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Starting Business among Friends
March 25, 2026
Pointers to consider when starting business among friends
Starting a business with friends requires a delicate balance between professional rigor and mutual trust. To ensure both the venture and the friendship survive, consider these pointers:
1. Foundations of Mutual Benefit
- Leverage for Growth: The venture exists to make more money by leveraging each other’s strengths. It only works if there is mutual benefit; if the venture begins to favor only one party, it is designed to fail.
- Company First: Prioritize the success of the company over individual members. When the company wins, everyone wins—but the reverse is not always true. Individual gains should never come at the expense of the business’s health.
- No "Free" Services: Never believe in or expect free services within the business. Every contribution has a value that must be accounted for to maintain professional boundaries.
2. Structure, Roles, and Accountability
- Clear Definitions: Be explicit regarding investments, shareholding, positions, reward, responsibilities & authority. Only take on a role if you are truly capable of performing it; don't fill a seat just because you are a friend or family member.
- Treat service, employment different from investment made. Equity reward comes from profit, while working members be compensated with pay (nearer to the market rates). No room for incompetent member taking up position either.
- Dynamic Rewards: Recognize that not all contributions are equal. The company must have a system to identify and reward members accordingly based on their actual impact and "sweat equity."
- Operational Control: You cannot run a business on "remote control" yet, you must stay in control of ground operations to ensure the top-level strategy remains smooth and effective.
- the members should be knowledgeable, resourceful & exploratory but remain focus on the business goal.
3. Strategic Systems and Execution; have a plan or strategy in every undertaking.
- Practicality: Implement systems that are uncomplicated, balanced (equilibrium), and effective. A simple, practical strategy helps to avoid or defer common failures.
- The "All-In" Mentality: Exhaust every possible option before giving up an undertaking. Avoid leaving room for future regret, but stay focused and resourceful.
- Smart & dedicated hard work is the always a reliable path to success.
- Self-Awareness: Know your personal strengths and weaknesses.
- Be transparent but not naive—trust your member, but verify the data.
- Code of ethics: respect Time & Space between Biz & Personal, no biz meeting over liquor, transparent & yet adhere to confidentiality.
4. Protecting the Relationship (The Exit)
- The Pre-Nuptial Mindset: Always have a documented exit plan and a "shotgun clause." It is easier to agree on how to break up when you still like each other.
- Vesting and Equity: Use vesting periods (e.g., annually) to ensure members earn their shares over time. This prevents "dead equity" if someone leaves the venture early.
- Emotional Maturity: Success requires members themselves to be knowledgeable and mature enough; eg business decisions are not personal attacks.
5. Have a formal Shareholders Agreement in place before start the company;
The agreement should suit members in good & bad times. Include a brief background of coming together and have exit process in place without destroying the business.
The pointers here include:
* Capital amount, Equity split, difference between working & mere equity member.
* Define roles, authority & tie-breaker and mediation,
* Outline the Financial aspect; eg P&L distribution, rewards & audit rights.
* Performance & Accountability; eg performance & Non-competition clause
* Dispute Resolution
* The Exit Strategy; 1st Right of refusal, Shotgun clause, Dissolution plan, etc
The agreement should suit members in good & bad times. Include a brief background of coming together and have exit process in place without destroying the business.
The pointers here include:
* Capital amount, Equity split, difference between working & mere equity member.
* Define roles, authority & tie-breaker and mediation,
* Outline the Financial aspect; eg P&L distribution, rewards & audit rights.
* Performance & Accountability; eg performance & Non-competition clause
* Dispute Resolution
* The Exit Strategy; 1st Right of refusal, Shotgun clause, Dissolution plan, etc