While starting a small business with a good friend may seem like a great idea, it could end up not only leading to the collapse of a great business idea, but also to the end of a genuine friendship.
We have all heard the success stories of friends defying the odds and coming up with winning ideas and products. This was indeed the case for friends and founders of the San Francisco-based Method Products, Eric Ryan and Adam Lowry. Their eco-friendly soap and dishwashing products created revenue of $100 million, and the company was sold last year to European rival Ecover. Despite a rough beginning and near collapse early on, the two friends pulled through the tough times and can now look forward to the potential of this large merger.
Still, many businesses don’t make it, you should be aware of the dangers involved, especially when it comes to involving life-long friendships.
Scott Testa started an Internet service company in 1994 with a friend he’d known for fifteen years. What seemed like a perfect business partnership ended up with the two friends not speaking to one another due to a completely different outlook on what direction to take the company in. They ended up selling the company a year later, and potentially missed out on large revenue and a growing business.
According to Microsoft Office Live Small Business, some 50 percent of startups comprise friends as owners of the company. While many small businesses and startups end up falling apart like a bad marriage, there a few things one should be aware of before entering into such a partnership.
If you and a good friend are serious about starting a small business, before putting any money down, it is important first off to see if beyond your genius business idea you can work together. Perhaps the best test is to work on a small project or two in order to test the waters. In addition, having everything written down in order to avoid any awkward misunderstandings later on is vital. Martin Lehman, a marketing director at Score, suggests that even friends from childhood who trust one another need to go through this formality. You can never be too careful when it comes to starting a business and a large amount of money is involved.
It is important to share all capital and be able to trust your friend and business partner. Such agreements include an exit strategy and how to split expenses if things go wrong. As a founder of a business, you need to delegate the work accordingly. If you are doing 90 percent of the job, that is not an ideal situation, and it will lead to a quick fall-through. This doesn’t mean the work or potential salary needs to be 50/50; figure out a system that works. Taking a larger cut as the boss or CEO should be encouraged.
In the end of the day, take into account that if the business fails, it is possible that your friendship won’t remain the same. This means taking everything mentioned into consideration before beginning your partnership adventures. At the end of the day, it is up to you to decide what you value more and determine the risks and rewards involved in initiating such a business venture.
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