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Everything You Need to Know About Going Into Business With a Friend
Going into a business with a friend is like alchemy. If the recipe is good and the ingredients play well with each other, the thing may just pan out. If not, you risk ruining your friendship and burning the business to the ground.
Businesses cofounded by friends have mixed success at best. Some manage to get through their garage-startup phase. Others aren’t half as lucky and end up breaking up.
In this article, you’ll learn how to make sure you and your friend really are compatible, and how you can keep friction to a minimum.
Is Your Friend Good Cofounder Material?
As friends, you probably understand each other without words. You have the same interests and preach similar life philosophies.
But a great friendship, even one that’s evolved through years of thick and thin, isn’t necessarily a guarantee of business success.
In his 2012 book The Founder’s Dilemma, professor Noam Wasserman observed a correlation in the composition of startup founding teams. It turns out, groups of friends and relatives are the least likely to stick together, with each social connection increasing the chance of a cofounder leaving the company by 30%.
So is going into a business with a friend such a good idea?
The short answer is: It depends on the friend. Here are some pointers that will help you decide if your buddy is solid cofounder material.
You Share a Track Record of Projects
Did you go to the same college? Maybe you enrolled in a course or attended a workshop together? If so, chances are you’ve already had a chance to collaborate on small-scale projects.
Start by asking yourself the following questions:
- What projects did you work on?
- Were they successful?
- How did you like the partnership?
- Was your friend a hard worker or a slacker?
- What was the division of labor?
- Who was in charge?
If your past projects turned out average, the same problem may come back to haunt you.
You Bring Complementary Skills to the Table
In IT, the concept of “pair programming” means that two programmers share one workstation and work on code together. One (the driver) writes the actual code and the other (the navigator) checks it for errors.
When you go into business with a friend, your skill sets should complement each other’s in a similar way. You both share the responsibility for the wellbeing of the company, but each contributes different strengths and skills.
Let’s say you want to set up a content marketing agency. You both need writing skills and search engine optimization (SEO) knowledge to deliver a complete service. Two writers could technically pull it off, but a writer and an SEO expert would make a more powerful pairing.
You’re Both Equally Committed to the Project
Are you really passionate about your business idea? We bet you are. But is your partner equally pumped for it? Before you commit all your time and energy to the project, be absolutely sure that your friend is ready to do the same.
Commitment doesn’t necessarily mean putting in crazy hours and spending nights curled up under the desk in the office. One of the partners may have the skills to handle the workload while the other can contribute financially to keep the show running. But the contribution and commitment need to feel equal.
You Don’t Fight over Trivial Things
Even the most aligned partners encounter friction and disagreement, especially when facing tough choices and stressful situations. Once you both become responsible for the company, conflict will come as a staple in your daily menu.
You and your friend might have different opinions on customer management, division of labor or potential investments. And that’s perfectly OK as long as you discuss those matters in a civilized manner.
As best friends, you’ve tested each other’s boundaries many times and know how much you can say before crossing the line. The key is to be able to dismiss trivial differences and solve big problems before they escalate.
Your Goals and Vision for the Future Align
Finally, let your expectations be the ultimate test of business compatibility. For instance, you might prefer to keep things minimal and robust. But your friend could prefer aggressive expansion, hiring employees and scaling infrastructure.
Discuss your short- and long-term goals with your partner early on so nobody feels disappointed, or wanes on commitment, when the company goes in a different direction.
To keep everybody on the same page, consider drafting a business plan. Not sure where to start? Check out our post on the five simple rules for writing a solid business plan.
Going into Business with a Friend: The Good
Let’s say it again: Mixing friendship and business has unpredictable results. But don’t worry. The benefits of taking your buddy along for the ride may far outweigh the negatives.
You Share Business Risk 50/50
No business is 100% risk-free. The road to success is bumpy and, at some point, you will encounter problems. Whether it’s money issues or legal trouble, sharing these risks with your friend will make them easier to handle, both personally and financially.
Twenty-four Seven Support Line
Entrepreneurship is a taxing experience, even more so when you don’t have anybody who understands what you’re going through. Family and other non-entrepreneurial friends will try their best to make you feel better, but they can’t relate.
Your friend/cofounder, on the other hand, goes through similar struggles and instinctively feels when you need a helping hand. Since you’ll spend a lot of time together, you’ll have a personal support line at the ready when things get rocky.
Your Partner Accepts You ‘As Is’
Friends with years of shared history have a solid understanding of each other’s strengths and weaknesses. If your friend is willing to go into business with you, it means they accept you with the good and the bad. They know what you can and can’t do, so there’s no point in trying to impress them.
The Workload Is Much Easier to Handle
Being a solopreneur often means doubling down as an accountant, client rep, marketer and the whole IT department. Instead of focusing on the work that really matters, you spend a chunk of your time on things outside your expertise. Running a business with a friend helps split the workload so everybody can focus on what they’re good at.
A Friend Will Watch Your Back
Assuming there are no cloak-and-dagger scenarios where former friends backstab each other for the control of a business, a true friend will keep an eye on you and watch your back. Put in an all-nighter for a coding marathon? Your buddy can always double-check your code and quash the bugs you missed.
You Communicate (Almost) Without Words
Unlike formal relationships where business partners have to stick to business etiquette, you and your friend are free to use your own lingo. That means no unnecessary small talk, no beating around the bush and fewer misunderstandings.
Brainstorming Is a Breeze
Here’s a fun fact: There’s a direct correlation between the quality of brainstorming sessions and the people you conduct them with. When it’s just the two of you, you can let go of protocol, put forward bold or silly ideas, and give direct, unadulterated feedback.
And that’s what brainstorming is all about, right?
Going into Business with a Friend: The Bad (and Ugly)
It won’t always be sunshine and rainbows. Even if both of you start with nothing but a positive attitude, the rainy days will come. Here are some of the downsides you can expect when you decide to cofound a company.
Personal and Business Matters Go Hand in Hand
These days, the line that separates business and personal life is blurry at best. But when friends decide to invest time and resources into building a company, the line vanishes into thin air.
Delicate, personal matters that you usually keep under wraps will manifest themselves in the office. After all, your best friend is privy to the things that happen in your personal life, so there’s no point pretending they don’t affect the work.
And when they do, you are more likely to falter and make poor business decisions. You know, like making cousin Mike head of the IT department even though he doesn’t know where to find the mysterious “any key” on his keyboard.
The Personal Relationship May Change
For better or worse, once you become bosses of your own company, you’ll likely notice a change in the dynamics of your relationship. Work will become a staple in daily conversations. It will seep into chill hours and your buddy won’t be just your buddy anymore.
It doesn’t necessarily have to be a turn for the worse, but you should include that possibility in your calculations. Can you take steps to compartmentalize? Are you ready to put your friendship at stake to make the business a priority? What if something goes wrong, and you lose both the business and your friend?
Assigning Roles Breeds Friction
The problem with two friends going into business together is that both start with a “leadership” mandate. Depending on your characters, it may be difficult to decide who should wear the CEO hat and call the shots.
Would you be willing to make do with a cofounder title and settle for a position that’s lower on the totem pole? You should be very clear on how you want to split duties from day one (more on that in a moment), or the atmosphere will quickly turn sour.
A Cofounder’s Success Checklist
Going into business with a friend can be a fun and fruitful adventure. The only thing you (both) need to do is follow a few simple rules.
Here’s a handy checklist that will help you do just that.
Be Clear about Your Roles from Day One
Defining roles and responsibilities is one of the most important steps when cofounding a company. For example, if you’re a natural-born techie, taking over as the CTO (chief technology officer) of the company makes the most sense. Conversely, your friend/cofounder may be a marketing whiz and so is a perfect fit as the CMO (chief marketing officer).
This approach ensures each of you tends to your piece of turf and doesn’t meddle too much with the other’s.
Put Everything in Writing
We get it. It may seem too formal to put paperwork around your friendship. After all, you’ve done fine so far and have solved conflicts through mediation rather than legal means. But when money and leadership are at stake, people behave in unexpected ways.
Remember: Every marriage starts out sunny and happy. But when it gets to a divorce, the gloves come off. It’s the same with a business partnership: It starts out great, but it might not stay that way forever. The paperwork will protect you both should things get wobbly.
The absolute must-have of every healthy business relation is putting everything in writing. Whether it’s a business plan, an NDA (non-disclosure agreement) or a founders’ agreement, securing the necessary documents will help you settle disagreements down the road.
Remember that you also need a proper business entity and business license (or several of those) to operate legally. If you’re not sure where to start, check out our article “Running a Business in the U.S.? Don’t Forget About a Business License!”
Prepare an Exit Strategy
Some say that having a plan B is like preparing to fail before you even start. But the truth is a contingency plan can help preserve your friendship, or at least let you break up in a civilized manner when the business starts flatlining.
Your exit strategy should detail what will happen to company assets, the percentage each of you gets paid upon separation and what happens to clients. Are you going to continue on your own or close up shop for good? What happens to the intellectual property after separation?
Enjoy the Work While It Lasts
Launching a business is an exciting adventure, more so if you do it with your best friend. You’ll encounter your fair share of ups and downs, celebrate small victories together and watch each other’s back when things get out of hand.
Will the business last a lifetime? Probably not. But if you remember to have fun and enjoy the work you both put in to make the company grow, then…who knows?
Did They Make It? Companies Cofounded by Friends
Remember the line from David Fincher’s The Social Network: “Your best friend is suing you for $600 million”? While the movie weaves in creative fiction with reality, the history of Facebook is an example of how a business founded by friends can go totally wrong (and still succeed).
The good news is, not all companies with cofounders who were friends face dramatic breakups. In fact, despite the odds, some prosper under strong and united leadership, and maintain a healthy atmosphere.
Airbnb
Founded in 2008 by a trio of roommates—Joe Gebbia, Brian Chesky and Nathan Blecharczyk—Airbnb (originally known as airbedandbreakfast.com) started with an ambitious goal to offer an alternative to traditional hotel accommodation.
Here’s an e-mail that Gebbia sent to Chesky to pitch his idea:
Here is the email that started Airbnb. Shown onstage at #TED #TED2016 pic.twitter.com/A2ZF9Epcxj
— Bill Gross (@Bill_Gross) February 16, 2016
Over a decade after launching the company, its cofounders still hold on tight. While Chesky assumed the official leadership role as CEO, Gebbia acts as the chief product officer (CPO) and Blecharczyk chief strategy officer (CSO).
Microsoft
Originating from Albuquerque, N.M., Microsoft came to life in 1975 as a brainchild of two childhood friends, Paul Allen and Bill Gates. The pair set out to develop software for the then-fledgling market of personal computers, specifically the Altair 8800 microcomputer.
Although the company became a major success, its cofounders became incompatible and broke up in 1983. In 2011, Allen published a memoir, Idea Man, in which he exposed some of the problems that lead to the split, further distancing himself from Gates.
The history, however, doesn’t end on an entirely grim note. Before Allen’s death in October 2018, the pair had managed to bury the hatchet and reconnect. When Allen passed away, Gates published an article, “What I Loved about Paul Allen,” to commemorate his friend.
These days, it’s difficult to imagine the internet without Google. But back in 1995, the company was just an idea waiting for execution. Fitting Silicon Valley’s archetype of a garage startup, Larry Page and Sergey Brin started their company in one owned by Susan Wojcicki (now CEO of YouTube).
Their motivation?
In their 2012 Founder’s Letter, Page wrote “Sergey and I founded Google because we believed that building a great search experience would improve people’s lives and, hopefully, the world. And in the decade-plus that’s followed, we’ve been constantly delighted by the ways in which people have used our technology (…).”
Conclusion
Going into business with a friend can be a great way to take your project off the ground. When your goals and priorities align, you might just make it happen and keep the friendship intact. A word of caution though: Keep eyes wide open to the potential risks that come with the package.
This post was updated in February 2020.