Wednesday, August 24, 2011

Friendships and Business Partnerships: Making it Work

It seems like an ideal situation: Your friend of many years - the one who's always been there for you in important moments, the one with whom you have the most fun with or with whom you'd had so many memorable times - it seems almost a perfect idea to choose to have that friend for a business partner. Indeed - why look elsewhere for a business partner when your buddy/chum/gal-friend is right there? Now, if you are actually contemplating of doing a business with your friend, wait a moment and read this one first.
Let it be said outright: No, it's NOT entirely a bad idea to do business with your friend/s. That is NOT to say that it is necessarily easy or not fraught with risks.
The reason most would warn against doing business with friends, esp. those who've had a bad experience with such a set-up, is not that businesses with friends have a greater chance of failure. (Regardless of who you do business with, the odds of a business failing is 9 in 10.) The reason, perhaps, is that when a business with a friend fails, there is a risk that you lose more than just the business.

A business with a friend entails greater risk because apart from the money you invest in the business, you also actually invest your relationship in the business. More than risking the money, you also risk the friendship. And while money can be recouped - well, friendship, when lost, can be harder to get back. Think Mark Zuckerberg and Eduardo Saverin - best buddies in Harvard - who lost their friendship over Facebook.

And so here is the advice:
If you'd like to do business with your friends, take stock of your biggest asset together (your friendship), and take steps to ensure it does not get lost in the highs and lows (or busts!) of business. Here are some tips to making it work:

1. Communication
At the heart of all the next tips is Communication. Be prepared to be always in communication with your business partner-slash-friend. Everything - from expectations, roles and responsibilities, profit sharing arrangements - should be discussed from the very beginning; and whatever else that is yet undiscussed must be brought out in the open and settled. Communication is key to ensuring potential problems are addressed before they even happen. A good and effective communication will only be possible if the element of trust is present. In the book Five Dysfunctions of a Team, the 'Absence of Trust' is listed as the foremost reason for failures in teams and businesses as it stifles communication crucial to achieving the goals of the business.

2. Agreement
Set up your rules. Agree to them, and then they become your agreements. These become the parameters of your business relationship. When misunderstandings come up, always look to your agreements to resolve it. As much as possible, agreements should be designed so that every manner or possible scenarios/problems/misunderstandings are covered. These agreements are the mechanisms that will take effect once conflicts/misunderstandings on your business arise. This way, the resolutions do not become arbitrary, and there is an "impartial" agreement that will tell you how to go about it.

3. Commitment
The 'Lack of Commitment' is identified as one among the Five Dysfunctions of a Team. Your business goals will not happen unless you treat your endeavor as a real commitment. What is a commitment? Here is how Abraham Lincoln defined it:
"Commitment is what transforms a promise into reality. It is the words that speak boldly of your intentions. And the actions which speak louder than the words. It is making the time when there is none. Coming through time after time after time, year after year after year. Commitment is the stuff character is made of; the power to change the face of things. It is the daily triumph of integrity over skepticism."
What you invest in your business in money and time and effort is a sign of commitment. You have to honor your commitment. If you can't honor your commitment with your business partners, what hope is there that you will honor your commitment of delivering on your promises (in your product or services) to your customers?

4. Priorities
Part and parcel of honoring commitments is giving your business priority. You could have many priorities, but even if there are greater priorities, it should not sacrifice the commitments you have made. If you have partnered with anyone, esp. with a friend, giving your business priority is not just about the business; it is about keeping your word, honoring your commitments, and giving your partners and friends a fair amount of respect. Before your customers can give you priority as a preferred supplier or service provider, they'll first have to see through your results that you do in fact give your business the priority it deserves.

5. Exit Strategy
Things will not always work; and even as your enthusiasm in the beginning were off the charts, sometimes that could wane. Some better opportunity might come along; situations at work or in your personal life may change that will necessitate you to want to opt out of the business. Or maybe you're just not into it anymore.

THAT is okay.

Just make sure you do not become vague about your disinterest, or you just disappear. You still have business partners/friends counting on you. Inform your partners of your change of plans. Be unequivocal about it. And then let your exit strategy mechanisms come into play. Your exit strategy should be something that you have already spelled out and agreed upon in the beginning. The exit strategy must indicate the procedures for getting out of the business or dissolving the business entirely.

The same due diligence you exert in evaluating your business should be the same (if not greater) amount of due diligence that you apply into ensuring that getting into business with your friend will not result to a loss of the friendship.

In the end, a friendship that flourishes with a business and a friendship that stands the demise of businesses is the better return on investment.

See you at the top!

"A friendship founded on business is a good deal 
better than a business founded on friendship.” 
(John D. Rockefeller)

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