From elementary school to high school, group projects were always a chance to team up with my closest friends. 

Their familiarity, trust, and shared goals made them ideal collaborators. It’s a mindset that often extends into adulthood, where the natural inclination is to partner with friends when embarking on new ventures or business ideas. 

After all, who else would you rather succeed with?

Yet, the intersection of business and friendship can be fraught with challenges, and things don’t always go as smoothly as we hope.

While it may seem natural to merge these two worlds, the reality is that doing so can strain even the strongest of friendships, often revealing cracks that were previously hidden.

This brings us to an important question: should you go into business with friends at all?

When Business Between Friends Goes Bad

To give you an example, let me talk about something recent that happened with a close friend of mine. 

My friend was an avid poker player. He hoped to create a friendly, high-stakes home game. It would be a place where enthusiasts could gather in an entertaining space. He had a small team of his closest friends, thinking their bond would protect them from typical business conflicts. But money has a way of changing everything in business.

To cover costs, my friend charged a fee from the pot of every game. This caused a disagreement and tensions surfaced. Disputes over profits became common. Each friend wanted a larger share based on their perceived contributions or losses. 

What started as a friendly operation quickly soured under the strain of financial disagreements. 

This experience underscores a key truth: When money is at stake, friendships are put to the test.

The Financial Impact on Friendships

Money has the power to change people and business decisions must prioritize the health of the company, often conflicting with the mutual support and flexibility expected in personal relationships. 

Helping a friend during tough times is natural, but in business, such decisions must align with the organization’s best interests. 

Stories of partnerships among friends soured over money are everywhere, from corporate giants like Facebook’s early struggles to my friend’s poker game. 

No business, regardless of size or intimacy, is immune to the potential for conflict and financial challenges.

Take the story of Steve Jobs and Steve Wozniak, the masterminds behind Apple. 

According to Wozniak, as soon as Apple began, his friend changed.

“He changed his personality forever because he now was a founder of a company that had money. He wanted so strongly to find the way to be an important person in the world. He would always speak as though he was the one on top of running Apple. That was good with me. I was the shy engineer who wanted to go into the laboratory and keep inventing things and building them. I didn’t want to run a company with politics and people pushing each other out.” 

In the end, the friendship faded, and the partnership changed.

Key Considerations Before Starting a Business with Friends

This is not to say that starting a business with friends is impossible, but it requires careful thought about the potential risks. 

Consider maintaining clear boundaries, and communicating and being transparent about financial expectations. 

These are key to preserving both the business and personal relationships involved. 

For those contemplating such ventures, the adage “proceed with caution” holds particularly true. According to Rocketlawyer, if you plan to go into business with friends you should take the same steps as if you were starting a venture with anyone else. Steps like:

• Form a separate legal entity for your business,
• Create a business Partnership Agreement,
• Share bookkeeping and record-keeping responsibilities.

But besides legal and financial structures, there are other key considerations, such as defining clear roles, managing differing goals and expectations, and understanding how emotional ties can influence business decisions. These factors are just as critical in ensuring the long-term success of both the venture and the friendship. We discuss a few of the important ones below.

The Importance of Planning and Communication

Discuss the sensitive subjects and the worst-case scenarios before starting the business. These conversations can bring clarity on whether you want to proceed in a business with your friend at all.

Balancing ambition and preserving friendships demands a delicate touch. It requires acknowledging the complexities of mixing business with personal bonds.

Friendship Doesn’t Equal Business Compatibility

One of the biggest—and most disappointing—surprises about starting a business with your friends is realizing your friendship doesn’t automatically mean business compatibility. In fact, it is often quite the opposite. 

If you can’t find a way to manage the business together, you won’t make it far. One challenge in running a business is that there are certain tasks that must be performed on a daily basis. 

Your friends might end up being the ones performing these day-to-day tasks. If they feel like they should be the ones in charge, they might rebel and stop doing what they should be doing.

Defining Business Roles

There will be some kind of hierarchy in your newly formed business. But the difference between a friendship and a business is that friendships don’t have pre-determined structures with clearly defined roles. 

You will need to start brainstorming what each person should do—and that often leads to conflict. One way friends can try to resolve this issue is simply by avoiding it. If they don’t define roles, then nobody will be angry, right? 

Beware, though, because a lack of hierarchy in a business can lead to its failure.

Differing Business Goals

Be sure to thoroughly assess your goals and motivations. While you might want to launch a business because you want creative freedom, your friend may want financial success. When motivations vary, goals often turn out to be different too. 

Having different goals can lead to ineffective efforts. If you really want to achieve something, you will need to concentrate on one single aim.

Emotions vs. Common Sense

Emotions can be incredibly effective in ruining both your workflow and your relationships. If you let them control and manipulate you rather than controlling them, emotions can ruin your startup. 

When your friends make a mistake, you may be more likely to forgive them for it because they are your friends. 

You might be less objective during essential business decisions and less likely to act according to reason.

Lack of Expertise

Businesses based on friendship often lack expertise. Are your friends really suited to the roles you need in a startup? 

Of course, to solve this, you can look for professionals to add to your team, but what use are your friends then?

Strained Finances

If you’re relying solely on funding from your friends, you may quickly run into trouble. With no actual influx of capital into your business, you’re looking at a dangerous mix of emotions, finances, and ego. 

If one of your friends invests more, will they expect more control? Do you feel comfortable asking for more money? 

What are the terms of repayment?

Cultural Considerations: An Asian American Perspective

The Other Side of the Coin

While there are many cautionary tales, there are also success stories of friends and family building thriving businesses together. The key often lies in clear communication, where partners address issues early and ensure everyone’s voice is heard.

Well-defined roles are crucial, as successful teams respect each other’s responsibilities and avoid confusion or overlap. A shared vision keeps everyone aligned, allowing them to face challenges with a common purpose and goal.

In these ventures, the working environment is often more relaxed due to the trust and familiarity built over time. Additionally, there can be financial advantages, such as tax benefits and shared resources, which lead to greater prosperity for everyone involved.

Ultimately, with good communication, clear roles, and aligned goals, businesses founded on personal relationships can succeed and bring both personal and financial rewards.

Conclusion: Proceed with Caution

Starting a business with friends or family may seem advantageous at first, but emotions can get in the way and become a significant impediment to success. 

As a business owner, it’s your fiduciary duty to serve your investors and your customers. In order to do that, you must make tough decisions that are in the best interest of your company. Doing that with family or friends in the mix becomes very tricky if everyone isn’t on the same page. For a family business to work, everyone must sacrifice all ego and entitlement to always do what’s in the best interest of the business. 

This is more difficult than it sounds and doesn’t work out very often.

Carefully consider all the disadvantages of starting a business with friends before you do it. 

While there are some stories of success among business partners and friendas, there are many tales of friendships falling apart in the process (just look at Mark Zuckerberg and the creation of Facebook). Identify the obstacles and move cautiously forward if you’re willing to take the risk.

Starting a business is an exciting adventure, and with the right planning and communication, you can mitigate the risks and maximize the rewards. 

Whether you’re an Asian American entrepreneur or from any background, the principles remain the same: clarity, communication, and a shared vision are key to turning a business with friends into a successful and fulfilling venture.