from friend to boss and figure out some sort of punishment, and this is the hard part. How do you punish someone who is working for little money, yet still keep them happy and wanting to work hard for you? Let’s face it, we are all a little selfish; they wouldn’t be working for you if there was nothing in it for them. Maybe it’s the promise of future salary, stock options, or their title and power role within the company. Whatever it is, the have agreed to come aboard and, like everyone else, they need to respect you and the rules. Sure, you need to cut them a little slack, especially if they are working hard for little money, but you also cannot let things get out of hand–there needs to be a balance. Figuring out this balance is not an easy task.

One of my employees (who will remain nameless) was consistently late. At first, all I would do is rant about it until my rants were no longer heard. Then I started to have everything documented and would show him that he was consistently late. Still this person would not make it on time. I ended up putting a system in place where I would dock paychecks an hour if employees came in 15 minutes late, and every hour after that I would dock another hour. The problem with this method is: a) it’s not legal and, b) it’s not a very good way to motivate. Again, I needed a balance.

Another employee of mine consistently made errors, causing customers to really get upset with us which ultimately lead to them canceling their service. I knew this employee was capable and could be a tremendous asset to the organization if he was to just not rush things. I continued to have conversations with this person about slowing down, paying attention to detail, and going above and beyond the call of duty for the customer. We had conversation after conversation. It’s not like I could have just fired him or told him to stay home, because he was such a key asset to the organization.

I truly needed a way to get into their heads, a way for them to stop their bad habits and conform to the rules and regulations that I have set up within my company. Nothing is worse than a friend or family member who takes advantage of his relationship with you, because what it does is cause other employees to do the same. I liken it to a police officer. You will never hear them argue in front of you; it diminishes their authority. The same thing happens when employees see other employees getting away with murder. So what do you do in a situation like this? Taking money away de-motivates them and it’s not legal, yelling at them always goes in one ear and out the other, and firing someone usually isn’t the route you want to take because you need their help. However, you do need them to respect you and your rules.

The most effective punishment I have found is far from monetary. Do you remember in high school when you would get detention or suspended for doing something bad at school? It wasn’t the punishment you were sad about, it was that your mother or father was going to be disappointed in you. It was also the fear of what would happen when you got home and for how long your parents were going to keep you in your room during the summer.

I have found that being sincere and telling employees how you feel is the best way to get them to turn things around. If you really are disappointed, they need to know this. I hate disappointing people, especially my peers whom I look up to. They obviously have some respect for you or they wouldn’t be working for you in the first place. They need to understand how disappointed you are, and they also need to realize what some of the repercussions in the future might be. I hand out raises every six to 12 months. I will also give people bonuses out of the blue. I strongly emphasize to my employees that when it is their time for a raise, their negative behavior is going to affect it, and if I was considering a raise of 1k more per month, I am going to seriously reconsider and perhaps only approve $800 a month. You need to convince them that you are dead serious.

These two techniques have proven to be the best because they are sincere and play upon human nature. If I am doing something wrong and I am letting someone down (unless I am a sociopath), I am going to care and ultimately I am going to want to change. I would love to hear about any techniques that you have tried and whether or not they have worked.

And, oh yeah, if you are one of my employees and you are reading this, don’t think I won’t completely fire your ass if you won’t change, because I will.

That’s the third technique by the way–pure, unadulterated fear.