Have you started your plumbing business with a friend, or are you contemplating a new startup with your bestie? If so, you should proceed with caution.
We’ve all heard the horror stories of great businesses utterly collapsing because the founders were good friends and the relationship turned sour. Things often get complicated. Difficult, impersonal decisions constantly need to be made in the name of creating the best future for the company.
Many entrepreneurs that start a business with a friend wind up with broken finances and ruined friendships. In fact, if you hedge your business decisions on the wisdom of statistics alone, stoically ignoring your friend’s frantic excitement about “this cool business idea” seems to be the safest route.
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 percent. On the other hand, the group composed of total strangers fared better.
As John D. Rockefeller put it, “Friendships based on business are much better than businesses founded on friendships.”
However, many ventures founded by friends do succeed, and in fact, they represent some of the world’s most prominent brands. Apple with Steve Jobs and Steve Wozniak, Microsoft with Bill Gates and Paul Allen, Google with Larry Page and Sergey Brin, Hewlett-Packard with Bill Hewlett and Dave Packard, or Ben & Jerry’s with Ben Cohen and Jerry Greenfield.
Certainly, life wasn’t always a joy ride for these founding partners. Varying tastes, priorities and approaches often lead to conflicts. A little caution will go a long way, and you need to know the advantages and disadvantages of starting a business with your best friend.
A partner you know and trust
Years of experience understanding how your friend reacts to certain situations, what their belief systems are founded upon, and knowing what can trigger your tempers can be valuable. In this respect, friends can generally solve problems by intuitively drawing on their respective strengths and treading lightly on known character flaws.
You share many beliefs
Most of the time, friends share the same interests and general belief systems. As birds of the same feather, you and your best friend/business partner will likely find it easier to agree on the literally thousands of crucial decisions, despite having different personal preferences when it comes to details.
You communicate more meaningfully
Years of building a genuine friendship, playfully insulting each other, and sharing major life events or struggles have broadened your communication channels to better articulate business goals and strategies.
You can assume roles naturally
You can both be technologically savvy or creative types, but over the years, you and your best friend know exactly which specific role in the company you will both be best suited for.
Familiarity breeds contempt
Knowing so much about one person can sometimes erode mutual respect. Similar to the struggles within marriages, this is also a major minefield for business friendships because you know so much about each other’s personal lives.
Situations can get awkward
Friends go to friends for support. There’s nothing wrong with that. But when one partner frequently slacks off and thinks the other will consistently pick up the slack, the costs will be incurred by the business. Endorsing unproven or incompetent friends to be part of your business will all but guarantee failure.
Who’s the boss?
Unless roles are clearly defined, a 50-50 business partnership carries the risk of leadership ambiguity. This can quickly trigger power struggles, affecting all aspects of the business, including differing opinions on the company’s vision, strategy and daily operations.
Your social networks overlap
Because longtime friends generally share the same set of acquaintances, you start off with a more limited network, market and support structure for your business than if you choose a partner based on expanding business opportunities.
That Being Said ...
With these pros and cons in mind, I’m still a huge advocate of starting businesses with my talented friends. Each time I consider launching a business with someone I’ve forged a personal relationship with, I force myself to take an objective look at how this decision is likely to play out. Here are a few important points to consider:
Get everything in writing at the beginning
You must have a signed document in place that clearly specifies your company vision, targets, roles, ownership breakdown, investment amounts, conflict resolution protocols, succession plans and compensation amounts. Without this step, you leave yourselves open to potential complications that could adversely affect your business and friendship.
Plan for the likelihood of total failure
Given that more than a half-million U.S. businesses shut down each month, failure and loss of your initial investment is a very real possibility. Have an open conversation about that scenario and how you’ll both feel sitting on the other end of that rather likely outcome.
Separate business and personal accounts
Never mix your personal finances together when starting a business partnership, especially with a good friend. Have financial best practices in place to prevent mismanagement of company funds, and be prepared for your first tax season.
Define your roles
From the beginning, establish a chain of command and clearly define each partner’s roles. If the business was solely your idea and you have the relevant expertise, industry relationships, and plan to work on it full time, your ownership would likely be higher than that of your partner’s.
It’s ironic, but lack of communication ranks among the top killers of friendship-driven businesses. Don’t assume your partner will always feel the same way you do on key business matters. Fully understanding and making strategic decisions from day one is a key component to achieving success in today’s business environment.
Think It Over
Before launching a business with your friend, take a moment to ponder the complexities of business partnerships and discuss them together. You need a road map that’ll help you find the way to your shared definition of success.
About the Author
Ryan Robinson is an online educator, teaching over 200,000 monthly readers how to start and grow profitable side businesses. To learn more, go to www.ryrob.com.