The Ups and Downs of Founding with Friends

A lot of the work I do with Millennial startup leaders focuses on team—helping teams communicate more effectively, build productive norms, overcome conflict, and grow their leadership and followership capabilities. I love the work because no two teams are identical. Helping each one is a process of listening, fact-finding, and learning for me as well as for them. And though I love the work for this variety, I also love it because there are patterns. There are certain dynamics that play out again and again that enable me to help people swiftly and powerfully.

One such pattern has been on my mind a lot recently and it is: the propensity for first- and second-time founders to found with close friends or family. It’s something that has been staring me in the face with a number of clients. It was also a significant component of a Noam Wasserman “Founders’ Dilemmas” talk I recently attended. And beyond all that, it has been a huge part of my own business for the past year (my brother and best friend Andrew came on board as a partner a year ago).

While I find the decision to found with your inner circle intriguing, the things most dominating my mindshare are the long term challenges facing those people who have already made this choice—people like many of my clients and myself. There are many nuances to said challenges, yet I think they can really be summed up by two words: enhanced risk. When you found your company with your brother, you risk family bonds—and the joy of future occasions like weddings, Thanksgivings, and reunions. When you found with your best friend, you risk your friendship. You risk replacing “ease" and “goodwill" with “effort" and “resentment." When your spouse is a fellow founder, you risk putting what’s best for your relationship ahead of what’s best for the company. Or, on the flip side, you risk the relationship turmoil that comes from having to execute the board’s “fire him” command. When you’re founder-friends, you risk over-relying on your friendship to get through problems—both interpersonally and for the company—which means that you risk not having a safety net underneath you in moments where the friendship isn’t enough or as the friendship changes over time.

The relational challenges facing family or friend founders are real and significant. To found with someone in your inner social circle means taking a deep and multi-leveled relationship into an arena that constantly tests—and often breaks—relationships (65% of startups that fail do so because of leadership team dynamics).1 Wasserman’s research shows that of all founder relationships, those between family or close friends both A) Stand to suffer the greatest damage if the relationship blows up and B) Have the greatest tendency to avoid “elephant in the room” topics for the sake of preserving the relationship and sense of trust or because they think they know each other well enough that they don’t need to discuss the elephants. These two findings create what Wasserman calls the “Playing-with-Fire Gap” illustrated below.2

As you can see, the gap between the damage founders will suffer if their relationship blows up and their willingness to discuss the “elephants” varies depending on their prior relationship. The larger the difference between the “damage if relationship blows up” line and the “likelihood of discussing ‘elephants’” line, the more founders are “playing with fire.” The gap is largest for family and close friend founders which showcases the vulnerability these founders face if mitigating steps aren’t taken.  

So this all begs the question: if founding with close friends or family is so risky, why do over one third of technology startup founders do it?3

Well, they do it for the reasons you’d probably expect. Founding with close friends or family is comfortable. It feels safe. It is an easy way to create the sense of trust and camaraderie most founders desire on their team. Choosing to found with their inner circle enables founders to move quickly because they already know and understand each other well. They “get each other” from the very start. For first- and second-time founders, there is an ease of access to friends and family that might not exist in other parts of their networks—especially if they’re early in their careers and their other networks are limited in size and scope. 

Though TLG isn’t a venture-backed startup, I chose to bring my brother Andrew in as my main business partner for many of these reasons. I understand his personality and he understands mine. He is a wickedly smart and incisive guy who I trust completely. And beyond that, I know his values and what makes him tick. I know that his values—things like autonomy, self-awareness, curiosity, service, and communication—align with the culture of our company. We fit together and he fits the mission we’re trying to accomplish. 

Now, just because Andrew and I have gone ahead and chosen to team up doesn’t mean we’re exempt from the potential pitfalls most family and friend founders face. As such, we’ve spent a lot of time doing what we can to mitigate potential fallout from our sibling relationship by attempting to close our Playing-with-Fire Gap. Here are the top three things I’ve learned from my experience with Andrew as well as my work with clients who face a similar dynamic that help accomplish that: 

1. Regular Founder Check-Ins: Whether you do these every few days or once a week, make sure you consistently schedule time to sit down and check-in with your co-founder(s) about how you’re all doing mentally and emotionally. Leave the strategy and task-related content at the door for this one. These meetings are about getting things off your chest that have been bothering you, and encouraging the other founders to do the same. Try to name the “elephants.” In my experience these meetings can feel weird at first—especially if talking about these topics is outside of the norm for your friendship. But remember that this discomfort is the very thing that keeps you silent in the first place and contributes to your dangerous Playing-with-Fire Gap. Resist the urge to let things go unsaid. Don’t let things fester. Don’t let them build.

2. Implement a Conflict Communication Process: When things are going well, communicating with your close friend or family member co-founder is effortless (that’s one of the reasons why you chose them). However, when you’re both under stress or one of you is in crisis, it’s rarely so easy. Most inner circle founders I know have a default communication mode that emerges in these situations, and rarely, if ever, is it a productive one. Think about how you and your co-founder(s) communicate and make decisions in these moments. What would you like to see done differently? What are the challenges going to be in order to actually do that? How can you practice these behaviors in non-stress situations to help you build these muscles? Do you need a trusted and objective third-party referee waiting in the wings to facilitate/mediate the discussion when stress and tempers flare? Invest in this strategy with your co-founder(s) no matter how out of the norm it feels—you won’t regret it.

3. Contingency Plan: For so many of us, it’s far more exciting to focus on the positive possibilities than it is to discuss and plan for the worst case scenario. However, when founding with close friends or family, taking the time to write out a “if-the-relationship-blows-up-this-is-what-we’ll-do” plan when everyone’s calm and collected can pay huge dividends. Include who will have the final say if a fundamental disagreement arises. Draft and sign an exit contract that goes into effect if an irresolvable situation occurs. Doing so can be uncomfortable because it forces you to look down the barrel of “what if this doesn’t work out”, but it will provide such a clear sense of options as you hit rough patches along the journey and will give you stark clarity should the worst happen.

If you're a friend or family founder, I strongly encourage you to take the next step in the growth of your company and friendship by implementing these recommendations. They may feel strange at first, but in time, they will become second nature for you and your co-founder(s). And they will make all the difference. I know because I've seen them work for countless friend and family founded startups—and they've worked for Andrew and me. Go get 'em.


A big thanks to my brother Andrew for helping me reflect on this topic as well as to my friend and colleague Andrew Bellay for lending his thoughts and artwork to this post.

1. Wasserman, Noam. The Founder’s Dilemmas. Pg. 3.
2. Ibid. Pg. 105-110.
3. Greenberg, Jason. “Co-Founders & Startups: What Makes a Successful Team?” A presentation based on his dissertation.

 

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