Have you ever seen The Social Network? It’s the movie about how Mark Zuckerberg and Eduardo Saverin co-founded Facebook before Zuckerberg cut Saverin out of the business. Stories like these are why so many people are scared to partner with their friends and family. But some of the biggest companies in the world were co-founded by friends or family members who worked well together. Apple, Starbucks, Microsoft, Google, Airbnb. Starting a business with a friend or family member can work out well if you’re smart about it.
Here are six things you should do before going into business with a friend:
1. Assign roles
One of the biggest values to business partnerships is that each partner brings different skills, knowledge, and connections to the table. A good partnership lets you split the work and the effort so you can execute on your mission faster. But that only works if everybody involved understands their role and plays it properly.
Before starting a business with a friend, make sure you both understand what role you’re going to have. Who’s going to handle customer service and sales? Who’s going to be responsible for all the marketing? Which one of you is going to take care of the accounting and finance stuff? Figure out early on who would be most effective at all the tasks you need to get done. Once you know this, you won’t waste time arguing about responsibilities and important things won’t get forgotten.
2. Set boundaries
Friendship and business are two separate things. Just because you’re starting a business with a friend doesn’t mean that you don’t need to figure out rules and boundaries. You probably need those rules and boundaries even more because your friendship will make you comfortable. So, it’s important to get clear about expectations from the get-go.
These rules can be about everything from how often you meet and how you communicate about business to how you share your office space or spend business funds. Talk about things like whether you’ll work weekends or invite other people into the office or share certain business details on social media. Think about all the things you could possibly disagree on and create some boundaries and rules you’re both comfortable with. It seems like an annoying thing to have to do, but it could save your friendship if there are business disputes.
3. Discuss equity
A lot of business partnerships fall apart because of arguments about who owns what. It’s easy to ignore equity at the beginning when your revenue is $0. But you don’t want to wait until the money starts coming in to have that conversation. To avoid conflicts (and lawsuits like the one between Savarin and Zuckerberg), discuss financial and non-financial equity splits from the beginning.
There are a few different ways that equity can be split. You can decide to go with equal ownership, meaning that each of you own 50% of the company, including profit (and shares if your company ever goes public). This might also mean that you’re both equally responsible for expenses and debt too. Or you can choose to do a different split based on how much each founder invested at the start, who came up with the business idea, or who was in the business longer. Whatever you decide, figure it out and come to an agreement in the early days of your business.
4. Plan your exit
Most million- and billion-dollar founders don’t run their businesses forever. Whether they’re retiring, moving on to new ventures, or stepping back for health or family reasons, they eventually stop being involved in the day-to-day operations. A lot of founders end up selling their business to a bigger corporation for a profit, taking the company public on the stock market, or passing it down to a family member. Some smaller companies might choose to just go out of business, liquidate, and walk away with the cash. Either way, it’s always good to have an exit strategy.
When you’re running your business by yourself, you can come up with whatever exit strategy you want, but if you have a partner, you have to both agree on what your exit will look like. Will you want to sell in 5 years or 10? Are you going to pass the company on to one of your kids? What happens if one of you wants to retire before the other person? Don’t assume that just because your partner is a friend that you’ll both want the same thing. You need to have a conversation about what a good exit looks like for both of you and create a plan for when that time comes.
5. Sign contracts
If you’re starting a business with a friend or family member, you probably trust them. Chances are you had a great conversation about what the partnership would be like and what you both expect. All of that is great, but you still need a contract. Contracts aren’t just for clients and acquaintances. Contracts are there to protect you no matter who you’re working with.
After you’ve talked about all the things on this list—roles, boundaries, equity, exit strategy—you need to solidify it with an official agreement or contract. If you ever end up in a situation where things aren’t going to plan, verbal agreements aren’t going to be enough. A written and signed contract makes sure you, your business, your equity, and your investments are protected. Hopefully you never end up in a situation where you need to pull up that contract, but it’s better to be prepared.
6. Communicate often
When I say often, I mean all the time. No matter how close you and your friend are, neither of you are mind readers. You need to communicate a lot. And don’t wait until things are on fire or your business is in crisis before you communicate with your business partner. You should be having regular business meetings about the mission and vision for your business; your strategies, processes, and operations; methods for growing your audience and your revenue; and ways to scale your business.
If you and your business partner are communicating consistently, when things go wrong, you’ll be better prepared to handle it. Regular communication is also how you avoid stupid conflicts that could lead to the breakdown of your partnership. How often you meet and where is up to you, just make sure you’re prioritizing those strategic conversations.
Entrepreneurship can be tough to do alone. If you’ve got a friend or family member who shares your vision and is willing to put in the work to build with you, a partnership can be a good idea. Just don’t make the mistake of thinking that just because you know them that you don’t have to treat it like business. If you’re gonna mix your personal life with your professional life, following these steps can help you protect both.
To get more tips and tools like this, sign up for my monthly membership program, The Inner Circle, and get exclusive content to hone your business skills.