I Started A Business With My Friends...Now What?
The path between friendship and business can be a difficult line to tread. When things are good, they’re really good! Your job is to work with your friends, pursuing a goal you’ve no doubt spent many happy hours discussing before finally taking the plunge and turning it into a reality. If that’s you, I wish you luck...
But...have you agreed what each of your roles are in the business? Have you discussed whether you should be paid the same or different amounts? Have you thought about what should happen if (and sorry to say it) you fall out or what should happen if one of you wants to walk away (possibly because of a fall out, but there are other reasons this could happen, such as wishing to focus more on family, poor health, other job prospects etc)?
If you are a co-founder you need to ask yourself.
“Have we discussed what should happen day to day and what should happen if things don’t go according to plan?”
Here are three things to consider - there will be many more once you start to think about your individual business needs, but these three are a good starting point:
Take some time to discuss exactly who is responsible for what within the business. Many fall-outs occur because no one took responsibility for something important early on, hoping someone else would do it or because one co-founder feels another is treading on their toes. The chances are, if you have clearly defined roles and accountability to each other from the outset, you’ll be more likely to steer clear of potential things to disagree over in the first place, leaving more time to focus on growing the business rather than dealing with internal disagreements and tensions.
Work out what the company owns and what the co-founders own! Has one of your co-founders spent time e.g. developing software for the company, or writing articles to attract people to your website? If so, and the value in that work is what gives the company its value, then you want to make sure that ownership of all that work has passed to the company. The rights in this type of work (known as intellectual property) will not automatically pass to the company unless the person who did the work was an employee at the time they did the work. Being a director makes each co-founder an officer of the company, but not necessarily an employee. If you wish to ensure certain directors are also employees you could ask them to sign an employment contract (also known as a service agreement). Or, if they don’t wish to be an employee, you could ask them to assign the rights in the work to the company. That way, you can ensure that the value in the company is owned by the company and can’t be taken away on a whim or used elsewhere in competition with your business.
Have you thought about how much of the company each co-founder owns? If a co-founder wants to leave the business what should they be given for their share? For example, if one co-founder put in a lot more initial effort into starting the company before other co-founders joined, should that person own a larger part of the company? Or what if one co-founder behaves really badly and the others want that person to leave? What should a co-founder get if he or she leaves under a cloud? All of this would usually be dealt with in a shareholders’ agreement, have you got one in place?
I wish there was no need to raise the above points. No co-founder wants to talk about the possibility of disagreeing with their friends and co-founders, especially not during the exciting first stages of setting up a new business. But, because some of the topics are difficult and because it’s a conversation you may prefer to shy away from, the best time to talk about all the above is when things are going well and you are all working off the same page. You’ll be in a far better position to quickly agree on what you think a fair outcome should be in different scenarios and to record that for future use, rather than having to argue it all out when your interests are no longer aligned.
It may not be the most comfortable of topics to have with your friends, but if you can get these conversations out of the way early, in the long run, you’ll have more time to devote to the reason you all became co-founders in the first place - making a great idea work!
