So you’re talking with a friend over cocktails and you guys come up with the next million dollar idea! You both believe that if you join forces, you can take over the world. Before jumping in head first, here are a few tips on collaborating with a friend or loved one.
Do’s:
DO be strategic about the roles you take on.
Each party should bring something different to the table that is complementary to the business. Be sure to clearly identify your potential roles and responsibility before agreeing to be partner.
DO share your short term and future goals and communicate often.
Begin with the end in mind. Getting on the same page about the short and long term goals of the company in the beginning can save hard conversations in the future about the direction of the company. Although your goals may change and evolve, understanding where you both stand brings clarity on steps that should occur to achieve those goals. It’s equally important to understand the motives of each party.
DO implement a trial period and sign an NDA.
You don’t have to commit to a formal partnership in the beginning but you should protect your idea. Be sure to sign a non disclosure agreement to protect any type of confidential and proprietary information or trade secrets that you all come up with together.
Then, test the waters out over a trial period of 3-6 months. This will allow you both to see how you work together and to actually see the value that each party brings to the business. It is also enough time to vet the level of commitment from both sides.
DO generate a formal ownership agreement.
After you all have a good understanding of your roles and commitment levels, seek out a lawyer to draft a formal ownership agreement identifying the ownership (equity) of each party. Be sure that you think long and hard about the amount of equity each party owns.
Don’t:
DON’T automatically agree to a 50/50 partnership.
Consider adding in a clause to your ownership agreement that if any of the partners leave the company within 12 months of starting it, they will not get any equity. Each partner should commit a certain amount of time in the beginning to plant the seeds that root a company. Businesses take time to grow and flourish and if a partner leaves before the company sprouts, it’s not fair to reap the benefits.
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