Is it smart to start a business with a friend? We’ve all heard the horror stories of great businesses utterly collapsing because the founders were good friends and the relationship turned sour.
It’s natural. It can be incredibly stressful launching a new business, especially if you’re starting it while keeping your day job.
In business, things often get complicated. Difficult, impersonal decisions constantly need to be made in the name of creating the best future for the company.
Many entrepreneurs that start a business with a friend wind up with broken finances and ruined friendships—it doesn’t take reading through many of the best business books or taking online business courses to see that common trend.
In fact, if you hedge your business decisions on the wisdom of statistics alone, stoically ignoring your friend’s frantic excitement about “this cool business idea” seems to be the safest route. If you’re still looking for that right business opportunity, check out my detailed break down of the 101 best business ideas.
Heartless, yes, but a Harvard Business School study showed that among technology founders, the group that is made up of friends proved to be the most unstable, with a founder turnover rate of nearly 30%.
Surprisingly, the group composed of total strangers fared better. Add to that the even gloomier 9-out-of-10 failure rate of startups in general, and you’d begin to wonder why on earth you would even consider starting a business with a friend.
In fact, it’d be entirely safer to stay in the comfort of your day job and preserve your friendships, right?
What if it’s you who came across a great business idea and your gut says you need your talented friend, or even a skilled co-worker, to help turn it into a stellar success?
My advice: Ignore the statistics.
I grew one of my previous businesses, Case Escape with my best friend to over $160,000 in revenue in our first year alone. It’s continued to grow ever since and Matt still runs the company to this day. Plenty of the world’s most successful entrepreneurs have started successful businesses with their friends, a healthy dose of business advice and lineup of proven blogging tips.
You can do it too, but first you need a strong foundation for how to manage your newly complicated relationship. Even more importantly, you need to establish ground rules and get some things in writing before you even get started.
Good friends starting and running a business together don’t often equate to a happy ending. Failed partnerships do happen and will likely lead to damaged friendships, or even end up with former partners not being friends at all.
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Should You Start a Business With a Friend?
Take the case of dot com era entrepreneur Scott Testa, who launched a startup with a tech-savvy friend he had known for 15 years. Testa told The New York Times that the venture felt like it was made in heaven at first. But after a while, stark differences in the founders’ growth strategies created a humongous rift between them.
Even though the business was relatively successful right away, they ended up not talking to each other and selling the company much sooner than planned. With shattered hopes and hurt feelings, the two friends became estranged acquaintances.
If you want to become a successful entrepreneur, you often have to beat the odds and embrace learning experiences disguised as failures along the way. Going against the flow is a behavioral trait hard-wired into entrepreneurial DNA. If you’re too risk-averse, then you’re likely not ready to launch a business yet anyway.
After some serious consideration, brainstorming, and weighing the pros and cons (more on this later), if both your business idea and premise of involving your friend as a partner come out as a positive, then you may need to risk failure and your friendship, in order to get your business off the ground.
Many ventures founded by friends do succeed, and in fact represent some of the world’s most prominent brands.
Apple with Steves Wozniak and Jobs, Microsoft with Bill Gates and Paul Allen, Google with Larry Page and Sergey Brin.
Hewlett-Packard with Bill Hewlett and Dave Packard, Ben & Jerry’s with Ben Cohen and Jerry Greenfield.
However, as John D. Rockefeller put it, “friendships based on business are much better than businesses founded on friendships.”
Certainly, life wasn’t always a joy ride for these founding partners. Varying tastes, priorities, and approaches often lead to conflicts. A little caution will go a long way, and you need to know the advantages and disadvantages of starting a business with your friend.
If you’re still looking for the right business idea, join my free course today: Finding a Profitable Business Idea.
Pros: The Advantages of Starting a Business with Your Friend.
We spend time with our friends largely to have fun and often because we share some common interests. Our friendships provide genuine companionship, comfort, affirmation, and support. In today’s punishing business landscape, finding those qualities would seem like a major plus in your founding partnership.
Having friends as business partners offer the following benefits.
You have a co-founder that you truly know and trust.
Bringing on board years of experience understanding how your friend reacts to certain situations, what their belief systems are founded upon, and knowing what can trigger each other’s tempers can be very valuable when starting a business. In this respect, friends can generally solve problems by intuitively drawing on their respective strengths and treading lightly on known character flaws.
You have a co-founder who will likely share many of your same beliefs.
Most of the time, friends share the same interests general belief systems. As birds of the same feather, you and your best friend business partner will likely find it easier to agree on the literally thousands of crucial decisions coming your way, despite having different personal preferences when it comes to details.
You can communicate more emphatically and meaningfully.
Years of building a genuine friendship, playfully insulting each other, and sharing major life events or struggles have broadened your communication channels with each other, for some serious articulation of business goals and strategies.
You can assign and assume roles naturally.
You can both be technologically savvy or creative types, but over the years, you and your best friend know exactly which specific role in the company you will both be best suited for—which is why my partnerships have always worked best when I’m primarily in charge of marketing activities like promoting a blog and my partners can fill other essential roles like operations or being in charge of design (activities like crafting a blog layout) for the company.
Cons: How Founder Friendships Can Ruin Your Business.
Now for the other side of the equation, what needs to be taken very seriously when starting a business with a friend. You’ll find that the very same benefits we derive from friendship can also cause major potential problems when we transport those friendships into the less forgiving world of business (which is why my current business as a freelance content marketer is a purely solo act).
Familiarity breeds contempt.
Knowing so much about one person can sometimes erode mutual respect. Similar to the struggles within marriages, this is also a major minefield for business friendships because you’re so embedded with the knowledge of one another’s personal lives—especially if you’re both working from home on your business.
Situations can quickly get awkward and uncomfortable.
Friends go to friends for support. There’s nothing wrong about that, but when one partner frequently slacks off and thinks the other will consistently pick up the slack, the costs will be incurred by the business. Endorsing unproven or incompetent friends to be part of your business will all but guarantee failure.
Everyone suffers from “Who’s-Really-the-Boss” Syndrome.
Unless roles are very clearly defined, a 50-50 business partnership carries the risk of leadership ambiguity. This can quickly trigger power struggles, affecting all aspects of the business including differing opinions on the company’s vision, strategy, and daily operations.
Your social networks overlap.
Because long-time friends generally share the same set of acquaintances, you start off with a more limited network, market, and support structure for your business than if your co-founder had been chosen based on expanding your business opportunities.
With these pros and cons in mind, I’m still a huge advocate of starting businesses with my talented friends. Each time I consider launching a business with someone whom I’ve already developed a personal relationship with, I force myself to take an objective look at how this decision is likely to play out.
Before starting a business with your friend, you need to ask yourself these crucial questions.
Starting a Business with a Friend? Ask Yourself These 8 Questions First.
1. Do you share the same business goals?
It’d be a red flag if one of you wanted to build a lifestyle business that could last decades, and the other had the goal of creating a high-growth business that could be acquired within a year or two. These fundamental differences in growth strategies would lead to conflict.
2. Do you share the same values?
Just like dating, if your friend (and potential business partner) has a drastically different set of value and beliefs, you should think twice about mixing your finances and futures together. If one of you are driven primarily by making money and find fuel from Gary Vee’s latest motivational quotes, while the other derives more energy from quietly plugging away and the accomplishment of regularly shipping new products, that’s a pretty large fundamental difference.
3. Do your skill sets complement each other?
Make sure you’re starting a business with your friend because it would truly benefit you both, not just because you spend a lot of time together and you think it’d be fun. Here’s the thing… if you’re interested in building an online business and you’re both asking the question, what is a blog? in the first place, then your skills might not be a good alignment for each other.
4. Do your work habits align?
Be sure that you have mutual times you can work together on your business, especially while it’s getting started and you’re both likely holding onto your day jobs. If you’re both working remote jobs and have the flexibility to regularly connect during the day, that helps significantly.
5. What’s your default strategy for resolving conflicts?
If you argue a lot as friends… chances are, that tendency will carry over into your business. If you’re trying to come up with a blog name idea, but can’t agree on the best one to run with for your new website, how are you going to resolve that challenge? Will you work together to choose an option you’re both somewhat happy with? Turn to a domain name generator to suggest new options? Ask a friend or trusted mentor to weigh in with their advice? Be sure you and your partner can work together to resolve these kinds of conflicts as they arise—because there will be plenty more over the years.
6. Which specific roles and responsibilities should each business partner assume?
Clearly define your complementary roles, and make sure they engage your interests. If you’re a strong writer that wants to focus on learning how to make a website for the new business, choose the best website builder and then ease into the marketing tasks to grow your blog doing things like guest blogging and email marketing, but your partner wants to do the same—you might have a problem.
7. How stable are your personal lives?
You don’t want to start a business with a friend who plans on selling their belongings and traveling the world for the foreseeable future. Much of any blog business plan (or business plan) will be structured around a mutual dependency on each other, so stability is an important factor to consider.
8. Are you both willing to follow each others direction when the subject matter expert speaks?
Be sure you can both handle constructive criticism, and know when to trust your partner’s judgement.
From my personal experience starting and growing a business with my best friend, here’s my essential advice for finding success together.
My Advice on Starting a Business with a Friend.
Be professional while staying friends.
Instead of trying to keep your friendship totally out of the business, embrace your strong bond together and assume a high degree of professionalism when it comes to business matters. Refrain from joking about serious financial matters that’ll impact your business.
Get everything in writing from the very beginning.
You don’t need to immediately start out with a legal contract drafted by an attorney (or freelance contract), but you absolutely must have a signed document in place that clearly specify your company vision, targets, roles, ownership breakdown, investment amounts, conflict resolution protocols, succession plans, and compensation amounts. Without this signed document, you’ll both be leaving yourselves up to potential complications that could adversely affect your business and friendship.
Formally discuss and record possible exits, outcomes, and the likelihood of total failure.
Given that well over half a million businesses shut down each month in the US, failure and loss of your initial investment is a very real possibility. If you and your partner lose your business investment, is that going to ruin your friendship? Have an open conversation about that scenario and talk through how you’ll both feel sitting on the other end of that rather likely outcome.
Clearly establish your goals.
Once you know what you want to ultimately want to achieve together, you can articulate what is required from each stakeholder. If you want to build blogging tools and sell them to a large market of bloggers within the next two years, you better assign clear responsibilities for who will be managing each part of your business, in order to hit that high target.
Establish separate business and personal bank accounts and perform appropriate bookkeeping.
I cannot stress this one enough. Never mix your personal finances together when starting a business partnership, especially with a good friend. Ensure that you have financial best practices in place, to make sure there’s no mismanagement of company funds, and that you’ll be well-prepared when your first tax season rolls around. Check out my detailed primer on taxes for bloggers if you have more questions!
Set up a business entity.
Consider the various pros and cons of starting a partnership, limited liability partnership (LLP), corporation (Inc), limited liability company (LLC), S-corp, or other business entity. You want to choose the structure that best represents your business and your eventual goals. Regardless, you need to define ownership very clearly.
Define roles in your business.
From the very beginning, establish a chain of command and clearly define the roles each partner should assume. If the business was solely your original idea, and you have the relevant domain expertise, industry relationships, and plan to work on it full-time while your partner focuses solely on perfecting one component of your product, your ownership would likely be higher than that of your partners’.
It’s ironic, but a lack of communication ranks among the top killers of friendship-driven businesses. Don’t assume that your partner will always feel the same as you do, on key business matters.
Fully understanding and making strategic decisions from day one is a key component to achieving success in today’s business environment.
Before starting a blog or launching a business with your friend and putting your financial resources on the line in hopes of success, take a moment to ponder these complexities of business partnerships and discuss them together. Side note: If you are interested in building a blog, start with learning from these terrific blogging courses today. They break down everything from coming up with winning blog post ideas, to learning how to drive traffic to your blog, all the way through how to make money blogging.
You need road map that’ll help you find the way to your joint definition success, which all begins with taking the time to properly validate a business idea with real paying customers before building a “complete” solution for your target audience.
Remember, some of the most powerful businesses ever established were founded by friends. However, many more have failed miserably and left ruined friendships in their wake. Think carefully before you start a business with your best friend.
Tell me in the comments the #1 lesson you’ve learned if you’ve started a business with a friend.
If you haven’t yet, but are considering launching with a friend, what are your biggest fears?
50 replies to “Should You Start a Business With Your Best Friend? The Pros, Cons and 8 Questions to Ask Each Other”
Hey Ryan thank you for your support, what about if i am going to put a 15 000$ and my partner the owner of the property will be putting a 10 000$ as a start-up budget. Moreover,some of the considerations are,that the rent of the property in reality per month is estimated to be around 1600$ if an unknown person wants to rent the property. Regarding the assets/equipment that are available in order to open our breakfast/market store they are valued around 10 000$ they are already purchased by my partner.
What do you think now regarding the profit margins?
Thank you in advance
[My personal opinion]: Important decision, yes.. but you’re overthinking this quite a bit. And the person you really need to be talking to about this is your business partner. If your partner also already owns the equipment for the business, that’s another set of assets he *personally* owns that’ll be depreciating in value over time with use.
You also didn’t mention anything specific that you’re bringing to the table for the business in terms of unique value aside from your financial investment. Are you going to be present at the shop every day? Will that be your partner’s responsibility? So much of what I view as important in ownership of the company is WHO will be doing the work (and how that’s distributed) rather than just who’s put in what amount of money. The money is crucial in the beginning, but theoretically you could get the investment from anyone with enough money—or even a bank/other institution. The financial investment pales in comparison to the investment of time, work and sweat on a daily basis once you get started.
So my question again… who’s going to be doing what?
Ideally, you both have some different skill sets/strengths so that the division of labor can be relatively straightforward based on what you’re best at.
But if you’re just investing financially in the business and won’t be there on a daily basis, 50/50 ownership doesn’t sound fair to your partner. However, if he doesn’t plan on being there often and you’ll be doing all the work (in his building with his equipment) then I’d be hesitant to support 50/50 for the same reason that you’re doing all the work in this case.
Division of profit, especially in the early days, should be more of a reflection of the division of work as long as you have close to an equal financial stake in the business [my opinion]. Some would argue that since he owns the building and equipment already, your partner should own a larger share in the business.
I think it’s negotiable, but you should both talk about this together and find a middle ground in terms of financial investment/division of labor that gets you as close to a 50/50 split in ownership as possible.
Hey Ryan thanks a lot for everything really appreciated, just want you to know that we will be going to divide the responsibilities also 50% each, lets say we want to open the store for 12 hours per day i will be the manager for 6 hours and the same for him for the next 6 hours, so also a 50/50 split of responsibilities.In the future, ill be trying to get a deal done for our company that will be so beneficial to us ( could be considered as a very added value if it happens), another added value is that my brother will also be supporting us in our responsibilities but as a part time job “for free”, just to gain experience and doing me a favor.
Thank you for your support.
Awesome, glad it was at least a little helpful. Would you be up for reporting back here and letting me know how you end up dividing it after chatting with your partner? I’d love to hear.
And definitely let me know if there’s anything I can do to help you guys with your business.
I started a startup business with my childhood friend 6 months ago. It’s like a marriage, you can never know your partner fully well until the real deal. We hope to overcome our challenges. Good write up. I got helpful statements. Thanks
Just came across your article. Thanks for the good read!
I just wanted to ask your opinion on how to move on, and make the friendship work out even after separating from the business.
I recently parted ways from my business partners (also friends). Before I left the startup, they invited me to dinner and we kind of had a discussion on what direction the company will be heading. Eventually, it became clear that they were trying to tell me that I’m no longer needed in the startup. In the end, I decided to leave in order to avoid potential conflicts and jeopardizing our friendship. But for some reason, it still feels awkard to reach out to them (and sharing common friend circles doesn’t help either). What’s more, some of my family members also want me to stop associating with them after what had happened.
Prior to this outcome, I’ve already encountered some of the problems you pointed out in your article. Before I came into the picture, my business partners have already been been engaging in businesses together for around 2 years or so (some non-existent, some still intact) They’re best friends and literally shared everything together (including finances, business deals, contacts, etc). As for the working dynamic, one was in charge of tech, while the other was in charge of sales.
When I entered the startup, my role wasn’t as clear-cut as I imagined. Everything was verbally communicated and kept on changing. No written agreement was in place. Coming from a business background, my role focused mainly on operations and driving long-term sales goals. I got into doing creatives, marketing collaterals/content, research, HR, and even a bit of legal work. However when it came to overall decision-making, I didn’t have much to go with. My sole contribution to the venture was my time and skills. I wasn’t given any equity nor any salary. Our arrangement was that I would share in the profits once the company takes off.
Although I was in a management position, I never really felt my opinion mattered much. The only time I came in handy was when there was a disagreement between my business partners, or when a 3rd opinion was necessary. There came a point when there was no clear direction for the startup. Business strategies came changing, as well as the business’ nature. As I had no stake and funds invested into the company, I felt hesitant to intrude into some of their discussions as these would either involve deals for their other businesses, ways on managing their team members, or the allocation of funds (which all came from their personal joint account).
At this point, I’m just scared that I may have missed out on something or may have offended them in some way. I’m concerned that they told me to leave due to my incompetence to fulfill my role in the venture. When I asked them last time, they mentioned something about me missing the big picture and lacking the passion / commitment to the company. When I asked them on how I could change and adjust, they simply told me that It just wasn’t working out. This just left me dumbfounded as I am right now. T_T
JY, I would say your friendship is always more important than any business. I would recommend you to separate the business and friendship in your mind. Then try to have a thick skin and don’t pay attention to what’t going on at work. Remember, no matter what your communication at work, friends are always friends.
I live in the US and a high school best friend lives in the Philippines. We both want to start a traveling agency in Philippines . the problem is she do not have a capital to invest except she has the connections and skills to start the business. I don’t mind that at all I’m just worried of how the set up will be since I live here in the US
Wow. Some really good points that I never thought of and really need to mull over. Thinking about starting a new project with a friend and this is something that will definitely help me decide on how to do it!
Great article! I definitely want to start out on the right foot by getting everything in writing. Do you have a template for this?
It is not a problem to start a business with friends unless you run into problems and you need to split it. In this case it is better to prepare all paperwork in advance, just in case if you need it in the future. Another potential problem is that your friends may not follow your directions if you are their boss. On the other hand, the benefits are tremendous. You trust your friends, you understand them better than strangers.
Started a business with a friend we on our 4th year and we started with no foundation or written agreement and now we are in logger heads. How do we correct this going fwd?
Great question! It’s difficult for me to give specific advice without a TON more information/context about each of you, the business, how it was started, where the investment funds came from (if there was any), etc… but my best advice would be to see if you can talk together with a business attorney that can help mediate the conversation.
I am a talented and well driven graphic designer with 5 years of experience, as well as a bahons degree. I am currently based in UK
Wishing you the best of luck!