Family, friends, and business don’t mix. Be in the startup game long enough and you’ll learn first hand why this mantra persists. Even if you’re just starting on your entrepreneurial journey, you are bound to know someone who started something with a friend or a family member who then had both their startup and their relationship take a turn for the worse. If you haven’t met someone, well guess what, you’ve met me.
I started a company with my best friend. A man I consider to be my brother. A man with whom I went off to war. A man who I trusted wholeheartedly (and still do). Because of our bond, we dove right into building our company. From incorporation to funding to building a team we were in lock step. The first months were great. But after a while friction started to come up. We then started disagreeing on some fundamental issues. Later, it became apparent that even the end goals that we envisioned were different.
After all of the enthusiasm and hard work, we ended up arranging an exit. Sure, it’s nice to exit (even if it’s not for the reasons you envisioned). But at the time, we weren’t just successfully exiting the startup we built, we were successfully exiting our relationship.
Entrepreneurs are always watching and learning from the world around them. As I sat in my hotel room in Buenos Aires, I couldn’t help but notice the tower outside my window. Low and behold, it was a gift to Argentina from the British in 1909. Originally called the Torre de los Ingleses, it is now formally referred to as the Torre Monumental. Across from the Torre Monumental stands the reminder of how quickly Argentinians and British fell out with one another and the pain which that falling out caused, the Monumento a los caídos en Malvinas, or as we know it in English, the Monument to the Fallen in the Falklands.
The history of the Falkland Islands and the Falklands War aren’t just interesting, they also serve as a cautionary tale of how quickly people can fall out with one another. They serve as a reminder on how time and circumstance are the most dangerous of enemies to the status quo and to amicable understanding. Your startup and your handshake, unwritten down understanding with your friends and family will inevitably be torn down to by time and circumstance. However, there are several key things that you can do to mitigate the damages of when this happens.
Write everything down and sign it
When everything is going well and all heads are nodding in agreement this might seem like a waste of time, but it’s anything but. Communication is a two way street and just because you are nodding your head at what your friend or family member is saying, doesn’t mean that you’re nodding your head at what your friend or family member means. Writing down the startup’s goals, your responsibilities, expectations of time and money to be put in, and even under which circumstances you would sell forces all sides to read in black and white what is being said, and signing a piece of paper normally forces people to make sure that they understand and are in agreement with what is being signed.
Pay for legal
Paying for lawyers suck. There’s no way around it. Even when you have loads of money coming in, you’re gonna still hate to pay that legal bill. But, paying for a good lawyer is going to be one of the best investments you can make in your startup. From employment agreements to share distribution, making sure that your startup is operating on a sound legal footing is going to pay massive dividends the longer you are in business (which means don’t take what I wrote as the Gospel. I’m not a lawyer).
Ask most first time entrepreneurs about who much equity do they and their co-founder own and they’ll reply with 100%. In fact, splitting up the ownership of your company in this manner will cause pain. Unfortunately, co-founders aren’t always active in the business. You don’t want your co-founder leaving with the other 50% of the company if you’re still out there busting your ass every day. Make sure to vest everyone in your startup.
Big problems grow from little ones. Often because you have a strong relationship with your family or friend, you aren’t going to be as upfront with them about problems as you would be with someone with whom you weren’t as close. Acting this way, only leads to massive conflict down the line, because if you’re not being honest because of your relationship, most likely your co-founder isn’t being honest with you. Get into the habit of separating business from your personal lives.
At the end of the day, there is always going to be another business. But, take it from me, the likelihood that another family member or great friend is going to come into your life is small. Don’t let business strife destroy your relationship.
It took my former co-founder and I time to build back our relationship to where it was before we built our company. Time is the one thing that you’ll never get back. So before you get into business with someone you care about, make a commitment to the four steps above.
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