Can Friends Make Good Business Partners? 7 Ways to Make it Work

It starts with a good idea. Tired of venting about not having enough money, friends decide: ‘Let’s start a business!’

Then the trouble starts. The dynamics of the relationship change, and the complaints emerge. ‘She’s too bossy!’ or ‘He’s not working hard enough. The blame and fingerpointing starts, and the friendship and the business deteriorate.

Despite these horror stories, some partnerships do thrive and prosper—but it obviously takes more than friendship and a good idea. Here are some things to consider.

1. How do you handle disagreements?

Friends can fight and still end up ‘closer than ever’ but the conflicts are quite different in a business environment. For one thing, money is involved—so it’s harder to shrug off an argument and say, ‘Oh, she’s just quirky.’ And when you factor in power play, boundaries of authority, as well as questions on competence, it can all turn into one ugly, emotional mess.

That’s why you need to have a clear business contract and business structure, and be able to draw emotional boundaries and say, ‘Now we’re business partners, after six p.m. we’re friends.’ Whatever you say in the office should not be taken personally—and you have to anticipate, early on, that conflicts are part of the job.

2. How well do you know each other?

Friends have the advantage of understanding each other’s personality, right? Maybe not. Our social personality and business personality are quite different. While years of hanging out does give you an advantage (you know how to calm each other down, and appreciate each other’s strengths and weaknesses) you may be surprised to find out that your friend is disorganized with paperwork, or she may be frustrated by the way you deal with clients.

3. Is your friend a good fit for the business?

You can connect on many levels with friends—a shared love for romantic comedies, quirky sense of humor—but not all these connections can translate well to a successful business venture. You need a friend who shares the same passion (i.e., two foodies have a good chance at setting up a baking business) and the same direction. To clarify where you want your business to go, ask yourselves:

a. How big do you want the business to be? Is it just a sideline, or do you foresee expanding?
b. What market do you want to tap?
c. What image do you want for your product?

If you’re not on the same page, you’ll soon be arguing over marketing strategies, costs and other business decisions.

4. Define your roles.

Even after creating a business contract, you need to further clarify how you and your friends will run the company. What’s the scope of responsibility for each position?

One common pitfall is overlapping roles, like when two friends are both ‘creative’ and start butting heads over concepts. You can collaborate, but someone should have the last say. You can share workloads, but everyone must know who’s accountable for what.

And avoid inviting friends whose skills you don’t need, just because you’re afraid to exclude someone who realistically as little to contribute to the business. Will they fill a short-term or long-term need? Maybe you can outsource part of the project. Do they have the time or inclination to focus on the business? Maybe they can just be an investor.

5. Avoid confusion about money.

Be very, very clear about any rules or policies that involve money. These include how to fund your business start up, maximum operational expenses (for every month/project), what items can be reimbursed, approval mechanisms before disbursing money or making choices that involve money, and salaries and compensation.

6. Handle professional conflicts professionally.

Business partnerships deteriorate when friends start talking behind each other’s back or launch emotional tirades.

In a way, it’s our default mode. We’re used to talking over the phone, or at a coffee shop, with people that we tend to be brutally honest with. Or, we’re used to filtering what we think so we can ‘be nice’ to a friend and not hurt her feelings.

This kind of ‘friend dynamics’ won’t work in a business. When you’re at a business meeting, act like you’re at one. Hear each other’s perspectives, respect each other’s contributions, but at the end of the day make an objective decision for the company.

7. Don’t mix business with pleasure.

Talk about work at work. But at the end of the day, leave work behind and just hang out.