Consider this before going into business with a friend or family member.
Mark Zuckerberg, the founder of Facebook, booted his friend, co-founder and investment partner out of the company. The rule of marriage – until death do us part – is similar in business. If you are thinking about starting a business with a friend, remember that, like marriage, business relationships are full of promise until conflicts begin to arise.
According to the U.S. Bureau of Labor Statistics, about 50 percent of all new businesses have a survival rate of five years, and about one-third survive 10 years or more. This demonstrates that the more mature the business, the greater its chance of survival. However, Forbes, Bloomberg and Merrill Lynch, leading influences within the financial community, believe the failure rate of business is much higher. These establishments think it is more likely that eight out of 10 businesses will fail within the first 18 months – that is a whopping 80 percent crash-and-burn rate of business startups if this belief is accurate.
Starting a business is no small endeavor, especially if you’re doing it alone. That’s why many will partner with a friend or family member. This makes it seem less risky, strengthens confidence and provides the brainpower and support of another instead of entering into the unknown world of business alone.
But along with business success stories, there are friend or family partnership horror stories. Going into business with someone is parallel to marriage, although the failure rate of marriage is 41 percent to 49 percent, which is far less than the failure rate of business relationships. So think it through before you act on going into business with a friend or family member.
Friends or family often start businesses together based on trust with little or no concept of running a business. Due to either limited funds or fear of offending the other, there is seldom a contract between them at start up. They soon discover the hard way that there can be conflicts over countless things, including conflicting work ethics, financial goals, roles or position in the business, and leadership styles. Unfortunately, what’s left unsaid or unplanned for at start up often leads to unintended consequences such as anger, frustration, failure and disintegration of the business, not to mention the end of a friendship.
John D. Rockefeller Sr., considered by most as the richest person in modern history, once said, “A friendship founded on business is better than a business founded on friendship.”
Ask yourself if you really need a business partner to build a successful company. Taking on business partners should be reserved for when a partnership is crucial to the success of the business such as when the prospective partner has financial resources, vital skills that you lack or the ability to exemplify your brand.
Much like marriage, are you prepared to attach yourself to a friend or family member as your business partner for better or worse? Before you decide, consult with a business contracts attorney.