Should you startup with friends?

The idea was born during a discussion between friends, quickly written on the corner of a tablecloth. And then they launched a startup. That’s where the story begins. Which doesn’t always end well.

“If you could go back in time, what wouldn’t you do?”

Well, there you have the answer…”, a founder’s voice tucked-in bitterness, disillusionment and disappointment. Not only has his startup never taken off, but his relationship with his best friend has suffered the consequences. We don’t talk to each other at all anymore,” he says. I don’t even want to talk about it anymore. He clearly tried to trick me…”.

In the startup ecosystem, this kind of occurrence is well known. Taking your company to the top often requires burying the small betrayals that usually result from it. The world’s most famous startup is a case in point. Facebook, the flagship social network that is supposed to create friendships, “destroyed them all among its founders,” said American novelist Ben Mezrich, author of The Revenge of a Loner (Max Milo), in 2010. In ‘The Social Network‘, David Fincher’s film based on the story of Mark Zuckerberg, we remember the famous scene in which Eduardo Saverin, observing a dilution of his shares in the company with the arrival of investors, says to an impassive Zuckerberg: “I was your only friend.”

Proximity as an asset

Of the 12,000 startups created each year in France alone that the Boston Consulting Group lists, how many were launched by friends? Certainly a vast majority. If in the “old world”, the ambition often was limited to opening a bar with one’s “buddies”, in today’s technological world, the Holy Grail is to set up a startup between close friends. Being your own boss is a dream that can now be envisioned far from the fumes of alcohol and smoky happy hours. As investors know, the profile of the founders is one of the first elements to be taken into account when analyzing the companies.

“What we’re looking at is the chemistry between the co-founders,” would say most of the investors.
For years to come, they will spend most of their time together. A good startup founding team needs to be quite fussy, and it is evident that this is done through groups of friends. Proximity is what will help the entrepreneurs get through the stages. When you have a shared history with someone, you can communicate with each other, which will make things easier when some sensitive issues are bound to arise.

Wobbly start contract

Looking back, entrepreneurs who launched their company with their childhood friends confirm that this proximity was indeed a starting point. But they also point to a significant problem: that of the hierarchical position of each person. It’s challenging to take the lead when you’re up against people who know you so well. “You don’t have to be at the same decision-making level. Because we were friends, we were all at the same level, and in strategic debates, no one made the final decision.

Developing a company is very hectic, very stressful; personalities are revealed at this time. You will often see young founders arguing in front of investors in the middle of a pitch. It’s already complicated enough to set up a company so as not to add further difficulties.

Opinions and prejudices

Opinions are divided on the issue, and the great gurus of the startup nation are still hesitating. All the more so as, within the world of friendly founders, the devil is as much in the details as it is in past resentments.
At the time, when starting up, your friends as the people you trust the most – and they can, ideally, bring the skills you need.

Usually, it starts off rather well in the euphoria of the first steps, the building phases and, lucky, the first contracts. Working with people you know means that there may also be some hidden personal feuds. But as long as the business was performing, everyone was ignoring the past.

A deal that fizzles out

When, suddenly, orders don’t come in as steadily, and the cash flow tightens, a decision must be made. It’s often the time for a strategic shift. In a “friendly” context, this is the time when there are more and more clashes within the company. First in the offices and during meetings, then inevitably outside. Conflicts that, even if limited to a couple of founders, will impact the others who were not involved in the conflict but who will find themselves in charge of handing out good and bad points and having to choose sides. Supporting a friend who criticizes his colleagues is simple. But when the colleague in question is also a friend?

As a company nears a premature end, tensions turn into real clashes. The group is falling apart. Among the founders, the ones who still run the company have often strengthened their ties. Meanwhile, with others, a distance has been established and, in some cases, friends now hold a grudge against each other.
Everyone wants to move on. But they are also often afraid that these divorce formalities will end up being much more damaging than the separation itself.

Preparing to leave

Although it is unpleasant to contemplate possible exit scenarios for one or more of the partners right from the start, it is essential.
Anticipating any conflict situation, early on, is the safe way forward. This is why a founders’ agreement is one of the foundational documents for a company. Often, it’s a partner who no longer wants to work with the other, blaming her/him for lack of involvement. A crisis often grows far more significant than it should. The worst part is that it’s usually a war of egos.

Startups founded without real legal advice, with copy-pasted contracts found on the Internet, are numerous – and all at risk. A partner thinks he/she can part with their friend(s) very easily, but there are exclusion clauses for which we don’t know the terms, the conditions are badly written and, in the end, the legal documents bear little value.

The problem is that in the euphoria of founding a company among friends, it’s hard to imagine that one day they’ll part ways. Doesn’t marriage lose its romanticism when you’re considering divorce at the same time? It is usually advisable to draw up a partnership agreement. It is a contractual document that allows the terms and conditions to be regulated in a slightly more private way. Who gets paid more? How do you get out?
You have to put everything in black and white in order to be safe(r).

The important thing is that the founders clearly define their respective roles. Clear roles and a lot of communication; like in a couple, that is the key.

You don’t give yourself the best chance of success if you don’t say anything at the beginning and even out all the issues ( or potential ones). You have to be in line with your ambitions and objectives: resell in ten years, go public, create a sustainable company?

Business with a friend? It’s a marriage in worse: more money but less love. It’s up to each of us to choose what we want.