Is starting a company with a friend a good idea?

Wednesday March 14, 2018 , 4 min Read

S/he’s your BFF, but would getting into a business together work well? Here are the pros and cons you should consider before starting up with a friend.

Recently someone asked me if it was a good idea to start a business with a friend? “Most people whom I have met have advised against this. Without a proper plan and strategy, friendship and business can work against each other, they say. How do I ensure that I keep my friendship safe and the business running,” I was asked.

To be honest, starting up with friends can be a double-edged sword. While there is no right answer to this question, I will try my best to give you the most unbiased opinion by evaluating the pros and cons of starting a business with a friend.

The pros

There are many pros that will come to mind when you think of your best friend as your co-founder. Here are the top 3 pros of starting up with your friend.

1) You can trust your friend. Business requires trust and comfort to flourish. Always remember “a known devil is better than an unknown angel”!

2) Many startups fail because their co-founders fight or don't align their thought processes. Having a friend who already understands you works well as a business partner

3) It's fun to have friends as part of your startup journey. If you don't enjoy your journey, then there is no point. Through your ups and downs, you will have a strong shoulder to sail through the tough times.

The cons

Here comes the tricky part of this business. No matter how thick friends you are, here are the few downsides of having your best friend as your business partner.

1) There is high probability that when things are not going well, a few co-founders might lose focus. Or if something personal comes up such as a wedding, MBA, health issues, etc.

2) It is possible your friend starts taking things for granted. At this point, it becomes extremely difficult to have tough conversations and take hard decisions if you are dealing with a friend .

3) Another downside is that your friends, like any other co-founder, have invested a significant stake in the business. You are stuck because you never really thought through a perfect exit strategy in case things didn’t go as per plan!

So, what is the solution?

I would suggest that you have the most uncomfortable discussions upfront. Don’t think about sugar-coating things because s/he is your friend. Be as honest as possible and make sure to keep friendship separate from business.

One of the main reasons why startups fail is because co-founders have difficulty in aligning their thought process and end up fighting. At the start of things, you are very enthusiastic and incorporate a company with 50-50 percent stake holding. But slowly, one of you may begin to lose interest and start slacking at work. You need to be careful about such things.

So, before on-boarding a friend, have a clear-cut idea about his/her strengths and weaknesses, and what skills they will bring to the table.

Also, have a clear vesting period (for example, 25 percent stock vesting per year), KPIs, and exit strategy in place. In a couple of years, if one of your friends plans to leave the company, you should be able to give them their share of profits and this is possible only when you have all the paperwork in place.

If expectations and structure are set right in the beginning, it becomes easy for everyone to work within that framework.

In this video below, I speak in depth about the different consequences of starting up with friends. Watch this to clear all your misconceptions!