Mistakes to avoid as an Entrepreneur: Hiring Friends
About 8 years ago I had an idea for an event planning app which eventually turned into a full-fledged start up with investors. We delivered the product to market and gained around 5,000 users, but due to the length of time it took for us to get the software up and running we lost a lot of momentum. Here is an old promo video for my product so show you that I’m not just a random guy on the internet writing an article with no real experience. Ultimately, I shut down the start-up, but the knowledge I gained from this 7-year venture is invaluable and what I will be sharing with you in this article. Like some of the other topics I talk about here, this will be the first part of a series of articles that will assist you in your journey as an entrepreneur.
The saying goes,” Never do business with friends”. I found this out the hard way.
Whatever you do, DO NOT MAKE YOUR FRIEND YOUR CO-FOUNDER AND/OR PARTNER. This is one of the mistakes people first make as entrepreneurs. Comfortability and trust are the reason people hire their friends, which in the most part makes sense. What people don’t expect is friends typically don’t take each other seriously in a business sense. I’ll give you an example of what I experienced.
I partnered up with a high school friend of mind who at first was excited to get the ball rolling and since he was a graphic designer, I brought him on to design the interface of my software. I gave him a deadline which he agreed with. I would regularly check up with him to make sure he was on time to finish his graphic design work and he would always assure me he was. When it came time to show me his work….I found out he did absolutely nothing. I asked him why he lied to me and he asked me why I was being so strict on deadlines then came up with a bunch of excuses. This goes to my first lesson. If you make a friend your partner or co-founder, they will take liberties with you, stretch deadlines, and won’t take you seriously as a boss. I gave him another chance, which didn’t work, before letting him go all together.
A lot of people hire friends to cut costs and just give them equity. Trust me when I say the only way to get people to work is by paying them. Unless you find a legit co-founder who is willing to work for sweat equity, which from my experience is very very seldom, cash is the only way to get the ball rolling. You’ll learn this the hard way when your “friend” who you thought was as excited as you to build a business is telling you to calm down when you try to enforce a deadline because they are working for free despite having equity. How do I know this will happen you say? Because it happened to me several times before I sucked it up and forked up cash to a professional software developer to build out my application. I even had to deal with a bunch of crap from that guy as well, but we’ll get into that in a different article.
If you do decide to hire a friend, protect yourself legally
Often when something occurs so often that there is a well-known quote that is derived from it, such as “Never do business with friends”, it is more of a fact than an opinion. Due to the off chance that you do take a gamble and hire a friend, please at least protect yourself legally like you would do with any business partner. If you hire a friend have them sign an “Employment Agreement”. If you decide to make your friend a co-founder, please do yourself a favor and form a “Founders Agreement”. This will detail your equity stakes, your job duties, and terms for termination. Also, make these individuals sign a Non-Disclosure agreement if they have direct access to anything proprietary/intellectual property. Do not move forward and work with them or anybody in fact if they have yet to do the above.
Also, when you get a chance to incorporate another thing you must do is put together some “Bylaws”. Lawdepot.com, which is a great legal resource, defines Bylaws as a “set of written rules used by a corporation to organize its internal management. Company bylaws also outline the policies and responsibilities for the shareholders, directors, and officers of a corporation”. What I personally included in my corporate bylaws for my startup is rules for termination. For example, I put in a clause saying that if any officers or internal management of the company were absent without reason for two or more weeks they would be stripped of equity and terminated. To continue, it also stated that if they did not perform their duties, as in they literally did nothing at all for several weeks, they would meet a similar fate.
I hope this article will provide you some insight on working with friends and or saving you from any potential stressful situations that I have dealt with when working with friends. If you have any additional questions, feel free to comment or send an email to thedailynook@gmail.com