Business with friends: the pros and cons
Thousands of people work as individual entrepreneurs and are sole owners of companies. However, a large proportion of business is also based on partnership, where two or more people run the business. After all, the benefits of combining the skills, experience and financial capital of two people are quite obvious.
But still, friendship or kinship and managing one’s own business is not the same thing. Despite the best intentions and optimistic hopes, what begins as a safe and mutually beneficial cooperation can eventually turn into something like a nightmare.
And it’s not about managing a family business – it’s another topic with a number of its own features – it’s about buying, selling and starting a business with friends or relatives. Let’s look at the main arguments of supporters and opponents of such cooperation and think about how to protect yourself from possible problems, if you still decide to take this step.
The pros of doing business together
Our friends are people with whom we enjoy spending time, who share our interests, and simply those whom we turn to for help in the first place. Friendly relations are characterized by comfort and support, which is why having friends as business partners gives a number of advantages.
A high level of trust. With such a co-founder you have known for a long time and can confidently trust him in terms of company management. You have a certain understanding of how your friend behaves in certain life situations, and many problems can be solved literally on an intuitive level.
Shared interests and beliefs. Friends who spend most of their time together are likely to have common interests and share the same value system. When your best friend is your own business partner, it is likely to be much easier for you to make many important decisions and overcome the obstacles that may be encountered in the path of an evolving business.
Everyone’s strong in something. Probably surrounded by your friends and family there are many examples of stories, when two friends – one active and “punchy”, and the other quiet, but in love with their work – started their own business and excelled due to the fact that their strengths combined perfectly. An example from our field is a good salesman and a talented developer, which is an ideal combination for conquering almost any field in IT.
A relationship that has been tested over time. The most common reason for the collapse of companies is traditionally already the conflict between the co-founders. Often people tritely just can not get along with each other, come to a consensus, find a compromise. Friends have such a skill perfectly worked out in the old days, before the joint business.
Decrease in the amount of investment at the start. No matter how you twist it, but because of the points listed at the beginning of this article to share risks with each other is much easier than trying to solve all the problems yourself. In relation to investments, this rule is also relevant. First, all your expenses are divided into two. And secondly, if there is not enough money, you can compensate it with your own time, because you will have at your disposal not 8, but the whole 16 hours.
Psychological comfort. It is difficult to explain this human feature, but it remains a fact – with a friend it is much easier to start any business. You can dream about your own business for many years, but never dare to take the first step until someone of your friends has a similar desire. And then, together with burning eyes, you can go to conquer the heights of entrepreneurship.
The fact is that a modern person spends a really long time at work. So, the people with whom you communicate at this time will be a part of your life, whether you like it or not.
It’s a scientifically proven fact that the quality of relationships with colleagues in many ways affects the quality of our work. After all, if you don’t trust your friends and family, who in this world can you trust at all?
Business with friends: the main disadvantages
A medal always has two sides, and the same advantages that give us a friendly relationship can cause serious problems if you try to design them in the harsh world of business. Keep this in mind, because there are many good reasons why you should not start a business with friends, and here are the main ones.
Views of business can be different. When starting a business with a friend or relative, it’s very tempting to believe that your existing relationship can be easily transferred to a commercial union. However, even people with the same values and life philosophy may have different approaches to solving different entrepreneurial tasks. When creating a business model or building a corporate culture, it can provoke conflicts that can undermine even the strongest relationships.
Which one of us is the boss? If there is no clear distribution of roles, for example in a 50/50 partnership, a business partnership carries the risk of an ambiguous perception of leadership. Ultimately, it can lead to power struggles between partners, which will affect all aspects of the company’s development and lead to a difference in vision and strategy.
The price of failure is much higher. According to statistics, about 80% of new enterprises stop working in the first year of their existence. For a business owner, this usually only results in financial losses. But for those who start their business in the format of partnership, the price of error is much higher, because, in addition to the loss of money, failure can affect your personal life, spoiling your friendship.
Your goals may be different. Your motivation for doing business may be very different from that of your partner, and this is the first alarming call, if you understand it already at the start. Fundamental differences will inevitably provoke conflict, the only question is when it will happen.
For example, you can pursue long-term goals, seeking to build a business for decades, a real brand. At the same time, your partner doesn’t want anything more than to make money to increase his existing earnings. A successful commercial partnership is only possible on the basis of a common goal, shared values and aspirations.
Emotions instead of cold calculation. In a relationship instead of rational planning, you may have to compromise on many things. For example, your partner may lack the expertise and experience required by the business, you may find it difficult to adequately assess each other’s performance, and the potential impact of negative criticism can be devastating.
At the same time, when dealing with hired employees, you can afford to make decisions based on objective reality and a rational assessment of the situation, which would be a much more preferable option for any business.
Success also carries risks. It is quite logical that relationships can suffer from business failures. However, there is a possibility that they may change even if the business is successful. Strenuous pursuit of success and goals can unrecognizably change the behavior of any person, creating a distance between friends. And the conflict over profit distribution has not been eliminated either.
Business is not always a priority. And there can be many reasons for that. For example, changing certain personal circumstances can make one partner spend much more time on other things. It can be marriage, the emergence of children, new interests and needs.
Even if both partners have similar world views and goals, priorities can change dramatically under the influence of unforeseen circumstances. This situation is likely to take place either gradually or in a short period of time, reducing the room for maneuver.
These advantages and disadvantages will allow you to make a more objective assessment of your plans, taking into account the possible risks.
10 tips to help you avoid problems
So, if you have decided to set up a joint business with friends or relatives, here are some tips to help you succeed in this business.
Decide on your goals. The goals of the partnership and common business should be clearly defined and agreed in advance. If they are acceptable to each party, this will help solve many possible problems in advance. It is also important to keep track of certain business performance and to make sure you are responsible for possible damage to the company caused by one of the partners.
In any case, you need to be prepared for the fact that you enter into a gambling game, the rates in which are quite high for each of the parties.
Mark the roles. Almost all experts agree that a clear distribution of roles of each of the business partners is in many ways a decisive moment for successful work. Thus, you perform your tasks, and your partner does his job and you do not interfere with each other. For example, one is involved in production and the other in marketing and sales.
Be prepared for surprises. They say that in order to really get to know a person, you need to stay close to him for a while. In this case, it is also fair. You may think that your friend is almost perfect for you as a business partner, but in the end it may turn out that everything is completely wrong. On the other hand, if you are not mistaken and have a competent and loyal partner, your respect for each other will only grow.
Do you complement each other? Make sure that you start a business with a friend, because it will be really beneficial for you two, not just because you enjoy spending time together. It’s very good if one of you covers the weaknesses of the other, so as a team you will be really strong. Make sure that you both take constructive criticism normally and respect the opinion of your partner.
Be first of all professionals. And then be friends. Put the joint business in the first place and rely on professionalism in solving important issues. For example, when it comes to serious financial issues, it is better to refrain from jokes.
Talk about it in advance. Up to the situation, what happens if one of the co-founders decides to go out of business. This means both a legal agreement, with the rights and obligations of the parties, and simply a document that clearly states in writing your vision of the company’s development, ownership interests, terms of conflict resolution and other important points.
Any alliance is best kept on the basis of a legal agreement, not on the basis of honest word. Without such a document, you will be highly vulnerable to potential complications that could adversely affect your business and friendship.
Democracy has no place here. Since childhood we are taught to avoid conflicts and in case of controversial situations to seek compromises. But business is not a kindergarten, and universal justice is not a priority for entrepreneurs, especially in the early stages of development. Be prepared to make tough decisions if it is justified. Sometimes there is no time for discussion to move forward, you just have to act.
Make sure you have common motivations. It is usually easy to start something new with friends, because it is not only fun, but also profitable. But if your motives are different and your goals do not match, there is no doubt that in a few months your cooperation will stop. In a word, if you do not want to pay off debts, losing a friend, make sure that your motives are the same.
Don’t let money become a problem. Money has an “amazing” property – it can disrupt even your best friends. Therefore, it is best that from the very beginning you provide full transparency about all financial aspects of the company. Hiring an accountant is one proven way to depersonalize cash flow management issues. No partner should be able to withdraw money from the account at any time without the other party’s knowledge and consent.
Communication and once again communication. The importance of sincere and frequent communication with each other should not be underestimated. Communication is always important, and its importance is increased if you have to work with a loved one. If you have doubts or worries about something, don’t keep it to yourself by letting the tension build up.
If a few questions via email or phone call are enough to avoid misunderstandings, then take it and do it. Avoid confusion and resentment, and you will be pleasantly surprised at how quickly things will progress.
As you have already understood, trust is good, but in order to build a successful business you will have to go beyond it by building a relationship according to new rules. At any time, the initial favorable circumstances can change, and you have to be prepared for that.
The decision is up to you!
The idea of doing business together with the people close to you seems wonderful, with a minimum of risks and huge opportunities. Of course, sometimes it happens, but often the situation is the opposite.
Like in many other things, in business it is useful to anticipate all possible scenarios, considering not only the prospects, but also the risks and alternatives. Think about whether the benefits of joint business are worth the risks associated with the possible consequences for the friendship and relationship. Maybe it’s better to do everything on your own and just hire the right people.