From friends to founders: Should you start a business with your bestie?

You can finish each other’s sentences. You know everything about each other — maybe you even grew up together and went to the same school or university. Although life gets busy and your catch-ups may be less frequent, when you do hang out, it’s ‘just like old times’.

And you know which friend to go to for what – whether that’s to talk over a problem, or to try out a new spot in town. These shared values and interests, along with years of memories and trust, could be an ideal foundation for launching a startup. But what do you need to know if you’re looking to set up a business with your squad?

With the UN International Day of Friendship taking place on 30 July, and summer graduation season in full swing in the UK, we thought it’d be an ideal time to help friends answer the question: ‘how do we start a business?’

We’ll explore everything you need to consider if you’re thinking of starting a business with your best friend, including practical steps like contracts, insurance and formations, along with day-to-day considerations like maintaining a work/life balance. Plus, we feature insight from other small business owners who happen to be friends.

In this article, we’ll cover:

• 01 | Choosing a cofounder
• 02 | Establishing roles
• 03 | Setting goals
• 04 | Seeking legal advice
• 05 | Separating finances
• 06 | Any other business

How to choose a cofounder

You may have already decided on the friends that will comprise your founding team. But if not, which friends should you go into business with? And how do you find them?

Some factors to consider when choosing a co-founder include:

• Passion for the business is paramount — they’ll need to be inspired and motivated by the startup
• While you’ll need to have some common ground, it’s wise to look for someone who is different enough from you to bring a different skill set and outlook
• If you’re at university, or have recently graduated, then you’re likely to have a network of potential co-founders to tap into. This could be through your course or housemates, or through teammates from clubs and extracurricular groups

This is why post-university could be an ideal time to start a business. If you and your friend went to uni together, then you could consider starting a business after graduation, as it’s likely you’ll be at similar points in your lives. Plus, you have the skills and time to start a business, along with a readymade network of potential cofounders to choose from.

While the jury’s still out on whether it’s more beneficial for a startup to be launched by a team of co-founders or by an individual, what is clear to see is that businesses started by friends can prosper. Apple, Ben & Jerry’s, and Microsoft are some of the most well-known examples of extremely successful businesses that were started by friends.

Bradley McKenny, co-founder and operations director at Distract, discusses how he started a business with his friend Peter Watson:

“Peter and I met on the marketing course at the University of Lincoln, and became good friends pretty quickly. I started doing freelance work for Peter, as he already had a successful online car audio retail website and always had new ideas that he wanted to try out.

“We then worked together as the President and Vice President of our university’s Business Society, which in itself was already like running a small business. We were responsible for the marketing, membership engagement, finances and operations.

“The society had an office space in the university’s business incubation unit, and it was there that we formulated the idea for starting an agency. We were still studying for our degrees, and felt comfortable with the concept of marketing. We were also riding on the back of our previous success with membership recruitment for the society.

“We actually launched the business from a Caffè Nero using their free wifi. Back then the business was called Chatty Imp, inspired by the Lincoln Imp, a symbol of the city. As we grew into a bigger agency, we decided to rebrand ourselves as Distract.”

For more inspiration, read about Stasher, the luggage storage network business founded by two college roommates from Oxford University — and ranked on the Startups 100 2019 index!

In his book The Founder’s Dilemmas, Noam Wasserman, a business academic, discusses some of the key issues surrounding startups and founders.

On friends and family members as co-founders, Wasserman talks about the need for balance and separation between social relationships and business interactions. Also, it’s important to designate titles – especially who gets to be CEO.

In terms of other practical steps, Wasserman suggests planning for the worst case scenario, as well as preparing an exit strategy. Cofounders will also need to have difficult conversations sooner rather than later, and should use intermediaries when needed.

Establish roles

A key piece of advice that arises time and time again when researching this topic is the need to set out roles and duties as early as possible. As friends, this should be relatively easy: after all, you know where each other’s strengths lie.

And while it’s possible to let this understanding carry you and your business so far, in the long term, it’s wise to know exactly who does what and which responsibilities each person has.

While you may have some understanding of what you’d each do best and how your skills can complement each other, can we be sure how well our friends operate in a work setting?

For this reason, examine your skill sets as you if you were recruiting externally. This means collecting information and examples that back up your claims. This could be through formal references, although just having a chat with each other’s former colleagues and bosses may be easier and more natural, if possible.

Sonya Chatwani and Aymi Duignan, founders of Easho, offer the following advice for people interested in going into business with their friends:

“There are a few key questions you need to ask yourself before jumping into a business with a friend:

• What is their work ethic — are you both very committed to the business, or is one person driving it forward?
• How do your skills complement each other? If you’re both very strong in one area but not in another, it might not be the best fit.
• How do you deal with difficult situations? There will be a ton of stumbling blocks, and you need to make sure it’s not going to affect the foundation of your friendship.
• How will you deal with it if everything fails? If for any reason things don’t work out, you should always make sure that your friendship will remain.”

McKenny advises: “It’s important to work with someone who you feel has abilities that you do not have; abilities that you admire and appreciate. I wouldn’t advise going into business with someone just because you’re friends with them. It takes more than that.

“It’s preferable if your friend is in a similar financial/life situation: this means you are able to
empathise with each other, and work towards a common goal together. It also means you are
able to look at things with a uniformed perspective, even if you think differently. We come up
with different ideas, but work together to turn those ideas into a reality.”

On deciding how to start a business as friends, Joel Beverley, co-founder of RotaCloud, says: “It happened quite naturally. We all had a mutual interest in technology, and had occasionally chatted about potential ideas – as people often do – but it wasn’t like we one day said, ‘Okay, let’s start a business together. Now, what ideas do we have?’ The idea came first, and then the timing just happened to be pretty good for us all. None of us had any big commitments, and we had enough spare time between us to give it a shot.”

During this process (and going forward), you’re likely to need to have some difficult conversations. The best approach here is to tackle these as early as possible in your business’ lifecycle.

And remember that when it comes to making decisions, there’s a reason that people have certain titles — it gives them the authority to have the final say. While that may not always be fair in some respects, it ensures things get done, and it’s how most businesses operate. If you’re interested in other models, you could consider starting a cooperative for an alternative structure, as these use voting systems to make decisions.

The need to establish clear roles is even more true when you start taking on staff. Those early hires can be crucial — it’s a major step to let an outsider in on your gang’s big idea.

Be sure to think about how you’ll integrate new team members into your business, as well as what the impact could be on your friendship. Make sure that new team members, especially those who aren’t in your friendship group, are made to feel welcome and a key part of the team.

While you may be hesitant to bring in new people, this is an opportunity to fill any knowledge or skills gaps with external talent. Plus, recruiting from outside your friendship group exposes you and your business to new ways of thinking, which can be ideal for fostering innovation.

Companies with above-average diversity scores reported a 45% average innovation revenue. This is in contrast to the 26% average reported by those with below-average scores, according to the 2017 BCG diversity and innovation survey.

Know that it’s okay to have fun and enjoy the process of running your business. The rapport between friends can make work fun, which is even more necessary when you’re looking at long days in the office trying to get your business off the ground. That being said, ensure you know what is and isn’t appropriate for the workplace.

On the best and worst aspects of launching a startup as friends, Chatwani and Duignan comment: “The best aspect has been the fun that we have working together. In the early days, we were doing absolutely everything — including renting a van to go to different wholesalers to try and buy stock, which we would be loading ourselves into the van. It was a pretty stressful process, but the fact that we could have fun at the same time turned this into a great memory.

“You also understand each other’s strengths and weaknesses from day one, and you can work around them to make sure you have the best outcome.

“The worst aspect is probably that you end up talking about work all the time! Whether or not you’re in the office, or at lunch or a party, it ends up being your main common interest and goal – and it can be dull for others to be around!”

Gavin Dhesi, co-founder at Spill, adds: “You do lose some of the friendship you had before you became business partners. Friends chat about what’s going on in their respective lives, but when you see each other every day and work on the same project, a lot of that conversation ends up being about the business.”

Also, see your friendship as a positive — it’s a key driver of starting a business with your best friend. And not only is it good for you, but your friendship can be used to help create the work environment and company culture that you want for yourselves and your staff. As co-founders, how you operate and interact with each other sets the example for your wider team.

Calvin Benton, co-founder at Spill, continues: “The nature of mine and Gavin’s friendship has set the tone for the culture at Spill. When it was just Gavin and I, there was a care for the other person as a human being, and we were obviously very close.

“This has set a precedent for how we build our team — there is a sense of everyone caring about how each other is doing on a personal level. If we hadn’t started as friends and it was a purely transactional relationship, we probably wouldn’t have built the amazing thing we have.”

Set goals

Once you’ve decided on a business idea, you should outline what your goals are as soon as possible. This will help you work out if you’re at the same place, both in terms of your life stages, and how you see the business developing over time.

For example, do you see the business being a long-term project? Or are you looking to make as much money as possible in the shortest amount of time? Without common goals – as well as a shared passion for, and commitment to, the venture – you could find that when times get tough, your friend — and co-founder — gets going too…

Ben Chatfield, CEO, and Ollie Povey, COO at Tempo (ranked at number 20 on the Startups 100 2019 index) advise: “Having a friend by your side is a bonus, but it’s really all about the business.

“Having complementary skills is very helpful in making the business a success. Most important, however, is that you share the same values and beliefs — lots will change with the business, but these values and beliefs are the bedrock for everything.”

Initially, a frank discussion could be the best way to go about this, and it’ll also show how well you can communicate. If you and your friends are open and enthusiastic when having these discussions, this bodes well for the future.

Conversely, if you find it difficult to have these conservations, this gives you a chance to iron out any conflicts. You may even decide it’s not right for you, whether that’s the idea itself or the commitment that’s necessary to run your own business.

Beverley advises: “Speak regularly about what you’re trying to achieve, and ensure you’re all pulling in the same direction. Have open, frank discussions where everyone gives their opinion, and be prepared to take feedback on-board from each other.”

Dhesi says: “It’s hard to find the time to nurture a friendship when you’re trying to build a business, especially as you start to grow and when you work on different teams within the company.”

Benton agrees, saying: “We still meet every morning before the rest of the team come in, to check in with each other and make sure the other person is okay and to discuss how each other’s work is going. I think this is a huge reason why Gavin and I have never argued — we’ve put effort into staying in tune with each other and being a team.”

Seek legal advice

Although you’ve built up trust throughout your friendship, in business, verbal guarantees aren’t always enough. Therefore, it’s wise to document key decisions and processes in writing, including any plans for what would happen in a worst case scenario.

There are a number of things to consider when setting up a company, and many of these — such as contracts, formation and insurance — require legal assistance.

Documenting every aspect of your business – from who is responsible for operational decisions and creating formal contracts, through to day-to-day duties and exit strategies – can be crucial. Also, if your business will be conducted in multiple locations, or if you’ll be working remotely, then you should assess any particular legal issues specific to these circumstances.

It can be easy to let the initial excitement of running a business together make you skip these steps. But it’s often easier and better to go through the process now, rather than run the risk of finding yourself in a legal dispute with your bestie.

Separate finances

You’re likely to already know each other well, but if you are going to be sharing financial responsibilities, you’re going to need to be aware of each other’s personal financial situations. As friends, you might not have discussed this before, so be prepared to have frank, honest discussions about money.

This could include applying for funding, and anything else related to raising finance for a business. In the early days, you’ll probably need to invest money into the business — be sure to keep records of this too.

Visit our business ideas pages for inspiration to start a business for under £10,000!

What else should you consider?

We’ve covered some of the main points you should think about when going into business with your friends. Here, we highlight some final tips to think about to help set you up for success:

• Book in time away from the business so you can continue to nurture your friendship
• Have the difficult conversations, and then carry on
• Spend time apart — have activities and interests that are independent of each other and the business
• Acknowledge that your friendship is likely to change as you go on the thrilling ride together that is running your own business!

One myth about running a business as friends that Chatfield and Povey would like to bust? “That it would be a mistake – it’s actually a really great platform to succeed, as you have someone you can trust by your side, every step of the way. Going into business with a friend is often seen as a risk – if the business were to fail, then you can end up blaming each other, and the friendship can be damaged.”

“However, if you are transparent about frustrations and fears, and support each other through the rough patches, then the positives definitely outweigh any negatives.”

Summary

Essentially, going into business with your friends is like getting married. And as with any perfect partnership, there are some key elements that need to match, including communication styles and skill sets.

It’s also likely that you’ll need to put pen to paper, thoroughly documenting key business information and decisions in writing, as well as share financial responsibilities. And along with all the practical tasks, be sure to leave time for your friendship — after all, that’s what led you to launching a startup in the first place.