Just from reading the title of this post, I’d be willing to bet that some of you are already shaking your head. We’ve all heard the old adage, “don’t mix friendship and business” and that’s generally good advice. Some people will go as far as to say that the easiest way to lose a friend is to go into business with them.
Yes, there is some truth to it all, but believe it or not, good partnerships are actually possible. Sometimes it can even result in a good deal of synergy.
Why Go into Business with Friends?
Starting up a business can be capital intensive, ie. expensive. Opening up a well-known franchise easily requires hundreds of thousands of dollars. Purchasing a multi-family rental property may require the same. Sure it'd be great if you had all that “dry powder” sitting around to invest, however, if you're like me, you hate having cash sitting around. So it turns out, you might need some additional capital for an investment and a good friend is an easy place to start.
If you're a full-time working physician and looking to take on a side hustle, you may simply not have the time to take on the entire project by yourself. This isn’t exclusive to physicians, either. If you already have a full-time job or a family (or both), sometimes you need a friend or partner to help shoulder the responsibilities.
Maybe when it comes down to it, you’re a little bit hesitant to start a new venture alone. Let's be honest, most of us are only trained to follow one career path. When it comes to trying other professional ventures, it's “learn as you go.”
Going into business with a good friend can appealing because you’re in it together. The added benefit here is that you learn from them, they learn from you, and you both likely learn faster and more efficiently about how to run that business.
The previous are all good reasons, but really, the best reason to have a friend as a business partner is the most important aspect of a partnership, TRUST. When you partner with a friend, if it’s a true friend, that trust has already been established.
Friendships are based on mutual interest, values, and perspectives. For some, there's no better way to cultivate those things but to go into business together. How many of you have sat together over dinner and cooked up fun business ideas? Talking about it is fun, and the building process can be fun as well. Many great businesses today were created in that same way – friends talking about how to make things better or change the world, ex. Apple, Facebook, Google, etc.
Have I Formed Business Partnerships with Friends?
I’ve been fortunate enough to have some great business partnerships with close friends. I’ve invested with them in the following ventures:
- Bought an apartment building
- Invested in fix-and-flips
- Invested in real estate syndications operated by friends
- Angel invested together – we've pooled funds and invested in startups together
- Angel invested directly in companies run and operated by friends as an early investor
Now, admittedly, these ventures have not always gone perfectly smoothly and are not without occasional issues. But we’ve been able to navigate past those (knock on wood) and the business relationships and friendships have been strengthened because of it.
Tips for Working with Friends
So, if you’re considering going into business with a friend, here are some tips I’ve picked up through my own experiences:
Establish the Business Relationship in Writing
This can be in the form of an LLC or legal entity. It is extremely important to talk through all the logistics of your partnership – dissolution, addition, what if someone wants out, etc. If a problem arises, everything will already have been outlined and agreed upon on paper, so conflicts and misunderstandings are much more easily resolved.
Establish Regular Meetings
We’ve all heard of the importance of communication in relationships. In business, just like it is with spouses, if there isn’t constant communication, misunderstandings arise and resentment can begins to seep in. Make sure to specify times and places to discuss things. Make sure you’re still on the same page, and if you’re not, find out why.
Establish That Your Friendship Takes Priority
…and be willing to talk about dissolving the business if necessary. Remember, your friendship is your first priority. Communicate early and often that if things start to sour, an honest conversation about whether the business can continue to thrive needs to happen. Be willing to chalk it up as a learning experience and leave it at that. The important thing that is that you’re able walk away with your friendship intact. At the end of the day, a good friendship is far more valuable than any amount of money.
Have you ever gone into business with friends? How did that go? What have you learned?