7 Reasons You Don’t Want to Start a Business with Friends

Contributed to EO by Frank Hamilton, a professional writer and translator at The Word Point.

Starting a business is an exciting adventure that can take you to the highest highs and also the lowest entrepreneurial pitfalls. So, when you think about going into business with a partner, it is understandable why some people choose to embark on startups with friends. After all, it could be one of the most exciting things to do with your best friend. And who could be a better business partner than your best friend?

Going Into Business With A Partner

Businesses with friends can be hard work at best, acrimonious at worst. That’s just one reason it is a best practice to sign a legal partnership agreement no matter who you choose as a business partner.

If you and a friend decide to form a business relationship, your partnership agreement should outline your specific business responsibilities. In an ideal scenario, you would respect each other’s professional boundaries, differentiate your personal vs. business relationship, enjoy a high level of trust in business dealings, share roles and responsibilities equally, and have similar financial expectations.

However, you might be surprised by the range of obstacles you could face as friends in a business relationship. There is a strong possibility of financial strain, communication breakdown, and decision-making conflicts in any business relationship, just to name a few. Your startup with friends could even run the risk of friendship loss if you experience a business failure or you cannot come to a satisfactory conflict resolution over any differences you discover.

7 Reasons Not To Go Into Business With Friends

Here are just seven reasons to think twice and consider every aspect of entrepreneur partnership challenges before you launch a business with friends.

1. Don’t Confuse Friendship with Business Compatibility

One of the biggest—and most disappointing—surprises about starting a business with friends is realizing your friendship doesn’t automatically mean business compatibility. In fact, it is often quite the opposite. If you can’t find a way to manage the business together, you won’t make it far.

One challenge in running a business is that certain tasks must be performed on a daily basis. Your friends might end up being the ones performing these day-to-day tasks. If they feel like they should be the ones in charge, they might rebel and stop doing what they should be doing.

2. Don’t Neglect to Clearly Define Business Roles

There will be some kind of hierarchy in your newly formed business. But the difference between a friendship and a business is that friendships don’t have pre-determined structures with clearly defined roles. You will need to start brainstorming what each person should do—personal vs. business—and that often leads to conflict.

A straightforward way friends can try to resolve this issue is simply by avoiding it. If they don’t define roles, then nobody will be angry, right? Beware, though, because a lack of hierarchy in a business can lead to its failure. A very detailed partnership agreement can be the key to maintaining friendships when you go into business together.

3. Don’t Discount the Possibility of Failure

When working with friends, the price of failure is great. People who go into startups with friends would be wise to remember that about half of all businesses fail during the first two years of their existence. Business failure obviously affects you financially and professionally. But if your company doesn’t succeed when you are working with friends, you will also be affected on a personal level. Can your friendship survive?

4. Don’t Assume Friends’ Business Goals Are Similar

Be sure to thoroughly assess your goals and motivations. While you might be motivated to launch a business with friends because you want creative freedom, your friend and business partner may prioritize financial success. When motivations vary, goals often turn out to be different, too. That can lead to decision-making conflicts and a host of other issues to resolve while trying to maintain your friendship in business.

Having different goals can lead to ineffective efforts. If you truly want to achieve something—whether the goal is creative freedom, financial success, or making a positive contribution to society—you will need to concentrate on one single aim together.

5. Don’t Forget Emotions Often Override Common Sense

Emotions can be incredibly effective in ruining both your workflow and your relationships. If you let them control and manipulate you rather than constraining them, emotions can destroy your startup with friends. And no matter how disciplined you are, it can be hard to maintain professional boundaries when you are in business with friends you have known for years.

When your friends make a mistake, you may be more likely to forgive them for it because they are your friends. But personal vs. business mistakes can be quite different. You might be less objective during essential business decisions and less likely to act according to reason.

6. Don’t Assume Your Friends Are Business Savvy

Businesses based on friendship often lack expertise. Are your friends genuinely skilled and suited to the roles you need in a startup partnership? Of course, to solve this, you can look for professionals to add to your team, but what use are your friends then?

7. Don’t Forget That Startup Finances Can Be Strained

If you are relying solely on startup funding from your friends, you may quickly run into trouble. With no actual influx of capital into your business, you could be looking at a dangerous mix of emotions, finances, and ego. If one of your friends invests more than you or the others, will they expect more control over the business and decisions related to it? Will you feel comfortable asking for more money? What are the terms of repayment?

Carefully consider all the disadvantages of starting a business with friends before you do it. While there are well-known stories of success among business partners and friends, there are also many tales of friendships falling apart in the process (just think about what happened with Mark Zuckerberg and his friends during the creation of Facebook).

Anyone who is trying to determine the risks vs. rewards of going into business with friends would be smart to first identify the potential obstacles and move cautiously forward if you are willing to take the risk.