Ask Gerber: Should You Mix Business with Friendship?
OCTOBER 2, 2019
By Randy Gerber
Hiring your friends to work in your business may seem like a win-win: They get to share in your business growth and you get to work alongside people you enjoy being with and whose character you trust. As tempting as it may be to hire your friends, don’t do it—unless you don’t care about your friendship. Without the proper thought and preparation, you may be opening a big can of worms that can be detrimental to both your business and your friendship.
Here are three of the most common ways to mix business and friendship, and how to position yourself for success:
Friend as an Employee
While this looks like a match made in heaven, it unfortunately rarely turns out that way. If you hire your friend, you will have to hold your friend to the same work standards as the rest of your employees, even if you d
on’t want to. Your friend might take offense that he/she is not receiving preferential treatment, which would certainly put a strain on your professional relationship (and perhaps your friendship as well).
Before you hire a friend, sit down with him or her and talk through every scenario. Explain that your friendship WILL change. Clearly articulate your expectations and put them in writing. You should also formulate a written exit strategy for when or if you need to exit the professional relationship in order to maintain the friendship. If you can talk through as many potential issues and problems before the business relationship actually commences, you dramatically increase your odds of coming out with a win-win.
Business Partnership
When two friends enter an active business partnership, problems often arise when there is no business plan, no continuity and no alignment of where they are trying to go with the business and why. In my experience, nine out of 10 business partnerships blow up. When they do, it can be messier than a divorce because there is usually no prescribed exit agreement.
My advice is to make as many decisions as possible in the beginning stages of the partnership. Have a business plan, and talk about how you want the
business to grow. Define the company’s core values and culture, and put as many systems in place as possible. Then you will have a process for handling issues as they arise.
Friend as an Investor
It’s natural to want to include your friends
as investors in the business when things are going well. But consider all possible alternatives to this outcome. What if the equity raises were a colossal failure because of future equity raises that dilute early investors? How would you feel if the acquiring firm of your eventual liquidity event negotiated an enormous package for you, but radically diluted the other shareholders?
Have your investment advisor or legal council explain the risks to your
friends on a formal basis. Encourage your friends’ legal and tax councils to weigh-in on the investment. Then your friends will have been well informed with plenty of opportunities to decline the opportunity in a professional manner if they need to do so.
There is no "silver bullet" formula for how to include friends
in your business, and I’m not suggesting that you should or should not do it. If mixing business and friendship is something you want to explore, practicing open communication, understanding, and transparency will increase your chances of success.
Have you hired your friends as investors or employees? Share with us on Facebook, Twitter or LinkedIn!
