Four Tips for Building a Business with Friends

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Starting a business with a close friend is much like having your best friend as a college roommate – while the prospect is initially exhilarating and it’s difficult to imagine downsides, it’s important to establish rules and lay the groundwork to maintain your friendship and, most importantly, the quality of your business.
Unsurprisingly, startups founded by friends often become unstable. While there is established trust, open communication, and a mutual fondness, the situation can easily turn sour whenever someone takes unfair advantage of the situation, pushes the other person’s buttons, or uses unsavory personal information as a weapon. Keeping this in mind, the following tips will help you get the most out of this prospective partnership.

1. Know What They Bring to the Table
First, answer the following: why this friend for this business? Do you share the same vision, values, habits, and goals? What necessity do they provide for the company besides just being good company? Fundamentally, they should supply something that you can’t. Perhaps their drive pushes you to work harder, or their intellect inspires you. Maybe they possess unique skills and expertise far beyond your abilities. Overall, your friend’s capabilities should complement the team in order to avoid staffing redundancy.

2. Establish Authority
Anyone that has supervised or worked closely with a friend in a professional context can tell you how difficult this is, especially as this working relationship evolves. Balancing a healthy, friendly rapport with the duties inherent to leadership or authoritative role can often make your personal and professional relationship with your friend strained. It becomes easy for your friend to cross the professional “line in the sand” and use your friendship as a bargaining chip. Because of this, you need to determine the boundaries. Firmly establish who is in charge in any given situation to avoid these power struggles.

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3. Craft a Contract
To solidify these limitations, establish the framework early on in your working relationship. Don’t avoid getting everything in writing when starting out. By strictly defining roles and agreeing on established terms through a founders’ agreement, every team member can own their role and know when they are overstepping their bounds. This includes having difficult conversations – be frank about the guidelines and responsibilities of each member, and your friend will hopefully respect your professionalism.

4. Bring In New Blood
It’s imperative that your team has fresh perspectives. Because of similar backgrounds and shared experiences, your friends oftentimes have the same line of thinking as you. If you’re seeking novel solutions to problems, it’s beneficial to invite contrarians and innovators outside of your bubble to both challenge your ideas and provide their own – but consider signing the employment contract and/or the option agreement. While the innate instability that comes from starting a business with a friend is daunting, it’s important to consider the following advice: Ignore the failure rate. Take the risk. Follow your passion. Just ensure that your foundation is strong in order to avoid your strengths as friends becoming your weaknesses as a business.

Avoid the crucial mistakes – test your idea with us!

Free Founders’ Agreement Template

Merlin Salvik / Managing Partner – merlin.salvik@hedman.ee
Valter Võhma / Corporate Law Partner – valter.vohma@hedman.ee

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