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Everything You Need to Know Before Starting a Business with Friends

October 21,2018 01:26

In my younger and more vulnerable years (last spring), my friend and I conceived a T-shirt idea that we thought was sure to make us millions of dollars, or, worst-case scenario, allow us to break even. It's been nearly seven months since we made them ...


In my younger and more vulnerable years (last spring), my friend and I conceived a T-shirt idea that we thought was sure to make us millions of dollars, or, worst-case scenario, allow us to break even. It's been nearly seven months since we made them, and I'm still out about $400. The conceit was simple and brilliant: At the top of the shirt, very serious phrases—"I love my parents equally,""I will find love." Beneath it, in parentheses, would read: "(LOL JK)." We thought it was very funny and ironic, and after we ordered approximately 200 white shirts, chose our favorite sentences ("I'm completely over my ex-girlfriend"), and created an Etsy account, we promptly did absolutely nothing else. The merchandise now sits in a storage unit somewhere in Queens, secured in garbage bags. We've convinced ourselves we'll get around to selling them one day. We won't.
There are several reasons it immediately plummeted. One was largely due to our complete lack of effort. But, truly, we were doomed from the start. Neither of us have ever been particularly apt at pursuing passion projects outside of our chosen careers. (One day I'll tell you all about my startup venture, Airbnbnb, a hotel service for Airbnb hosts while they're renting out their houses on Airbnb.) We didn't succeed because the parameters of our friendship—cracking jokes and taking nothing seriously—didn't encourage a sound economic model. The lines of business and friendship were blurred, and the tenor of our friendship overrode everything else. It was always personal; it was never business. In other words: We're still pals, because none of it ever actually mattered. Altogether, we lost nearly $1,000. But what if it had been considerably more? What if it was something I actually had to depend on rather than joke around about?
Going into business with your friends can be, well, tricky business. Just ask Tessio in The Godfather, or Mark Zuckerberg: The former might be a rather extreme example (most of your loved ones wouldn't murder you after acts of betrayal), and the latter a bit unlikely (there's probably not much of chance you're going to redefine the internet and get sued by twins on the Harvard crew team). But both of them point, really, toward the key consideration, if you're ever weighing such an option: Know yourself, and know your friends.
"I suppose if you're the kind of person who's liable to, say, a mob line of thinking, you're more likely to have friends who are as well," Brian Berkey, an assistant professor of legal studies and business ethics at the University of Pennsylvania's Wharton School of Business, told me over the phone. "People can be drawn to discounting the moral importance of other people's interests more when they are part of a group where everyone strongly identifies with one another."
You should be aware, first and foremost, of what you're getting yourself into—and how it could affect your relationships, because they'll probably never be the same. "Obviously, one of the main issues that would be relevant is the possibility of conflicts over money," said Berkey. That's if you get that far.
Most important are the things that come up before even a dime is spent, issues of communication—setting "the ground rules," keeping arguments in check, and clearly defining roles, as Mashable pointed out in this helpful piece about starting a business with a friend "without ripping each others' throats out." These are major things that need to be hammered out before beginning down a path like this. Entrepreneur cautions friends starting a biz together to "have the tough conversations early"; "new perspectives are crucial." Frances Dickens, who founded an advertising firm with his friend, told the Guardian in 2015 that it was a bit like getting married, and compromises have to be agreed upon regarding divided duties, time management, and so forth. In other words, to make the business work, you have to put it in front of the friendship. And it may not work as a result. You have to know going in that it's something you feel is worth potentially sacrificing. (How many times have you heard the phrase, "Don't mix business with pleasure"?)
It's not all bad news though, of course. Screaming matches over finances and hard convos aside, there are obvious benefits to running a company with your buddies, and it's clearly not an impossible thing to do—everyone from the Airbnb guys to the Warby Parker dudes to Ben and Jerry have found a way to make it work without killing each other.
"Trust is a key to any successful business," said Tae Wan Kim, an associate professor of Business Ethics at Carnegie Mellon's Tepper School of Business. "Jewish merchants in New York's Diamond District are a great example, as they don't write a contract. The business is entirely based on trust and friendship. Contracts are an important business tool, but contracts are always incomplete. The void can be filled by trust, and friendship is a great fuel to engender trust. Family-owned small businesses are based, of course, on a similar concept."
"One major advantage might be that you'd have more of a reason to trust the people who you're engaged in the enterprise with," Berkey agreed, clarifying that this would only be the case if you—you know—trusted your friends.
Which is all to say: Have a plan before you order your 200 shirts.
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