DISQUS

dave mcclure · 9 months ago

thx for the article... great stuff in here :)

Daniel Tenner · 9 months ago

Cool, happy that you like it :-)

dave mcclure · 9 months ago

ps - love the T-Rex cartoon :)

Daniel Tenner · 9 months ago

:-)

Sankar · 9 months ago

Nice post.

mike jolkovski · 9 months ago

Well done. This should be read by people starting all sorts of ventures and projects, including bands,

justgord · 9 months ago

Would you do it all again? The odds would be higher the second time around, given the experience gained.
I think most founders would be happy to look back on the good work you guys did at Woobius.

[ btw, the line drawings do come over just great against the clean graphic design. The site feels like an architects desktop, you nailed that. ]

Daniel Tenner · 9 months ago

Worth clarifying - this article is about the previous business, before Woobius. Woobius is still going strong.

And yes, I would do it again. I'll probably write an article later about the positives that I got from that experience, but in short, they include things like learning that I can stand on my own two feet, getting a much better understanding of how business works and how money is made, gaining more self-respect and self-confidence, etc.

Sebastian Marshall · 9 months ago

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.

Daniel Tenner · 9 months ago

Great points, thanks for this! I've added some of your questions into the list, in case some people don't read the comments.

martin · 9 months ago

what was the start-up's name? or website

Daniel Tenner · 9 months ago

We're still in the process of winding that business down, so I'd rather not mention it on this page just yet, but you can probably find it via some of my links on the index page...

Aravind Jose T. · 9 months ago

Very well written and nicely structured, with a lot of strong information packed in.
Great stuff.

This one provides VERY valuable pointers, when embarking on something really important in your life. It's appreciable that, you came up and wrote this from your personal experience, so that the ones to come, will benefit a lot.

Daniel Tenner · 9 months ago

Thank you. That's the intention. If only I'd read this article before I started my first business, I could have avoided many problems and a lot of stress. I hope someone else does find it useful in their own endeavours.

Rami James · 9 months ago

I rarely publicly comment, but I just had to say how timely and interesting this article was. I have recently started a business and this kind of honest and upfront sharing of your experience is eye-opening and most welcome. Thanks.

Daniel Tenner · 9 months ago

Good luck with your business! I hope the article helps. Please do let me know if it does.

Nick · 9 months ago

I concur, I also just started a business with a close friend.... this article is a great find on Techmeme.

Thank you so much!

Musashi · 9 months ago

Personally, I think it is safer to go into business with a work colleague/peer than with a friend.
When you've worked with somebody for a year or more, you generally know what they are like to work with under pressure etc. If you were the Team Lead (or vise-versa) then that dynamic is understood and should carry over to the business.
Also, you joined forces as professionals and thus your decisions aren't clouded by the friendship.

You become friends with someone for many different reasons - but money has nothing to do with it (or should not). In Business, money has everything to do with it.

That's my personal take. I'm sure there are exceptions where it can work (and perhaps, due to the opportunity genuinely should), however, I really wouldn't want my friendships to be tested thus.

Your best and most important point is to write everything down. If it hasn't been written, it hasn't been said. All business ideas, whether between friends, colleagues, clients etc, should always be written down. Just shove your understanding from a meeting in a quick email. Any disagreements or misunderstandings will be made known to you straight away.

asdf · 9 months ago

Don't get turned off going into business with friends, just make sure you're both equally dependent on its success. The problem is we tend to overlook the faults of our friends, and those faults are shown in glaring clarity when you have bills you need to pay and you're dependent on your friend to help you pay them. I was reliant on the business for income and on my friend to make sales. For me the business was critical and for them it was a distraction. It didn't end well.

Daniel Tenner · 9 months ago

I'm sorry to hear that. In my case, I think the only reason it worked out ok was because we had a common friend who mediated between us. Perhaps that should be something to look for when starting up with a friend - make sure you have a common friend who's able and willing to mediate between you if things turn sour.

mike · 9 months ago

Thank you, that was a very, very good article. It is similar in many ways to my start-up experience - one person needs success, the other would like success, one working lots of hours, one not working so many, etc., etc. I'd like to add that in my experience you need a single person who is responsible for final decision making - they have to say yes or no to whether a particular thing is going to happen, and it's their responsibility if it goes well or badly. Essentially a CEO. You can't have co-CEOs because you just get paralysis if one person wants something but the other doesn't.

Daniel Tenner · 9 months ago

You know, I can see the sense in this, but at the same time I'm not sure if I could stick by such a system. Ultimately, if I believe something is really wrong, I probably won't do it just because I agreed earlier that someone else should make the decision. So actually using that "authority" could itself cause a conflict.

In my view, it's perhaps better to not nominate an ultimate decision maker for all decisions, but declare that for each decision, "he who cares most wins". That reflects reality better, imho.

Dan Simard · 9 months ago

Before starting with a friend, we did a couple of month of test-drive. We worked on the same stuff while keeping our money separated. It worked well so you started a business. In fact, we were supposed to be 3 friends in that adventure but it didn't work that well with the other one. He had different needs and more experience than us.

But, we never wrote everything down. We began recently to do it and it just goes so much better. Thanks for the advices.

Daniel Tenner · 9 months ago

That sounds like a good approach to reduce the chances of disaster, thanks for contributing it. I suspect it can work quite well along with, rather than instead, the advice above.

dgr-c · 9 months ago

Amen. I started a business with a friend. Ten years later I left it to part company with a bitter enemy. While not a Reagan Republican, I recommend his foreign policy approach, "Trust, but verify."

Whether you create a formal business model or not, make sure you have a mutually agreed upon, objectively measurable set of criteria for success. Measure yourselves regularly against those criteria. If they're the wrong criteria, change them but always measure your individual performance and the corporate performance against those criteria. Otherwise you'll go to work one day and say, "Who is this guy and what did he do with my friend."

Daniel Tenner · 9 months ago

I'm sorry to hear that it didn't work out in your case. It was close to getting that bad in my case, I think. What strikes me, in hindsight, is how easily the whole misunderstanding could have been avoided with a bit more formality and earlier discussion of expectations, desires, etc.

Btw, there's an awesome middle-eastern version of that Reagan motto: "Trust in Allah, but don't forget to tie up your camel." :-)

ehsanul · 9 months ago

Haha, I've never heard that saying being used in that way. It's just a hadith, where apparently, someone asked the prophet of Islam whether he should tie his camel up, or just leave it and pray to God that the camel wouldn't be gone when he was back. The prophet recommended to do both. The way this is usually interpreted is that if you pray for something, you can't just expect it to work out, unless you do something about it and try to make it work at least. But I can see how you can interpret it the other way too, haha.

In any case, this is a great article. My friend who has just started development of a web service with me, linked me here, and I'm sure this will save us a lot of trouble. Thanks for the great article. :)

Anonymous · 9 months ago

I don't usually use the anonymous get out, but for this comment i will - I have first hand experience of this as well, I actually started a company with 3 of my closest friends and I must stress that points 5 & 6 are very important.

Your friends are not perfect - you know them well enough to know their pluses and minuses. Before starting up a business you need to make a dispassionate judgement about the characters of your partners. Arguing the toss down the pub with a mate is a very different thing than running a business together.

I started a company with 3 of my closest friends, we all had very different personalities and my gut feeling was that one of them was going to be a problem. He was a great guy but had some serious issues about control due to events in his life we all knew about. I should have listened to my gut, but I glossed over it thinking it would sort itself out. Over time no matter what was done he wasn't happy, he wanted to be the king of the castle but hid behind passive aggressive behavior. Eventually it all went hideously, nuclear war level wrong. To cut a long story short i got kicked out of my own company and I ended up losing my 3 best friends totally, to the level where we haven't spoken in almost a decade. It's still probably the worst experience I've ever had and affected me for years after the fact.

So, just make sure you know what your getting in to - starting a business with a mate may sound like a good idea but remember that the worst case scenario is very bad indeed. If you know in your gut that this isn't going to work out, just stay friends and save yourself a lot of heartbreak.

Daniel Tenner · 9 months ago

I'm really sorry to hear that it worked out so badly for you. :-( It sounds like a real disaster.

Rick · 9 months ago

I have so been there, done that and own the merit badge! Got the scars to prove it.

tony · 9 months ago

These rules should be applied to personal relationships also, what ever that be!

Chris · 9 months ago

Great advice and I am impressed you pulled off this post without ranting, I am not there yet myself. Having been in this situation I couldn't stress enough to someone doing a startup how important this kind of advice is and how hard it is to execute. Everyone's idea of a startup is different, if you want better than average your partner may be perfectly happy at average and that can make for HUGE problems.

One more piece of advice, if your partner wants to bring on family members, run as fast as you can.

Daniel Tenner · 9 months ago

Thank you :-) I'd also stress, however, that even if you don't execute this advice perfectly, at least having a good stab at it will already provide a huge benefit when compared to not clarifying agreements up-front at all.

Akash · 9 months ago

I never thought of being the CEO, I was always thinking my friend would be suit that role and was glad. But the relationship never seemed to work out. We did not have complimentary skill sets (both worked on the same dev stacks) and I would sometimes get frustrated cause I was always ready to spend hours coding and even doing his job (I also promised to spend his share of investment too. That would mean I would initially put in money on his behalf too but he would still have 50% share in every profit from the app).

But I felt he crossed the border during the recent Yahoo Hackday (I worked all alone while he didn't even bother to attend the final presentations and just dropped in for lunch and dinner). So I went my way from then on.

Daniel Tenner · 9 months ago

It sounds to me like you made the right choice. How did he feel about it?

Akash · 9 months ago

He didnt feel anything. I just stopped working on the app. But we still chat though (he turns up on chat when he needs help :P ).

Dole · 9 months ago

Thank you! I wish I would had your advice years ago.

DDD · 9 months ago

Thanks so much for this. I recently started up a small side-business with a friend (we are both still in college) which has turned out relatively well in a short span of time. Already four major projects deep, we found ourselves asking a lot of these questions, because initially we didnt think it would turn into this so quickly. Luckily, my partner and I see eye-to-eye on pretty much every issue, and were always willing to make sacrifices for each other. How DO we decide on distributing profits (company account, vs. personal accounts, vs plowing back/investing)?

Any additional advice would be greatly helpful. Thanks again Daniel.

alain94040 · 9 months ago

Great post. Bottom line: have a sound structure, don't improvise.

I'm ambivalent about #1: everyone at first will say that they'll only quit when the project is really dead. 3 years later, when the moment comes, everyone's perspective will have changed anyway. So I don't expect early committments to hold by then. Just be aware that things change, be flexible. Keep treating your business partners as friends, even when you disagree.

webmat · 9 months ago

Good point. It's probably a good idea to revisit all of these questions along the way with your partners.

Name · 9 months ago

Who decides when it's dead?

Bruce P. Henry · 9 months ago

Interestingly there is an existing solution to this problem. It is called a shotgun clause. It provides a way for one partner to say, "here's what I'll pay for your shares" and the other has to either sell at that price or buy the others shares at that price.

Shotgun clauses have their own "special" issues if the partners have a financial imbalance (i.e. one has a lot of ready cash lying around). But they do provide a good worst case way for one partner to say they're done and then get out without wrecking the business for the other(s).

True Color Tech · 9 months ago

Very awesome read, I’m in the process of something similar to this although sometimes it’s scary to start something up with a partner you don’t know personally it may work out better in the long run keeping things detached at coherent.

steveplace · 9 months ago

I'd really suggest that you have a lawyer look over any partnership you put on paper. You can both use the same lawyer as you aren't really *against* one another, but a third party can help uncover any land mines you may not have considered.

BHappy · 9 months ago

Another good question could be -When do we sell or what is our exit strategy? Or what do we do if we need more funding?

p47 · 9 months ago

Thanks for article it was eyes-opening.

I'm in start-up situation right now with two of my friends plus one other folk.
We'll discus this tomorrow, much thanks, it may save our time, money and friendship.

Tom · 9 months ago

I can imagine a slightly re-skinned version of this article in relationship magazine - good fodder for startups and the recently engaged as well..

John Furrier · 9 months ago

Excellent for you to share the scar tissue with other entrepreneurs. Kudos. You're welcome to post anytime on my site. Props to you!

J · 9 months ago

Great post, sums up the last 10 years of my life with 3 different partners. Some things are better to learn by letting the rattle snake bite someone else's friendships. This is all true!

amy · 9 months ago

Hooray for you for avoiding the typical fluff and writing something that's insightful, personal, and also truly useful. And also for t-rex cartoons. Yay!

There's just one thing I'd add to your excellent article:

Don't do it unless you value your friendship more than the business. And talk that out with your friend/partner and ensure you both feel the same. Because then the goal will be to choose paths that will result in a stronger, better relationship -- rather than sliding into a situation where you are always thinking of you vs them (or vice versa).

And that includes when/if it comes time to "break up." Everybody will be happier if you are always looking towards preserving the relationship.

And if you -- or they -- don't value the friendship more than the business, you're going to lose that friendship one way or another, so it's better not to make that mistake from the outset.

Twig · 9 months ago

You would think this information would be common sense, but oh-so-many people fail at these points.
Good article!

Juan Carlos Mendez-Garcia · 9 months ago

Very good post, as others have already indicated. I'm glad you fell it turned out well at the end.

amnigos · 9 months ago

very useful article

Himanshu Sheth · 9 months ago

Very nice article, glad I landed here from Twitter :) Well, I was associated with a startup of 3 people as a SO CALLED Co-Founder. One thing which is so very important in a REAL Technology startup is "Correct Division of Responsibilities" and this would be the case whether we start with a friend or not.

To be honest, I am planning to startup with my wife :) and I see that my Startup couple friends face lot of issue in getting the THIRD person, since it is very difficult to see what is happening in someone else's bedroom, same was the case with our startup (Husband + Wife + 2 outsiders)

Lovely Tips, thanks for sharing them.

-Himanshu Sheth

sujamthe · 9 months ago

Nice article. I second @dave mclure. The t-rex question is what comes in the way usually.

After you have been through this couple rounds, founders get it that ideas are dime a dozen, its all in the ride with the best team you enjoy hanging around with.

Also expect changes not only from the co-founder but from their spouse who may not have been ready for the long hours and what the uncertainity means.

Anthony Johnson · 9 months ago

My partner and I are in the same situation. I found the cartoon particularly amusing since we have had the "ceo" argument many times. We decided to settle on the "google management structure" and calling both of us presidents. We both secretly claim that we are CEO's. Anyways, since we are both in law school, you can imagine that we have everything written out in contract and opening argue about disagreements until we settle on the right path. I can see your point and agree that being honest and communicating with partners is vital, especially in a tech startup. I am a "let's talk about it later" kind of guy but, luckily, my partner writes down EVERYTHING so it works out. Good Luck and it is good to hear that ended up on top. We hope to do the same.

-A. Johnson

Nandu Muralidharan · 9 months ago

Great post. Its very true. An emotional angle also comes into play in these scenarios and its tough of both the people. Its better to clearly discuss and document key stuff.

kcmani · 9 months ago

Wow!! excellent article ... thanks for sharing this

Minhajuddin · 9 months ago

Nice article, would really help in any kind of partnership :D

Murali · 9 months ago

GReat Article...i think its worth reading for anyone who is planning to startup. in most of the cases people endup starting companies with friends.

Anaggh Desai · 9 months ago

Good Stuff. This is also applicable...probably more so to relatives also:)

zafarali · 9 months ago

good work. nice article :)

Robert · 9 months ago

Hi Daniel,

thanks for the great article... though I guess you could write a book, or a series of books on the topic, it really helped me understanding what I should do right now, as I am in that situation.

PS: the t-rex was awesome

Anonymous Coward · 9 months ago

Ha, I've done the 'startup with a friend' thing 3 times in a row. You'd think that by the third time I would have learned my lesson :) Hahah just kidding (barely). Interesting article indeed. I think the advice given here is very sound and should be read by anyone considering it.

Tod Birdsall · 9 months ago

Very helpful insight. Thank you for sharing.

chanux · 9 months ago

It's good that you wrote them down :)
Thanx for the clear & well organized article.

Karthickram · 9 months ago

Thanks, Daniel Tenner. I too experienced the same in my life and got ditched very badly.

Maya · 9 months ago

You are absolutely right and thanks for sharing that . It should definitely serve as a warning to
all thinking about joining ventures. I had similar experience, ending doing everything myself
my partner always "hard to be found".
Thanks for following!

T-Rex · 9 months ago

Absolutely cool article. I'm currently in the same situation trying to start new business I hope that everything mentioned above will help me to make things clear.
Thanks for this post. :)

Kasi · 9 months ago

Thanks Dan. But, had this been available some 5 years ago.....

Available_for_work · 9 months ago

When my friend and I started our web design business, we got an agreement which included the 'shotgun clause' mentioned above. Discussing one of us leaving was difficult, but worth doing.

What we completely failed to do was clarify what success and failure meant. We have jobs on, but not enough. I'm getting paid this month, but after that there's nothing. My partner is talking about giving us "a fighting chance". I'm already looking for a full-time job. I haven't told him yet.

Other observations:

Whether you're starting or joining a business, you must have a cashflow forecast. Be realistic on sales, and then push them back three months. Add a lull around December/January. Don't expect things to get steadily better.

Know your partner's personal expenses. My partner 'needed' to extract £60K annually. This bled the business dry.

Joining a one-man business is like climbing onto a raft. It will rock until you've steadied it and found a new way to paddle.

Writing blog posts and sprucing up the website is not marketing.

Don't start a business without having saved three months personal expenses.

If there's less than three months running expenses in the bank, you are in a crisis situation and must focus on sales (and address your exit strategy).

IS · 9 months ago

interesting..

Kabish · 9 months ago

Hey Swombat just dicovered your blog today, been offline for the last month due to technical problems. Congrats, it looks realy really interesting!

Jamie Stephens · 9 months ago

Excellent article. Thank you!

As someone who just went through nearly the same thing, I can attest that this is excellent advice to anyone considering starting a new business.

Best of luck on your future ventures.

Rokin · 9 months ago

Thanks for this fabulous post..... :-)

girishmahajan · 5 months ago

Gr8 stuff
One more question: Work Ethics - What is the definition of Ethics for you and your partner

Vasudev Ram · 2 months ago

Excellent article, overall. Thanks for it.

One point: It might be better not to have the footnotes in such a small font - like a traditional print book. Makes it more difficult to read, particularly when one has to reduce the font size of the overall page (with Ctrl-minus in Firefox) to avoid having to scroll horizontally.

Thanks,
Vasudev
dancingbison.com