We all know the adage ‘Business and pleasure don’t mix.’ Research though says that the answer to my question is “It all depends!” Speaking personally, I found it an immensely rewarding experience but it is not without its pitfalls. My experience tells me that it is not down to chance if business with a friend will work. There are ways of checking out in advance if it is likely to work and invaluable tools can help along the way. There are pros and cons. It is important to go in with your eyes wide open and recognise that your friendship will change as a result.
A bit of research may help to begin. When Harvard Business School Professor Noam Wasserman studied 10,000 founders of technology and life sciences start-ups, the least stable founding teams were friends. Each friendship in a founding team increased the rate of founder turnover by 28.6%. Even teams of virtual strangers were more likely to stick together.
But there may be a way to get the benefits of friendship without the costs of the business falling apart. Wasserman discovered that the most stable teams were past co-workers. And other research on high-tech start-ups demonstrates that when founding team members have collaborated in the past, their ventures have faster growth rates. You can get to know a friend well through hanging out socially together. But you can only get to know a co-founder well by collaborating. By working together prior to founding a start-up together, people are able to answer some fundamental questions:
– Do we share a core set of values?
– Are our working habits compatible?
– What, respectively, motivates us?
– What are our comparative strengths and weaknesses?
– How will we handle conflict when it inevitably arises?
Before launching headlong into a business venture from scratch with a friend, perhaps do something small together first to test out if working together is likely to be a good option. Friends do though offer some real benefits and if the questions above are answered positively, you have a reasonable chance of success. Good friends should be able to communicate well and that can make for efficiency and great mutual understanding. As you will spend so much time together, it can also help to spend time with someone with whom you don’t get tired. Best friends can make great partners.
One entrepreneur when asked said “Growing a company can be like a long, painful, draining fight. Think to yourself, whom would you rather have sitting next to you in the bunker: a close friend whom you trust implicitly or a total stranger? Working with friends provides the emotional support needed to succeed.”
Another entrepreneur said “Be cautious. Know your relationship well and what it can withstand. Make sure you know how you can work together. It will probably help to have a clear decision-making process, whether one person has a final say or if there’s a team vote etc. Lastly, adapt as your company does. Realize that the friend who helped you get started may not be the person to help you get to an IPO.”
It can be fine to go into business with a friend, but only if s/he meets certain criteria. There should be a high level of trust, the person needs to be mature enough to handle criticism without it affecting your relationship, and s/he should possess a key business skill needed for your operation, one not already in your arsenal. Remember though that someone has to be the decision maker at some point, which may eventually annoy the other person.
When people go into business with a friend, they can sometimes ignore contracts of employment and partnership agreements. But having tight contracts is probably more important when working with a friend so that conflicts don’t turn personal. Get a good partnership/shareholders’ agreement in place. It can be useful if it says that if you cannot resolve a disagreement the business is then dissolved or sold. This usually helps for agreement to be found! A clear way is needed for a partner to exit if the partnership simply doesn’t work.
On a very practical note make sure you make provision for what happens if one or both of you are incapacitated or dies – what happens to the deceased’s share? It may not be desirable for the share to be inherited by the deceased’s familial partner/spouse.
Having an external person as a mentor to you both (but choose someone who is independent of both of you) can be a great idea. Over time you and your partner may have different thoughts about the future direction of the business and this is where an outside perspective can really help.
Great partnerships can make work less stressful because you have someone with whom to discuss challenges. As a bonus, it makes the journey more fun! Finally, before going into business with a friend, make sure you are clear about expectations and roles. This can save a lot of misunderstandings — and even your friendship — when things get tough later on!
David