“All lasting business is built on friendship.” Alfred A. Montapert
Imagine spending everyday with your best friend working on a project you were both super passionate about. In the movies and TV shows, everything seems to go swimmingly with friends that start businesses together. It seems like starting a joint venture is just another opportunity for them to form more inside jokes while wearing really awesome outfits. But in reality, mixing friendship with business can be a very dangerous dance. You may think your friendship with a person can sustain anything but once you enter the very tough and challenging world of startups where you either sink or swim, relationships will be tested very quickly and they may not make it. We talked with people who went into business with friends and either said goodbye to their business or goodbye to their friend.
Women-owned or led firms are the fastest growing sector of new venture creation in the U.S., growing at five times the rate of all new firms between 1997 and 2006 – now representing nearly 50% of all privately held businesses. In the past 10 years more than 125 companies with over 200 women co-founders or officers have achieved IPOs or $50 million M&A exits in the U.S. high-tech sector alone. Obviously some friends have figured out how to work together and build a successful business. We have seen some amazing success stories like Rent the Runway (founders Jennifer Hyman and Jennifer Fleiss met in business school), Gilt Groupe (founders Alexis Maybank and Alexandra Wilkis Wilson met in b-school as well) but these pairings may have been exceptions.
Aimee Elizabeth, author of Poverty Sucks! How To Become A Self-Made Millionaire told The Grindstone:
“The first business I had a friend as my partner because I lacked confidence. I supplied all the start up capital, and my friend/partner promised to pay me back. I ended up doing all the work to market the business, and we both performed the services, but she never paid me back a nickel. And the quality of her work was so poor that we kept getting fired from accounts I picked up for us. So basically I had a partner who didn’t carry her own weight, she behaved like a bad employee instead of a business owner. Finally, I ended the partnership and immediately re-started on my own as sole proprietor and I did great.
The second friend-turned-partner I had was in a night club business. He had experience, and I had none, so I again lacked confidence and went the partner route. I soon found out that his “experience” primarily consisted of drinking heavily and giving away free drinks to customers. He was running the business into the ground. Whenever I tried to come up with new ideas to help the business, he just yelled at me until I backed down. Soon he was talking about filing for bankruptcy. Fine for him, as like my first partner he lacked money and did none of the work. I still had assets I wanted to protect, so I saw a lawyer and again legally “fired” him from the partnership. He cussed me out and called me all sorts of names, but he should thank me because I saved his credit. I got the business out of the red in three months, and in the fourth month, I sold it. While I had enough business skill to turn the business around, I knew I didn’t have enough specific nightclub experience to sustain it.
Both experiences have taught me to “Just Say NO!” to partners. It ruins both the friendship and the business. If you lack confidence or a certain skill set, just hire an employee instead. If they don’t work out, you can always fire them – much easier and cheaper than a legal divorce from a partner.”
But this is not just a problem afflicting female entrepreneurs. Author Craig Garber told The Grindstone:
“I’ve been in TWO separate businesses with friends, that didn’t work out. And in both situations, it was for the same reason: What the person brought to the table wasn’t enough to make the partnership viable. You’ve got to have separate and complimentary skill sets, to justify the value of a partnership, or else it doesn’t work.”