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Starting a business with a friend
Old 07-24-2009, 10:06 AM   #1
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Starting a business with a friend

I'm a web developer so I get frequent elevator pitches from friends which I enjoy and am always happy to toss in my 2 cents.

One of my friends has been working on a business plan for the last few months and we've been talking for the last week about the technology side of things. It's online software which would take a lot of work to build and he's looking to partner with a CTO and possibly hire contractors.

Like most web start-ups, I think this business has a small chance of success for this one, but if it does take off it could be very successful.

Any tips for me if we decide to partner and go in on it together?
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Old 07-24-2009, 11:28 AM   #2
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I'm a web developer so I get frequent elevator pitches from friends which I enjoy and am always happy to toss in my 2 cents.

One of my friends has been working on a business plan for the last few months and we've been talking for the last week about the technology side of things. It's online software which would take a lot of work to build and he's looking to partner with a CTO and possibly hire contractors.

Like most web start-ups, I think this business has a small chance of success for this one, but if it does take off it could be very successful.

Any tips for me if we decide to partner and go in on it together?

My experience tells me not to willingly partner with a lifelong good friend. Either the business or the friendship is likely to suffer. But, of course, I may be wrong.
Anyway, Best luck!
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Old 07-24-2009, 02:50 PM   #3
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My experience tells me not to willingly partner with a lifelong good friend. Either the business or the friendship is likely to suffer. But, of course, I may be wrong.
Anyway, Best luck!
What went wrong? Friends starting a business can destroy a friendship, but not always -- think Microsoft

I think it's important to both be very clear and layout the agreement in a legal contract before partnering. I think a buyout clause in the contract is also a must.
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Old 07-24-2009, 02:52 PM   #4
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I suspect that the prevailing wisdom is going to be that the best way to ruin a friendship is to start a business partnership with them. Sort of like how the best way to lose money is to lend it to friends and relatives...
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Old 07-24-2009, 07:21 PM   #5
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...I think it's important to both be very clear and layout the agreement in a legal contract before partnering. I think a buyout clause in the contract is also a must.
And every party needs separate legal representation.
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Old 07-24-2009, 09:26 PM   #6
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Any tips for me if we decide to partner and go in on it together?
If you're doing it for money then make sure you get paid as you go, or understand how much labor you're going to donate.

If you're a partner, not a contractor, then have the LLC agreement drawn up before you do anything else and have your own lawyer look over a copy.

If you're a partner then consider contributing your time, not your money, to the LLC.

Try to network with a local tech group or incubator that will teach your group the business skills to go with whatever technology you're developing.

Ask yourself what would cause your customers to stop the way they're doing business now to jump over to your product and start all over again. You're contending with entrenchment, sunk costs, and laziness. All the cool in the Web2.0 world won't be enough to overcome that...

If you have the time, read about angel investing and see what investors think of startups like yours. You're getting valuable business experience and it'll help you put it in perspective.

BTW if you read just about any business history/biography of Microsoft and considered investing at the time, you'd run away screaming.
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Old 07-24-2009, 10:25 PM   #7
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If you're doing it for money then make sure you get paid as you go, or understand how much labor you're going to donate.

If you're a partner, not a contractor, then have the LLC agreement drawn up before you do anything else and have your own lawyer look over a copy.

If you're a partner then consider contributing your time, not your money, to the LLC.
Thanks for the input Nords. I'm not going to put any money into the business and am going to look for a hybrid of equity and cash. The equity would be less than 50% of the company and the cash would be much less than my market rate.

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Try to network with a local tech group or incubator that will teach your group the business skills to go with whatever technology you're developing.
He's part of an incubator already. Seems like a very good one although it's not technology oriented. I'm friends with two CTOs who founded their businesses so they will be a very valuable resource if things get that far.

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Ask yourself what would cause your customers to stop the way they're doing business now to jump over to your product and start all over again. You're contending with entrenchment, sunk costs, and laziness. All the cool in the Web2.0 world won't be enough to overcome that...

If you have the time, read about angel investing and see what investors think of startups like yours. You're getting valuable business experience and it'll help you put it in perspective.
I took an entrepreneurship class in college so I learned a bit about angle investors. Initially I think we'll look for some seed money from connections but not angle investors. The business doesn't need a lot of start up capital but we'll shoot for at least double or triple what we think we'll need.
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Old 07-25-2009, 06:40 AM   #8
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My experience tells me not to willingly partner with a lifelong good friend. Either the business or the friendship is likely to suffer. But, of course, I may be wrong.
Anyway, Best luck!
Yes, but unfortunately, this is how most startups get started. There are very few strangers who are willing to risk sweat equity on plans and people they don't know.

Web startups are a dime a dozen and not worth much. Besides money, sex, trade secrets, large data sets and their associated mining tools, advertising, and tools to make more money, it's hard to make money on the Internet because people expect things to be free, and there is always someone giving it away, so the pricing power of suppliers is low. Correction: even sex/porn is freely available. You'd have to go into seriously specialty porn just to make a buck.

I like to think of the web as the store front, not the business. People have to be willing to buy the stuff I'm selling even if it comes on a DVD through the mail. This is why as far as web-delivered business, I'm only attracted to the likes of demographicsnow, Omniture, salary.com, and InfoUSA. There is power in the large amounts of data and the know how to collect, manipulate, and draw insight from the data.
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