You’ve been part of the corporate jungle for a decade longer than you ever imagined and starting to feel like you’re not getting anywhere being an employee. Or maybe you’re hitting the glass ceiling and your suggestions aren’t being taken seriously. The next logical step, you think, is becoming an entrepreneur. However, you’ve been so used to taking instructions that the thought of going into business seems a bit terrifying. What should you do?
For most people, encouraging friends to do the same and join you in a new business life is a smart and comfortable way to start from scratch. After all, if you’re in the company of people you’ve known all your life and trust 100% then nothing could go wrong–right? Not really.
A few years ago I spent months working on a business plan and coming up with ideas for a startup that I was going to partner on with a programmer friend. Because I trusted him, I didn’t have a contract in place. He took advantage of this and stole my ideas, launching the business without me. I moved on, but I certainly learned a few lessons.
While doing business with friends might seem to be the most foolproof option, some business experts say it could be your friendship that will ultimately ruin your chances for success.
A person’s business personality is different from their casual personality, which is where most friendship-based enterprises fail. The person you thought was a fun-loving and a fearless friend who could stay up all night listening to your gripes could be a very stern and calculating business partner whose vision for the company is very different from yours. Or worse — they could be a total slacker and you could be left doing both of your jobs just to keep the business afloat.
A lot of businesses have grown and died this way. “A friendship that is founded on business is a good deal better than a business founded on friendship,” John D Rockefeller used to say.
Friends who fail to create that line between friendship and entrepreneurship, and end up launching personal attacks when disagreements rise, are destined for failure. Or conversely, if you’re too concerned about hurting each others’ feelings, then unspoken gripes can pile up until everything blows up.
But it’s not all doom and gloom! A friendship-based business is not all bad — there are many instances when friends have actually formed stronger bonds while working together on the venture.
It helps if all parties respect the business hours as impersonal, purely professional, and understand that when office time ends, you can leave the issues at work and hang out as buddies. For example, Oprah shut down close friend Rosie O’Donnell’s show on her cable channel because of its poor ratings, but the two have managed to remain very good friends.
The good news is, you can start a business with friends and find success. Here are some tips to make sure you don’t lose your heads and go at each other’s throats when the going gets tough:
1. Define your roles from the very beginning.
Who takes care of operations, financial matters, marketing, human resources, etc? You and your friend/s should be able to create a clear line of responsibilities so you don’t overlap and conflict with the each other.
Placing your job descriptions in writing as a handy guide will also help determine who will be accountable for what in the future.
Put it this way: while you’re all partners and have a say on how the business will be run, someone should be assigned to have the final say on certain matters. Or you could all agree on a method to make a fair decision when everyone is disagreeing with each other. You may have been the closest of friends for the last decade, but placing your job functions in writing from the get-go will help avoid major conflicts in the future.
2. Decide how conflicts and disagreements are handled.
Handle conflicts and disagreements in the most professional matter.
The tendency among friends is to take the disagreement to the personal level and that’s when the backstabbing and emotional monologues begin. While you may be used to talking your heart out to your friend at a coffee shop or over the phone, being in a business together means resolving conflict in a business-like manner. Bring it to the office, listen to what each other have to say, make presentations to support your claims when necessary, and make fair decisions based on the points raised.
Perhaps most importantly: sign contracts and define the company ownership. If your friend flakes, their ownership stake should decrease accordingly. Make the rules clear from the start. Essentially, structure everything as if you expect it things to go sideways at some point. That way everyone is protected.
3. Business is business. Keep your friendship out of it.
Keep your relationship professional and centered on business only during office hours. When the clock strikes six, you throw your thinking hats out and start hanging out as friends. You should know the distinction between a professional criticism from a personal one, and you and your friend/s should be clear on this from the start.
4. What are your strengths and weaknesses? How much time and effort are you willing to put into the venture?
Each individual has her strengths and special talents she can contribute to the betterment of the company. Utilize these and fill in your own strengths where the other is weak. This way, you create a symbiotic working environment for everybody. Your client will also be very happy that all aspects of his or her job order has been tackled thoroughly by a team that looks at all angles of his or her request.
At this point, it is important to note that while inviting friends to start a business with you is a potentially fun prospect, not all of your friends have something to contribute realistically to the company’s goals. In short, you don’t have to get all of your friends as partners just so the other won’t feel left out. Determine who among your buddies are the best contributors as full-time partners. Perhaps the others can chip in on a per-project basis or just function as non-managing investors.
5. Define your goals for the company, so you can arrive at a compromise if they don’t go in the same direction.
Before you start a company, talk to your partner friends about their vision and goals for the company. This won’t be a problem if you all are envisioning the same endpoint. However, if the methods of one are not in line with the strategies of the other, you will need to meet halfway to make sure all recommendations are covered. Do this at the very beginning. This is also why it is important, as noted earlier, that you choose someone who will have the last say over a particular subject so you don’t spend all of your time arguing. If need be, you can agree to invite a third party to intervene when conflicts like these arise.
Being in a business with friends could help your venture grow much faster because the lines of communications are expected to be more open than, say, venturing with strangers. While some business experts do not recommend this. If you are able to define the lines at the start and address potential areas of conflict, then you could build one of the happiest and successful companies you’ve ever imagined.
Very informative article. Came at a right time for me. I’m planning to start a business with my friends. Good Insights.
I’m glad to hear it! What type of business are you starting?
I am planning a business to start with my friend.. it’s about opening a cafe.. suggestions are welcome. we are 20 years long best friends.. but I don’t think any clash can occur.. both have the same intensity of interest.
You probably have a lot in common with your friends. Similar background, personalities, and life experiences often make a solid foundation for friendship but can cause problems from a business standpoint. So you should keep everything in mind before jumping into such big decisions.
Heartless, yes, but a Harvard Business School study showed that among technology founders, the group that is made up of friends proved to be the most unstable, with a founder turnover rate of nearly 30%.
In business, things often get complicated. Difficult, impersonal decisions need to be made in the name of creating the best future for the company. It’s harder with friends IMHO. Friendship based on business is much better than business founded on friendship.
My friend and I, we’re starting a film production company, we both onboard bring a different skill set and we do clash but in the end were still mates, sometimes I fear that this business may ruin our friendship. I think what we need to establish at the moment are ground rules, so we won’t overstep on things and this article helped me understand that… We need a contract, and often friends just trust each other and don’t put things in writing. That’s a mistake. This is a very good article and it’s very informative. Thanks!
Right you are! I’m all for starting businesses with THE RIGHT FRIENDS for THE RIGHT REASONS. A contract is a must.. it’ll definitely help set clear guidelines and will give you a document to refer back to in the future once you navigate into uncharted waters. Keep in mind that after you’ve been in business for a few months, you’ll want to revisit the contracts you create with each other and make sure things are progressing as expected. If you’re 50/50 owners, but you do 90% of the work, that’s hardly a fair business partnership if you entered into the agreement under the understanding of an equal contribution of labor.
Good friends starting and running a business together don’t often equate to a happy ending. Field partnership, or even end up with former partners, not friends at all. And I can’t afford to lose my friend for some shitty business.
Many ventures founded by friends do succeed and in fact, represent some of the worlds most prominent brands.
There are plenty of pros and cons associated with starting a business with your friends, but for me, the pros definitely outweigh the cons. We know each other’s strengths and weakness and fill in the gaps as needed without the need for long drawn-out discussions about who does what and why.
Thank you for these tips it will help to set up our business successfully and minimizing the strain on our relationship. Because running a company with buddies comes with a unique set of challenges.
Starting a business with your friends is worth it. Creating something from nothing and helping it grow is a fantastic experience, and it’s even better when you can do it alongside people you genuinely like. It isn’t easy, and sometimes your strengths as friends can become your weakness as a business, but if you take that into consideration and intelligently you’ll be in a great position to succeed.
What I have learned from starting a business with my own friends is that have the tough conversation early. There can only be one CEO, one head of product, one head of sales, and so on. Once again, knowing your team’s strength and weakness is key. What’s more, you can’t be afraid to have a frank discussion about a potentially touchy subject like equity, salary, title, and job description. The longer you put these off, the more challenging and uncomfortable they become.