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Never go into business with a friend

Or, for that matter, even *talk* about going into business.  The latter is what burned me this week.

In this story, is Mike and Dan, both non-programmer designers.  Dan is a friend, Mike is a friend of Dan's.  Now, Mike gets a decent idea and wants to develop it.  Dan gets wind of it, and introduces Mike to me.

So, the three of us talk over it for an hour, and think, yes, let's do this.

(lights dim)
In the meantime, an angel investor becomes interested in putting $50k into the business.  However, they're not sure what Dan's role would be.  Dan and Mike are both designers.  And, Dan is already working full time at his day job, supporting his wife and two young kids.  Mike and I can work on this full time for a year without a need for a salary.

Taking the investor's lead, Mike tells Dan that there's no need for him.  Dan feels mightily screwed over and all relationships are damaged, just like that.  And, no work has even occurred.

Ctrl-z, Ctrl-z, Ctrl-z
Derek
Saturday, June 07, 2008
 
 
Did you think to talk to Dan first about what type of roll he could play?  I think this could have been handled with tact.  You try and point out the full time roll vs. the part time roll and see if he was interested in a 20% partnership or something along those lines.

Of course, we are only reading part of the story and perhaps Dan was going to contribute nothing more than being the facilitator between you and Mike.
xxrrxx Send private email
Saturday, June 07, 2008
 
 
Dan just learned a valuable lesson about business, and the fact that he didn't know this from the start indicates he would not have been a good business partner in the first place.
The Original Henry
Saturday, June 07, 2008
 
 
Rough. But it could be worse. All this could have happen after you got funding and dan had a 20% stake.

If dan can't handle a simple challenge ("what are you going to give in exchange for your equity?"), how on earth is he going to act when things get tough? IMHO, entrepreneurs can't be afraid to fight for what's theirs.
Starr Horne (ChatSpring Live Chat) Send private email
Saturday, June 07, 2008
 
 
Obviously Dan deserves 1/3 equity for the simple task of introducing you.

And I deserve 25% equity for bringing you this advice.

And the pizza guy should get 20% equity as well.

Or wait, maybe it is not normal to own something unless you actually do some work.
Scott
Saturday, June 07, 2008
 
 
What was Dan going to be contributing to the business?

Sounds like the only thing that Dan brought to the table was the initial introduction. Was he expecting equity just for that? If so, everyone is better off without him because that is a bit unreasonable.
Mark Hoffman Send private email
Saturday, June 07, 2008
 
 
Even before I read your post (and I didn't get past the title), I dis-agree with you.

I think it is ill-advised to say "never", based on your single personal experience (or even more).

I concede there are always pros and cons, but it is upto you to weigh up the consequences and the relationship before you dive into going business with a friend.

From personal experience (and from experiences of people I know), going into business with a friend is the best thing that happened to us. The mutual respect, motivation and constant feeding off each other's ideas and intellect, has really helped us get to where we are now.

On the other side of the coin, when there ARE disputes, we know how to deal with them and move past them (that is what friends are for).

So, feel free to present your personal experience and make a case but don't be as bold as to make headlines like this post's title.
Sarat Pediredla Send private email
Saturday, June 07, 2008
 
 
So you didn't actually go into business with your friend.. Your headline has nothing to do with your post, please don't do that.

No wonder Dan's upset, his two 'friends' said they'd go into business with him and cut him out at the first opportunity.

Also, from what I gather Dan wasn't present in the meeting with the investors. Whose idea was that?

Saturday, June 07, 2008
 
 
right off the top of my head...

Bill Gates and Steve Paul Allen
Steve Jobs and Steve Wozniak
Larry Page and Sergey Brin
Bill Hewlett and David Packer
Jerry Yang and David Filo

I'd guess that most successful partnerships start off from friendships
Jason Send private email
Saturday, June 07, 2008
 
 
er, I'm not sure how that extra "Steve" snuck in front of "Paul Allen"
Jason Send private email
Saturday, June 07, 2008
 
 
Their problem was that it was two guys with the same skills apparently wanting to play the same roles.  Successful two-person partnerships tend to be those involving complementary skills or roles -- one guy is the programmer, the other is the marketer/manager, for example.
T. Norman
Saturday, June 07, 2008
 
 
Yea, good point above.

Why wasn't Dan in this meeting with the investor?? That's shady to begin with and it sounds like he dodged a bullet anyway.

Saturday, June 07, 2008
 
 
Dan's a loser.
onanon
Saturday, June 07, 2008
 
 
"Bill Gates and Paul Allen
Steve Jobs and Steve Wozniak
Larry Page and Sergey Brin
Bill Hewlett and David Packer
Jerry Yang and David Filo"

Nice list. I noticed none of the entries had THREE names on it, including a third wheel with no skills who introduced the pair. Could there be a reason for that? Because the introducer should get equity, yes?

Or is it three's a crowd when it comes to two-person partnerships?
Tony Chang
Sunday, June 08, 2008
 
 
I think there is a lot to be said for going into business with friends. For me, trust in a business partner is extremely important and it's a hard thing to build overnight. Much easier with someone you've known for 5 years.
Martin
Sunday, June 08, 2008
 
 
@Tony Change - not sure of the exact names, but 37 Signals started as a 3 man team, and nobody can argue that they're not very successful at this point.
Nathan Ridley Send private email
Sunday, June 08, 2008
 
 
The problem isn't going into business with a friend (which can work).  It's going into business with a friend that takes advantage of your friendship and expects you to do things that you otherwise wouldn't do in a business relationship (such as giving them a large percentage of the business without the same amount of work).

The guy has a full-time job and a wife+kids.  With that in mind, I don't think he can offer that much.  Plus, it's going to be a huge risk for him to quit his job for this venture..which may not even be an option until the business is up and running and stable.
beta nerd
Sunday, June 08, 2008
 
 
Going into business with a friend is in general not the best idea as business and friendship work with contrary mechanisms.

When in business your partner doesn't perform you will have to act in it, maybe even quit the business relationship and push him out. If performance isn't what counts the business will never strive.

When a friend does not perform any more (in what ever role) and he is a real friend you have to step in and provide support - without asking any questions about the potential "return" of your engagement.
Lucius B. Send private email
Sunday, June 08, 2008
 
 
I agree - we should all trust the success of our businesses to our mortal enemies - clearly our friends would screw us over, but those guys are great. If we can't find enough of them, random strangers off craigslist would be the best business partners imaginable.

Or, failing those options, venture capitalists always have a supply of spare CEOs waiting to run our businesses in our best interest. Maybe we should trust those guys? They are in the busines sof being angels, and not in the business of taking the profit from our hard work.

Geeks and business?  Sounds like a bad plan.

Sunday, June 08, 2008
 
 
"I agree - we should all trust the success of our businesses to our mortal enemies - clearly our friends would screw us over, but those guys are great. If we can't find enough of them, random strangers off craigslist would be the best business partners imaginable."

You missed the point of our posts completely.  I have been in business with friends many times and more times than not, they take advantage of the situation because you are friends.  It's similar to hiring your friends or lending friends/family money.

But, it can work.  You just need to have a friend that understands the way a business works.

"Or, failing those options, venture capitalists always have a supply of spare CEOs waiting to run our businesses in our best interest. Maybe we should trust those guys? They are in the busines sof being angels, and not in the business of taking the profit from our hard work.

Geeks and business?  Sounds like a bad plan."

You must be a geek or just have never started or been a part of a business.
beta nerd
Monday, June 09, 2008
 
 
Jason :'er, I'm not sure how that extra "Steve" snuck in front of "Paul Allen"'

Steve Ballmer is a friend of Bill Gates.  [Insert conspiracy theory here.]

Sincerely,

Gene Wirchenko
Gene Wirchenko Send private email
Tuesday, June 10, 2008
 
 

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