Going Into Business With a Friend: Smart Move or Dumb Idea?

August 1, 2007

Should you ever go into business with a friend? I’ve been presented with the chance to partner with a friend and my research on the subject last night seemed to turn up the message of yes, BUT……

Successes & Failures
The Business Opportunities Blog started off by reminding me of the success of two friend teams, Google co-founders (Sergey Brin and Larry Page) as well as Ben & Jerrry (ice cream buddies). Then it goes on to caution that “collaboration works but only if everyone is clear about the rules, boundaries, aims and expectations….. You can go into business with anyone you like as long you have a very clear understanding of who owns what and who does what”.

The title of a New York Times article warns that friends don’t always make good partners; but later goes on to tell the success story of two buds that started a business together right out of college and now have sales of over $200 million.

Smart Move or Dumb Idea?
The common theme is that 1) Some people work better together than others and 2) Regardless of how well you get along you should agree on everything upfront and document it in writing.  The Times article would suggest my friend and I have a lot of work to do before we even get started working on the project:

“Experts say friends going into business should draft a detailed business plan with specifics on ownership and responsibilities, and a succession plan spelling out exactly how the business will be split up, if that becomes necessary.”

This is not a multimillion dollar project. We will both keep our jobs and run a web site on the side so we are not risking our livelihood or investing thousands of dollars.  However, money is money and I would not want our venture to come between us at any point in the future.  The problem with most partnerships seems to be not thinking through all of the what-ifs.  There are many directions a project or your life can take you and it seems impossible to foresee them all.

Planning Ahead
We have already broached the subject and are making plans to sit down with another friend who is an attorney to talk through the details and come up with an agreement.  We are both excited about working together, he’s the subject matter expert and I’m the business/technical guy. It started not long ago when I registered a domain, put up some sample content, and e-mailed some friends for some feedback.  This guy was very excited about the idea and now we’re planning its launch!

If nothing else, it will be a good learning experience and should be lots of fun.  If it is successful and we end up making more than $10 a month to cover hosting fees then we’ll have an agreement in place to guide us. Do you have any tips or advice for us?

Ben

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Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


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Comments

8 Responses to Going Into Business With a Friend: Smart Move or Dumb Idea?

  • Tim

    being friends does not guarantee success in anything whether in business or as roommates. the problem is the friendship portion getting in the way of everything. this is why communication and definite delineation in the partnership agreement is necessary.

    shadox: friendships aren’t always based on people who you trust. i have friends that i enjoy, but wouldn’t trust them with money or kids. your analogy of going into battle is a bit off. yes, you should know and trust them, but at the same time business is business and a decision you dislike should never be taken personally.

  • Shadox

    I strongly disagree with MoneyNing. You should only go into battle and into business with people you know and trust. Only do so if your relationship is strong enough to withstand the ups and down on business, but if you make it through, your friendship will be much stronger than before.

    You definitely have to document everything in advance to make sure your expectations or all in line and your conflict resolution options are known to everyone.

  • Ben

    Thanks for the feedback everyone! It helps to think through all different angles and your experiences bring up some points I hadn’t thought about.

  • MoneyNing

    It puts much strain on your friendship and most of them won’t work out so it’s better to be partners with people you actually don’t know.

  • Joe

    I have experiences trying to go into business with some of my buddies – of course this was while we were pretty young, and didn’t understand what it took to be successful. I have shuddered to think about inviting someone else to join in the venture with me since.

    I have, however, made friends with my coworkers and bosses since then. I believe that I could go into business friends again if the opportunity were right.

    As always… prepare for the worst, but strive for the best.

  • The Financial Blogger

    I think the key point is communication. I guess that in the long run, even if you start a business with someone that is not your friend, chances are that if the business is successful, you will become friend!

    Spending so much effort and time together will surely bring you to a certain level of friendship if the adventure comes with positive results.

    Be clear, all the time. I personally give more importance to friendship than money. This is why I am making sure we agree on all point we discuss. If not, you might lose more than a couple of dollars…
    Cheers,
    FB.

  • Jeremy

    I’ve done it twice and I’d be weary about trying it again. Granted, in each instance we went the complete legal route, had very detailed plans, agreements, etc. So even though it never came to suing or anything drastic, it strained and ultimately ruined the friendship.

    It didn’t happen overnight, this was over the course of about 3 years, but when you are in business with someone else there WILL be differing opinions and you’ll be spending a lot of time with them, which can be difficult.

    All legal stuff aside…

    I don’t think there is a right or wrong answer to the question, I just think you need to ask yourself one thing. How would you feel if your friendship with that person changed or ceased altogether? If you are comfortable with that potential outcome, it may make sense to move forward. If this thought bothers you, it may be something to reconsider.

  • Tom

    First of all, you BOTH need attorneys – separate ones! A single attorney cannot work with both of your best interests in mind.

    Second – dont let the size of your project get in the way of what I mention above.

    I made this mistake once. The agreement needs to state exactly how everything will dissolve/split should it become necessary. If not, the law dictates how it works (and it is likely not in your best interests at that point).

    You could easily find yourself being sued for many times more than the entire business is worth.

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