Capitalist Concept

Starting and Ending a Business with Friends or Family

I recently ended a business relationship with one of my best friends. I won’t go into specific details as the story will come off as biased. I will say that there are some things we could have done differently from the beginning and towards the end.

Working with a friend is not always a bad thing. Many a times it is wise to keep business, friends, and family separate. Honestly, I think it is harder because it is complicated, but not impossible. The key is avoiding major conflicts by starting and ending the relationship well. When starting a company:

Immediately define the business arrangement in writing.

Detail the partnership agreements in writing.

Make sure you enumerate compensation keeping the founder’s responsibilities and role in mind. I can’t stress the importance of making the agreement conducive to both of your expectations. Stock agreements and formalized term sheets should be signed before you decide to start a company with anyone.

Discuss what-if scenarios.

Take a day or two to objectively consider the different scenarios that may materialize as a result of your agreement. Many times it is best to write the terms out and visualize how they affect you and your partner’s incentives and roles. Finally, getting a fresh pair of eyes on the document before signing can be helpful.

Don’t mix friendship and business.

Don’t be afraid to talk about sensitive subjects.

Anything on your mind is fair game as it will come up latter. Often times setting up boundaries while you conduct business will help facilitate this discussion.

Make sure you share a similar vision.

Assuming you know your friend is on the same page as you is a mistake. Define how everyone will add value towards a particular exit.

Identify if your friend or family member is trustworthy.

You will constantly be working with the person, often for very long and demanding hours. Having a partner you can trust is important and sometimes over looked.

Everything ends. Hopefully it will be in a multibillion dollar exit, but as in my case, maybe not. Relationships don’t end well, mainly because emotions take over. In some cases legal action maybe necessary, but the points below will hopefully lead to a contained breakup.

Talk in person.

See if you can reach a severance deal or future agreement in person. Don’t do this over email, phone, or text as they are only effective forms of communication for setting up the meeting.

During the meeting, discuss and finalize a written termination agreement. Defining terms in the beginning is just as important as finalizing them at the end. In fact, it is much easier if you foresaw and accounted for a breakup in the original agreement.

At the end of the day, there is no way of getting around hurt feelings. Preparing yourself before the meeting is important in minimizing pain. Avoid assigning blame and focus on the future. Personally, I think moving on and considering the situation as a learning experience is the most productive.

In the end, I don’t regret stating a business with my friend; however, we didn’t handle the situation well. In retrospect, differences in leadership caused our relationship to end. I hope this helps others make better decisions when starting a business with a friend or family member.