The Biggest Mistake Friends Make When They Go Into Business Together

I started a social media marketing agency, Movement Strategy, in 2007. At the time, I made a pragmatic decision to bring on a partner. I was still in college, and I needed someone to put more time into the company so it could go further, quicker. Plus, since it was my first company and I had no idea what I was doing, I figured two people learning together would be better than one. So I asked Eric Dieter, a good friend from college who had already graduated.

We split the company 50-50, which was not a big deal, since the company was not worth much at the time. The problem was, I didn't think about the complications that might arise once the company was worth a lot of money.

We ended up falling into a classic co-owner trap: It became increasingly less clear who was supposed to do what. As the business grew, the confusion turned into resentment. And before we knew it, it was killing the business — and our friendship.

Tensions rising

The problems began once I graduated from college and started working on the business full-time. Movement Strategy had started to pick up steam, and I was bringing in most of the clients, mostly entertainment brands that needed to know how to use and monetize social media. It was OK at first because business development is one of my strengths. But then I started to question our 50/50 ownership deal. Why was I giving up half of the profits if I was doing all the work?

We got into this situation because we never clearly defined our two roles. At the beginning, we both wanted to be involved in every part of the business: finances, human resources, advertising, and clients. We were young, and both wanted experience in all of these areas. We both graduated from the same marketing program, and neither of us has a specialized skill set like computer programming or design. So we didn't necessarily want to divvy up the duties from the outset.

Then the ambiguity of our roles began to hurt the business. We got sloppy with our bookkeeping — I was not confident we were keeping all the documents we needed for the IRS, and was concerned that our accounting payroll was not organized enough to expand. Plus, our mutual frustration was killing our enthusiasm for the business, making us less productive and less capable of focusing on the bigger picture of the company's future.

Divide and conquer

By August of 2009, Eric and I decided something needed to change, so we met to talk about our roles. We each were honest with each other about why we were frustrated. Then we made two lists. On one, we put all of the different tasks our company does: accounting, managing our two employees, building relationships, pitching clients, and so on. On the other, we wrote our individual strengths and weaknesses.

Dividing the tasks was easier than we thought it would be: our skills were more complementary than we realized. I am good at pitching clients, but Eric is good with details and making sure tasks don't slip through the cracks. We decided that I would be in charge of getting new business, and he would be in charge of the finances and accounting.

I was happy to focus on my area of strength, and Eric was relieved to be able to give accounting his full attention.

Staying well-connected

Since that meeting, our business has expanded. In 2009, we had $70,000 in sales; 2010 brought in $350,000. We have 10 employees and our goal for 2011 is to become a million-dollar business. Obviously, as we change, we continually have to reassess our respective roles. When I decided to move to New York City to open a new office, we had to address a whole new set of challenges, such as communicating with each other long distance, maintaining consistent management styles with staff, and getting to know new staff at each office.

It may sound silly, but a business partnership is like a marriage. When one of us is upset, we always call the other right away. Three times a week we connect over video chat. And we check in about the company constantly — whenever an issue arises, we discuss it and come up with a plan together.

A year into our venture, we realized that we weren't even friends anymore, just business partners — whenever we did anything together, it was all business talk. Now we make conscientious efforts to be friends. We recently went on a ski vacation together, where we kept the work talk to a minimum.

A strong friendship is important to us, but it also helps our business by giving it a foundation of trust and commitment.

Thanks to Jason Mitchell, Co-Owner, Movement Strategy, Boulder, CO / BNet