Starting a Business with a Friend? (The Dos, Don’ts and Key Questions)
Launching a business isn’t easy but having a co-founder can make things smoother. If that co-founder is your friend, extraordinary things could happen. Trust, fun, respect and camaraderie are already there. However, the qualities that make people great friends don’t always match the traits that make them great business partners.
Sometimes, friendships prove to be the backbone of thriving businesses and there are countless success stories. Just look at Instagram co-founders Kevin Systrom and Mike Krieger, ice-cream moguls Ben Cohen and Jerry Greenfield, and Bill Hewlett and Dave Packard who founded HP back in 1939. Some of the world’s largest companies, including Google, Microsoft and Apple were started by friends.
If you aspire to follow in the footsteps of Sara Blakely (Spanx), Melanie Perkins (CEO and co-founder of Canva), or Kiran Mazumdar-Shaw (Biocon), it could make perfect sense to start the business as a dynamic duo. If you and your bestie have the same passion and vision for the business and are aware of potential pitfalls, you could be in for a great ride.
Are you Compatible as Business Partners?
Be it best friends, flatmates or co-workers, two like-minded entrepreneurial spirits can successfully build a business from the ground up. However, the decision about who you go into business with should always be objective, and never based on emotions. You need to first be sure that you are business compatible.
Before you launch the next big thing with a friend, there are some key questions to ask. Are you on the same page when it comes to money, responsibilities and work-life balance? Do you have the same work ethic? The same goals? Have you survived conflict before? Co-founding a company is like a marriage and it’s going to be tough at times, so be honest with yourself: Is this a person you can go the distance with?
The Benefits
Your closest friends are the people you trust. You communicate comfortably, and friends tend to think alike. That’s a great advantage when you’re pitching an idea to a client or prospective customer. When you share the same values, it’s likely you will also support each other’s business decisions. That’s a big advantage.
As friends, you already have an awareness of each other’s personality beyond the surface level, and you know what each other’s drivers are. You can bounce ideas off each other, you don’t have to hold back, and you can speak your truth. It can also be great fun to start and run a business together but do keep in mind that your relationship will change.
The Risks
The biggest risk in any business partnership is conflict. Even if you have similar objectives and goals for your venture, you may not have the same plans for how to get there. Gaps in expectations can trigger arguments, undermine growth, and ultimately compromise your business as well as your friendship.
It might be easy communicating with a close friend when things are going well but when times are tough, it can be much more difficult. Sharing a laugh over a wine is not the same as grinding through the night trying to launch a new product or service.
Business partners who are friends are emotionally invested in one another. Periods of hardship, financial strain and disagreements can damage your relationship and cause for one or both parties to act irrationally. Resentment, frustration and jealousy can easily override sound business sense and that can be devastating for your commercial venture and relationship.
Establish Clear Roles Straight away
Deciding on who does what sounds like a no-brainer, but it is hugely important as without doing so, the lines will blur. You must clearly define your job titles and responsibilities at the outset of your venture. It’ll ensure that your business runs smoothly and minimises the risk of confusion and potential power struggles.
You’ll need to learn about your friend’s strengths and weaknesses. At the beginning, everyone involved in the business will likely have a hand in every detail. While this may work for some time, it’s not the most effective way of reaching your goals. You want to know what each team member is best at so that you can properly distribute tasks and be most efficient.
Don’t make assumptions about each other’s goals for, and commitments to, your business either. Both parties need to be in total agreement about what they want their business to achieve to make this work. You both need to be clear on the required investment in time and funds for both the short term and the long haul.
Start with a Formal Agreement
If you’re both keen to give it a good go, start by putting it all in writing. Your business plan, your roles and responsibilities as business partners, how you will allocate profits and losses – absolutely everything. For instance, if both of you want a 50/50 profit share, then it should be written into the contract. However, if one person wants or expects to put in more or less time or investment, it should also be decided before launch day.
Choose an entity type that’s best suited for your situation and business needs. Work with an accountant and lawyer to make sure it’s done right. DIY usually works perfectly fine until there is a problem, and that can have huge consequences. A business that has its documentation in order is much better protected.
Leave Space for Your Friendship
When you’re in business, you’ll spend a lot of time together. You’ll share the good, the bad and the ugly. That’s why it is important to change hats at times and keep checking in as friends. Don’t forget to stay spontaneous and call each other from time to time to laugh and share details about your personal lives.
Take a day away from the office together when you can and do something fun. It will provide a necessary mental release that helps avoid burnout and keep your relationship healthy. Celebrate the wins but make sure you communicate often, especially when things don’t go as well as planned.
