The highly anticipated post is here! Doing business with friends!
First off, I would like to disagree with the popular motion, “never do business with friends”. I strongly believe that it all depends on the approach you take while choosing who to do business with.
Typically with friends, it’s easy to dive into a startup opportunity or a working relationship that is exciting, fun, and could be lucrative. However, from my experience, I learned that you should figure out and start with who you need and why you need them rather than just doing it with your friend because they are available to start off with you, sometimes even without the thought of how viable your idea is.
Starting a business with your friends is potentially worth it. Creating something from nothing and seeing it grow is a fantastic experience, and it’s even better when you can do it alongside people you genuinely like.
The process is incredibly rewarding, but it comes with its own unique challenges.
You want co-founders who can push you, who can make you nervous; the sort of people whose intelligence and drive make you feel as though you’ve got to operate beyond your limits just so you can catch up. You also want them to know something you don’t. The right co-founders will have skills and expertise beyond the scope of what you know. That makes you a great team.
I consider myself lucky to be friends with people like that, but that doesn’t necessarily make things easy. Are your motivations aligned? Do you compliment one another’s skills, strengths and weaknesses?
Here are some questions you should ask yourself before starting a business with your friends that should help you avoid some of the more obvious pitfalls:
Do They Have a Key Skill or Selling Point You Don’t?
If you and your friend have the same experience and skills, you may end up tripping over one another.
At the end of the day, your partner should have a compelling value proposition that you lack. Be strategic about what you need whether it’s experience, management, someone with vast contacts, technical expertise, financial muscle or even great at working with people if you are not. More so, the kind of team around the management table should be automatically justifiable to ensure that your business is more than a ‘one-man show’.
For example, we develop and sell customized business software for organizations. Once I decided that this was the business was going to engage in – and that my path was not going to be in programming – I set out to find a partner who could cover that aspect of the business.
Can you clearly define your roles?
When dealing with friends, taking a more collaborative approach toward everything feels natural. That may work to a point, but it’s better when everyone on the founding team can “own” a different portion of the business.
Being in a position where you cannot agree on who will do what early on in a company is not a good position to be in. Obviously because nothing will get done at the end of the day.
Avoiding this means understanding the strengths and weaknesses of the entire team, yourself included, and using that knowledge to clearly define everyone’s individual responsibilities. Once you’ve done that, don’t be shy about enforcing it. It’s OK to tell someone to back off of your work and to focus on their own.
Can you have the tough conversations and clearly communicate?
There can only be one CEO, one head of product development, one head of sales, and so on. Once again, knowing your team’s strengths and weaknesses is key. What’s more, you can’t be afraid to have frank discussions about potentially touchy subjects like equity, salary and job descriptions. The longer you put these off, the more challenging and uncomfortable they become, and the more you put your business in a compromising position.
The importance of sincere, authentic, and frequent communication cannot be understated. This is always the case and its importance is only amplified when working with friends. Often times, because you are friends, you may not want to be confrontational. In the short term this may feel better but in the long term, this is a recipe for nothing short of disaster (both for your organization and your friendship). I’ve learned this the hard way and today, we talk about points of tension, points of gratitude, personal issues, concerns, life beyond work, personal goals and aspirations…etc. It may seem excessive, but I’ve seen this level of communication pay off and ensures that tensions never build up and that our team culture values authentic, frequent, and honest communication.
Should you run your business as a democracy?
We’re taught as children to share and make compromises with our friends, and we’re also taught that democracy is the fairest form of government. A business isn’t a kindergarten classroom or a country, and fairness isn’t a priority for early-stage founders. When getting things off the ground, some things just aren’t up for discussion. Take control and move the ball forward every single day. It’s safe and easy to put every little thing to a vote, but ultimately you’ll get so bogged down in bureaucracy that your company will not accomplish anything. Let’s admit it, it is not possible that you agree on everything, even with your closest friends.
Have you vested your ownership?
Most co-founders start their companies by evenly splitting their ownership in the business between the friends they start the company with. This seems like the right way to go. But often times, this will end up in a disaster. For example, if you start a business with your best friend and split the equity 50/50, what if one year into the business your friend decides to take a full time job? They will still own 50% of the company and now that they aren’t actively working on the business, this will likely ruin your friendship. Instead, I recommend that you vest equity over a 4 year period and that you install what is called a one year “cliff.” This means that if any of the partners left the company within 12 months of starting the business, they will not get any equity (i.e. this is the “cliff”). If you go in 50/50 with your best friend and co-founder, and s/he left 2 years into the company, they would have just over 16% of the company instead of 50%.
Don’t forget to also consider such things as the capital contribution because at the end, we all know that cash is king. By planning not just for the best (which is what most friends do), but also for the potential of plans changing, making losses, bad decisions; you will save both your friendship and, likely, your company in the process.
How long can you stand each other?
When founding Mesozi, there was a period of time when co-founders; Collins and I all lived under the same roof. We’d work upwards of 18 hours a day and being close friends, housemates, and co-founders meant that we were together almost every waking minute.
Although it’s a fun way to start a new business and it ensures that you are all fully immersed, my feelings are that if you want to live with your friends/ co-founders, do so with an exit strategy in mind (i.e. give it a set time commitment and after 6 months or 12 months, plan on living elsewhere). You will still likely see one another 15 hours a day… but giving yourselves just a little space is important for both your relationship and personal growth.
Lastly, Are They In A Stable Place In Life?
How a person handles their own finances and personal issues (eg. Family, Relationships) may seem like a private matter—but in a startup, your own bottom line becomes more public, especially between owners.
My co-Founder repeats every now and then, “You cannot fully separate business from personal life.”
For example, your partner need not be wealthy necessarily, but if they’re in a very bad situation, you could end up in a situation where rather than bouncing back from a failure, you’re forced to close your doors.
During times of major turbulence in your life/business, think about how grounding a stable, calm person could be. That’s the kind of person you want in your corner!
Of course it would be great if doing business with those closest to us was a risk-free, rewarding pleasure. Certainly sometimes it works out fine, but often times it doesn’t. As with many things in business, it is helpful to try to anticipate the worst-case scenario, and consider the reasoning, benefits and alternatives. Decide if it’s a risk worth taking, and if you can live with the possible consequences.
To reach your highest potential, you have to consistently surround yourself with people who challenge you, who are strong where you are weak, and work just as hard or harder than you do.