
Starting up with a friend - swombat
http://danieltenner.com/posts/0005-starting-up-with-a-friend.html
======
lionhearted
This is gold. Almost everyone new to entrepreneurship makes this mistake (not
setting very clear expectations early on in a business), and it sucks. Here's
the comment I left on the site:

\--

Very wise advice from someone whose already been there. Three more questions
to think about:

1\. Expenses: What is and is not an expense? Especially getting clear on
business entertainment, business travel, "general life expenses that are also
business expenses" like internet access, and so on. Also, what's the max
dollar amount someone can spend on an expense without checking with the other
person? My default advice is keep business expenses low and stick to the
necessary. For a first company, say no to business entertainment, business
travel, meals, general life expenses, and any hardware that a person would use
for non-business reasons.

2\. Profit distribution: When and how will profits be distributed? How much
will be reinvested? What will the reserves be? What if one partner wants or
needs cash, and the other wants to put it into expanding? This is an important
question, and potentially contentious. Especially if your business is growing
and money is coming in, but founders are in different places financially.
Especially a point of contention if one founder is heavy in unsecured debt,
and the other isn't.

3\. Hours: When (not if) the hours you're working get unbalanced, how to
handle that? Less an issue if it's both of your full time gigs and you're
putting in full time effort each. Very important to think about if it's a side
project or people have other obligations. The way I've seen work is that you
define roles clearly to be completed on a plan to profitability, and once
you're profitable, founders draw salary for regular, recurring work they do
that's at market rates. If upkeep on the business after it's built
successfully takes 15 hours/week, but lends itself to one founders skillset so
he's doing 12 hours per week, you're going to have an issue really soon.
Instead, that founder can get paid at around market rates, or you can
outsource that part of his job.

Those are three I've seen issues with - unclear expectations on hours, profit
distribution, and expenses. You've obviously been there Daniel, very nicely
written up mate.

~~~
swombat
Thanks! I've added some of those questions into the list in the article (with
link to the comment, but can link elsewhere if you want)

~~~
lionhearted
Ah, I didn't realize that was your site mate. You're one of my favorite
submitters on here - it seems like I'm reading something insightful from you
almost every day on here. Glad I was able to contribute a bit, and thanks
again for being awesome.

~~~
Hexstream
Maybe it could be useful to have a checkbox to specify when we're submitting
our own content?

------
tptacek
I was hired in 1997 at Secure Networks by Alfred Huger, who I had known online
since I was in high school. We were friends outside the company, but nobody in
the world would say the work relationship was friendly. Al was like Matthew
Broderick's character in "Glory"; whatever terms you were on with him before
the company --- and Al and I were peers --- at SNI, Al was in charge. I got
yelled at a lot. I have to stop to consider whether he was the best boss I've
had, or just in the top 2.

I started Sonicity in '99 with two friends, which didn't work out for some of
the same reasons here, but also for other reasons, like fairness concerns, no
clear lines of communication, lots of overlap, and (of course) a cratering
market. We might not have ended so badly had we not taken money, but whatever
flimsy rapport we had before the startup didn't survive the strain of having a
board and several new vectors of company politics (a CEO, a competing
management faction, etc).

(I'm on good terms with both my cofounders there, and almost went to work with
one of them at Bloomberg years later --- he's since started and sold a digital
music player company).

Incidentally, the "working with friends" problem also occurs outside the
founders team. We hired lots of our friends at Sonicity, and that was a
problem too. If you aren't totally clear about your expectations (and we never
were), friends expect a particular kind of management that is hard to
maintain. Ironically, the best performer we hired at Sonicity is someone I
almost got in a bar fight with the year before we started the company.

I started Matasano with Jeremy in 2005; Jeremy and I go back to 1995. One of
the things I think we did right, right off the bat, was to bring on a third
person (also a good friend) as _our boss_. Neither Jeremy nor I have little
thought bubbles coming out of our head saying "I'm the CEO". I'm Karl Rove,
Jeremy is Condoleeza Rice, and neither of us want to be the Commander in
Chief.

We've had conflicts, but the simple tactic of surrendering final say in the
company has defused them; I'd be fired before drama I started wrecked the
company, which is actually a really comforting thought.

------
Flemlord
Excellent article. I wasn't seeing eye to eye with the cofounder of my first
startup, and didn't realize it until a couple years in. He wanted a
comfortable business that allowed him to take Fridays off and spend more time
out of the office. I had visions of being the next Microsoft and wanted to
pump every dime back into the business.

It led to him quitting after the first couple years, and me driving the
company to a lucrative acquisition. We hadn't issued our initial shares with
an ESOP, so he got his full percentage, even though he didn't do most of the
work. But the biggest problem was early on, when he wasn't working a 40 hour
week and distracting everybody else from being a hard core startup.

------
michael_dorfman
I'd add (from painful personal experience):

Get a lawyer to draw up a frame agreement for the corporation. No matter how
much you trust each other, you need to get some documents in place that
protect the individual interests of each party. Don't allow loopholes to exist
that permit one party to screw over the other, no matter how convinced you are
it would never happen.

Trust me on this.

~~~
dbul
I have a good friend who I've known for many years. Very smart. So I ask him
if he would be interested in coming up with a domain and told him he would be
rewarded if we became successful. His response was that he would, but he
wanted me to write up a contract. I thought, _You've got to be kidding me._ So
I put on my lawyer hat and spent several hours writing up a contract making
sure the language was as sound as could be. He was impressed by the contract
(remember, very smart) and wanted just a couple things worded differently.
Fine. After all of that effort, he did not come up with an acceptable domain
name. Maybe the contract was a smart move, but that kind of thing seems over
the top sometimes.

~~~
cedsav
If you promise a reward based on 'success', then your friend was right to get
a contract from you.

For such a small contribution though the whole thing sounds rather silly.
Better to pay something upfront and/or ask for pro bono.

~~~
dbul
True. But I don't think he would have been satisfied with some fee -- he would
have been prudent enough to realize the possibility of success so the contract
was inevitable.

The woman who designed the Nike Swoosh was simply paid. Several years later
the founder of Nike gave her stock to show his gratitude for helping define
the brand.

~~~
cedsav
I think he or you are overstating the importance of the domain name. There's
nothing inherently special about the Nike swoosh. It just happen to be on
shoes that people like to wear.

~~~
redrobot5050
Yeah, you're way off on that. The swoosh _is_ Nike. When people were mugging
each other for Air Jordans, think back: each commercial ended with a
silhouette of Jordan about to dunk, and below him, the Nike Swoosh.

Show anyone the swoosh and they either associate it with "Just Do It" (again,
Nike's trademark) or Nike itself.

You might as well claim that Apple's startup chime is just another beep.

~~~
scotth
Mike made the swoosh, not the other way around.

~~~
redrobot5050
No, Nike made the swoosh. MJ was also just $45 million of marketing spent
wisely. But the swoosh remains. It was a brilliant strategy. Tie the two
together, but after so many years, when the athlete retires, you still have
the swoosh.

------
AlexTheFounder
My old school friend went to continue the business with another guy and left
our company to die on my hands. I pulled it through on my own and had a steady
income for 2 years.

Never trust your feelings and imagination. Plan your startup as a military
operation then you should be alright.

------
donw
This is a great post. I am starting a company with a good friend of mine, and
it's amazing how much time it takes to make sure we're both going down the
same path, not just code-wise, but also in terms of marketing, pricing, hell,
even the logo has required a lot of back-and-forth.

The one thing that I can add to this, is that make sure you go into business
with somebody you can both win and lose an argument with. Plans change,
markets change, and most importantly, people working together need to
compromise. I'm lucky, in that my co-founder is a really reasonable guy --
hopefully he'd say the same about me.

To borrow a concept from PG: Make sure neither partner looks at the business
as part of their identity.

Having done decently-sized projects (that never made money) on my own, I can
definitely testify that the two-man-route is much, much harder.

~~~
alain94040
Yes it's tough and takes a lot of work to stay in sync, but it's also very
healthy. I share the same experience.

------
vaksel
Doing a startup with a friend is similar to renting an apartment together. You
are almost guaranteed huge problems that will put a strain on your
relationship.

All this talk about putting things in writing is more or less bullshit. Yes
you will know who is right based on your preparations...but so what? All this
will do is make the final decision easier in a dispute for the winner...but
thats it. The other person will still feel wronged. Your relationship will
still suffer, because you had to put your foot down.

~~~
AlexTheFounder
This is basically how family works. Every party should have a right to be
'right' in the agreed range of situations (my wife is always right in the
house, no matter what).

So, the founders should split the territory and then follow to the agreement.

~~~
chiffonade
What? This is the formula for building a marriage in which you resent your
wife 10 years down the line, not any way to build a successful company.

~~~
AlexTheFounder
We're married for 12 years, have 2 kids and overall we're quite happy. Just
because my wife is always right about the house and kids, does not imply
anything how deep our relations are.

In fact I have more time to hack things because I can leave a lot to my wife.
That's how successful companies get built

~~~
scotth
On the other hand, things may be better with your contribution, even if she
doesn't agree. Playing second fiddle in order to keep peace is just laying
down, not being productive.

~~~
AlexTheFounder
I do not 'keep peace', we both understand that it is the most productive
approach. And yes I do have my voice when needed.

------
eddylu
Great article! From my experiences with starting ventures with friends, I
would also add:

1\. Make sure they have A+ work ethic. I partnered with an A+ friend with a B-
work ethic, and things definitely did not go well. I've also partnered with B-
friends with A+ work ethic, and now they're still business partners and some
of my best friends.

2\. Operate as a meritocracy. This was touched upon, but most of the time your
partners will have other obligations. Every week, we set goals that each
person must meet before the week's end. We have a policy where if anyone
misses his or her weekly goals over a certain threshold, that person is
relieved from his or her position. This happened once in my case, but the
person accepted it and totally understood because he had other obligations to
deal with.

------
A-Merchant
Great advice. I wish I had some of this prior to going in on a business
venture with a good friend of mine. The biggest problem we faced was that my
partner had just gotten into a relationship which requires almost as much time
as a new venture. So while I was envisioning 10 hour work days, he was
envisioning days filled with several breaks to catch up with his girlfriend
and/or his work hours were based around her schedule. This made it extremely
hard for me to focus and set time for us to work together.

With that said, I would add to the list of questions - What other outside
relationships will you need to spend significant time on and how will this
affect our work days/schedule?

~~~
chiffonade
> The biggest problem we faced was that my partner had just gotten into a
> relationship which requires almost as much time as a new venture.

This is when you start giving people ultimatums. Sounds dramatic, but it
isn't. It's what's required to run a successful business - having a girlfriend
isn't business, it's charity.

------
nav
Though the common sentiment here is not to start a company with a friend; I
respect the general opinions in the article and comment threads, thought I
must add that 'trust' is key. Typically those you trust are friends or family;
unf. a Catch 22. I've started a few companies with friends and have learned a
few things along the way. They are as follows:

1). Legitimize the business. Get the paper work done and a lawyer and advisor
on board. The ability to have an unaffiliated third party arbitrator it key.

2). Definition of mutual goals. Know why all parties involved are even
considering being a part of the venture, make it transparent and relate
possible exits to that.

3). Define roles and respect them. If you co-founder is a designer trust his
judgement; likely-hood is that he/she will do the same.

4). Define bailout plans. I you or your co-founder decides to bail; have a
plan and make sure everyone involved knows of the plan. Hopefully the team
'trusts' each other to execute it incase they decided to seek greener
pastures.

@lionhearted has some great points as well. Great thread and article.

------
bpm140
Great article, and the "friend" part is superfluous. All of Daniel's lessons
apply whether you're starting something with a friend you've known for two
decades (my previous startup) or with someone you met at the partner pitch (my
current startup).

------
gord
Its an excellent retrospective, given the emotion one must have invested in
seeing a startup through to the Ramen profitable phase.

------
robteix
Great advice. A few years back a couple of friends and I decided to start a
new company. Both were (and continue to be) really good friends to me, but
just before we formally created the company, I decided to back down. The
reason -- and I told both of them that -- was that I was afraid that the
company would eventually destroy the friendship.

We all decided to go our own ways and thus the friendship survived. I often
wonder if we could have pulled it out, but I really don't regret the decision.

------
jon-voights-pen
I did a cntrl+f on this page for the word 'incorporate' and didn't find one
reference.

Incorporation solves most of these problems: \- it forces you to write
everything down \- it forces you to assign roles \- it forces you to establish
a board of directors \- it forces you to pay out only in dividends at times
agreed on by the board of directors

no more problems! one partner wants out? buy his shares!

~~~
scotth
i've never quite understood this (although i haven't looked too hard). what
happens if (s)he wants to leave and you don't buy the shares?

------
herval
excelent piece of advise - one thing I find quite hard (impossible?), though,
is to have EVERYTHING explicitly spoken/written: there are just so many
variables out there, you'd probably lose a lot of time sketching things down -
and still not covering the bases that will turn out to be problems...

~~~
swombat
It's definitely impossible to plan for every eventuality, but that doesn't
mean that doing _some_ planning isn't useful. Ultimately, start-ups are very
resource-constrained, so you have to do what you think matters most and hope
for the best. If you at least have a good stab at answering the questions
outlined in the articles (and the comment by Sebastian), you'll be a long way
ahead of where you'd be with no planning.

------
zandorg
I have a friend who works for a bank, and I needed some help with a complex
SQL query. Instead of paying in stock, I just said "Here's so-and-so per hour"
and it took 2 hours, and I paid him, then did the same a couple of weeks
later.

Another guy did me an Installshield script on Elance.

I paid a lawyer for a non-disclosure agreement.

The lesson for me is, paying in stock is just like an urban legend, and
actually, if you've got the lion's share of development done yourself, the
edge cases can be got rid of cheaply for little more than the rent.

Also, if you haven't got friends who want to partner in a company, don't let
it stop you developing a product.

------
zafarali
This is interesting. Great article. I've seen many start ups fail with the
help of friends. I've seen few succeed with friends. I've seen wayyy too many
fails with only one person working in the start up. So be safe. Go get a
friend

~~~
dingobingo
wow. thanks for the info :)

------
forkqueue
Best business advice I've been given: always make sure there are an odd number
of founders so you can always get a resolution to any disagreements.

~~~
sho
I heard something similar, but with a slight twist - when any decision is to
be made, make sure you have a prime number of deciders, otherwise there is the
possibility of deadlock. I think that's from the founder of Sony? He had a lot
of cool ideas like that.

Not too many companies have 9 founders, though, so I guess your version works
well enough for startups.

~~~
smanek
That's stupid. Two is prime - which does allow for deadlock. And for odd
primes, why are they better than just odds?

~~~
sho
Because a group of 9, say, can deadlock into 3 groups of 3.

Sorry, I think I was supposed to exclude 2.

~~~
smanek
Fair enough. But, in my experience, most issues that cause deadlock reduce to
binary decisions - in which case having an odd number of deciders is
sufficient.

If you have to account for n-ary decisions, then you can never be to
guaranteed to be free from deadlock no matter how many deciders you have
(trivially, consider the case where n equals the number of deciders).

------
known
Transparency Begets Trust.

------
rustartup
a good thing to remember is that almost everyone out there and here on HN is a
egotist first and a hacker (worker, etc) second

~~~
rustartup
downvote it but you cannot change the truth

~~~
ovi256
I would really like to know, if you would not mind explaining, how are we all
egotists. I believe myself that HN tends to attract better-than-average,
educated, ambitious people. Egotism goes a bit with that. But to all being
like that.

~~~
rustartup
What you have just said is exactly egotism. From wikipedia: "Egotism is the
motivation to maintain and enhance favorable views of self."

and also:

"Various forms of "empirical egoism" can be consistent with egotism, as long
as the value of one's own self-benefit is entirely individual."

It just comes out in the difficult situations like doing a startup (in a war,
etc).

That particular thread shows how people fight to remain egotists. Seems like
me alone do not care about favorable view of myself (think karma)

~~~
unalone
I upvoted your initial statement and this one, but not the one in between.
We're not downvoting you to "hide the truth", we're downvoting you because
your statement wasn't making an interesting argument. Now you've started to
argue what you mean, but you're still not being particularly informative about
it.

------
chiffonade
In other words, make sure you aren't both a couple of passive-aggressive
powderpuffs that will steam roll each other into oblivion.

