Risk management

As I mentioned in my previous entry, I'm going into business with my best friend. This is not something we do lightly. We realize that more than just our investment is at stake here. This could very well end our friendship.

But we also believe that it doesn't need to be that way. The first step, we believe, is to acknowledge the possibility and plan for ways to mitigate that risk. Before we agreed to go ahead we had a lengthy discussion about our concerns. Here are some of what we came up with.

- We find we can't work as partners.
- What if there becomes a real or perceived imbalance in the division of labor?
- What if one of us runs into financial difficulties? Would this put pressure on the other to help them out by splitting the take more in their favor for awhile?
- We may end up knowing too much about each others' personal finances.
- What if we can't make enough to support either family, let alone both?
- We realize unexpected success and can't agree on what to do with the money? (nice problem to have, but sometimes phenomenal success can be just as deadly to a business as phenomenal failure).
- We just get on each others' nerves.
- Conflicting goals for the business.
- We find success, but can't maintain it.
- Personality dynamic leads to one partner always giving in to the other one.
- One of us decides we want out, even if it means killing the business.
- Making sure we establish criteria for valuing the company should one of us want to buy out the other.
- What if one of us wants to bring in another partner against the other's wishes?
- What if we find ourselves being competitive with one another?

It's not exactly an exercise in positive mental attitude, but if friends are going to be partners, I think these and many more questions should be considered first. In our case we both agreed that our friendship is more important than our business, and that we're willing to chloroform the whole thing if it starts to come between us. But we were also able to discuss all of the above points rationally. In some cases we just agreed that they could become a problem and we just have to trust each other to act responsibly and work it out. In other cases, though, we were able to discuss concrete plans for dealing with the risk should it occur.

Has anyone else gone through a similar process in forming a business partnership with a friend? What was your experience? What things were important to you? Drop me a comment and tell me about it!