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The pitfalls of starting a business with a friend

When starting a new venture, there’s no relationship more important than the one you have with your business partner. It informs everything: leadership, support, goals, strategy, culture. Starting a business with a friend can offer you both a lot of value, but only when done right.

Great friends don’t always make good business partners. Some people have the right dynamic to work well together without the need to share their personal time. It all comes down to one question:

What do we need to thrive as professionals as well as friends?

How to be best friend entrepreneurs

Friends who also make good business partners are rare. But as hard as they are to find, they can be just as rewarding. Those relationships are worth celebrating, but they’re also worth protecting. So what does it take to be best friends and business partners?

At the start of the year, we wrote a piece about leaders helping managers become more effective leaders. Leadership and partnerships share a core value: emotional intelligence. Simply put 一 the ability to identify, understand, and engage with emotions.

Friendships allow for stronger emotional connections than professional relationships. But when it comes to managing a relationship, they both need a high level of emotional intelligence.

A business partner needs to be self-aware enough to recognize their impact on the relationship. They need to be socially aware enough to empathise with their partner’s feelings, especially when working through conflict.

Starting a new business is stressful. It can generate friction even in lifelong friends. The goal shouldn’t be to avoid this but to consider it before committing to a new venture. Knowing the potential pitfalls will help you assess if your friendship aligns with your business goals.

Let’s break them down.

What to consider when starting a new business together

To make it easier to evaluate, we’ve split the main issues into five key points. Don’t worry, they aren’t signs that a partnership is doomed. Instead, they’re discussions all friends should have beforehand.

They’ll help you both keep a grounded perspective, and give you insights into any hurdles you’ll need to overcome for success.

Investment and ownership

Finances are a crucial part of starting a business. As partners, you’ll both need to invest in getting your dream up and running. That doesn’t necessarily mean going 50/50 一 you can decide on any split, so long as both parties agree on it.

Keep in mind that investment directly correlates to ownership in a business. Always be clear about what you put in, and the shares allocated to that amount. A written agreement isn’t just a legal document, it’s a way to avoid future disputes.

A future round of investment will affect share allocation too. Make sure you’re on the same page about how it’ll impact ownership going forward.

Roles and responsibilities

While you’re both business partners, you’ll have different roles within the actual company. Where you place yourselves in that structure needs careful consideration. You want to assign roles that keep the workload fair while making the most of your individual skills.

Every role comes with responsibilities and objectives. Define yours as you would for any other position in the company 一 clearly and in writing. Make sure you set up the objectives using the SMART framework.

Expectations and agreements

Responsibilities are the performance targets that define your job. Expectations are the shared goals your business relationship is founded on. It’s the understanding you both have about what you want to get out of the business, and how to achieve that.

Finances aren’t the only resource you’re investing. You’ll also be putting in time based on your commitment to success. Being in agreement about your expectations of each other is the key to a strong partnership.

As the two most senior figures, your relationship should serve as an example to the rest of the company. It should inspire a company culture where everyone believes in the work they’re doing and trusts every member of the team.

Professional and personal boundaries

Even when you address those three issues, it’s worth considering how a business can still change your friendship. Both relationships inform each other, and you’ll need clear boundaries to help them co-exist in a fulfilling way.

How you handle disagreements as co-founders won’t be the same way you deal with them as friends. That isn’t just okay, it’s healthy! Personal and professional matters need different management styles.

In both cases, ask yourselves:

A neutral third party

You may not always have the right balance of skills, traits, and experience to face every challenge, especially in the early days. Even two seasoned business partners can have blind spots.

Say, for example, you both have excellent auditing skills, but don’t work well under pressure. Ignoring that could create major problems down the line. So what if you had a third partner, one who specialised in a missing skill or adds a quality to the dynamic?

If things do get personal, a neutral third party can help mediate conflict too. There’s value in an objective perspective, and that’s true in business and in life.

Need help starting a new business with a friend?

At LodgeCourt, we specialise in helping you start your venture in the best way. We offer a full suite of management services that focus on employee development, business growth, and high-performing teams. Contact us today and give your business the support it deserves!

About Us – We enrich businesses by instilling our passion for developing people and organisations. Using our diverse experience and extensive knowledge, we flexibly support businesses with a pragmatic but personable approach to people management.

Disclaimer – The contents of this blog do not constitute legal advice and are provided for general information purposes only. We can only advise on the basis of specific client instructions and are unable to offer legal advice by email to anyone who are not our clients. To find out more about becoming a client of Lodge Court please talk to us.