Starting a business with a friend? Possible but mitigate the 3 biggest risks.

Despite the enormous popularity of choosing cofounders from existing social relationships (friends and family being a popular pool), after the honeymoon period ends, teams with prior social relationships tend to be significantly less stable.

RISK #1

YOU THINK YOU KNOW YOUR FRIEND VERY WELL (BUT YOU MAY LEARN YOU DON’T)

Okay, so you both agree Kim Jong-Un is probably a bad man to have access to nuclear weapons, Jamie Lannister is a misunderstood character and Argentinian Malbec is great paired with dark chocolate (it really is!) but there is a whole world of difference between spending your Sunday afternoon barbecuing with your best mate and actually running a company.

The truth is that while you know your friend as a friend very well, you may assume that you know each other much better than you in reality do.

While you think that you know how your friend will handle deadlines, difficult customers and taxes, you are only making a guess. Acknowledging that familiarity is a risk, is the first step to keeping yourself and your company safe.

RISK #2

YOU AVOID DISCUSSING MONEY & COMMITMENT (AND MAY BE SORRY FOR THAT)

Have you ever been hired for a job without having a discussion on your hours, your salary and what exactly it is you’re supposed to do? Probably not. Put yourself in the shoes of an employer and get the essentials ironed out. A business partnership is after all a much deeper commitment (it’s going to take heart & soul to make it work) but because of your existing connection, you might feel less comfortable to discuss potentially ‘sensitive’ issues, like equity split or responsibilities.

If your friend is the best possible cofounder for what you want to do, you need to be able to add the professional cofounding relationship to your existing friendship. In other words, you need to be able to discuss all aspects of the business openly and respectfully and if you can’t – it’s a very important warning flag. My advice?

Do not move further until you fix it. No exceptions.

RISK #3

YOU TRUST THAT ALL IS CLEAR (AND DON’T DOCUMENT YOUR AGREEMENT)

Ok, so you have successfully manoeuvred your way through and out of Risk #2, don’t fall into the trap of NOT documenting your agreements. The tendency to rely more on trust and less on contracts, is common, but it’s a big risk. There is no reason to let the existing social relationship change how a reasonable business owner thinks and acts.

Cofounding a business with a friend can work well, but only when you take the necessary precautions. However surprising it may sound, because of the dangerous assumption that you know your friend well, you should pay even more attention to the cofounding process. 

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