What the Founders of Microsoft and Google Have in Common

School buddies can become successful entrepreneurs provided they agree to startup business goals

Q.  Can friends make good business partners? My college friend and I are starting a new Internet service for brokerage firm traders. I'm building the technology and my friend will handle sales. What do you think?

A.  I can't think of a more provocative question than the one you raise.

Everyone knows starting a business involves more emotional and financial risk than working at the average salaried position. But for entrepreneurs who choose to build a business with a college buddy, they risk a valued friendship too.

It would be great for Bill Gates and Paul Allen, co-founders of Microsoft; and Larry Page and Sergey Brin, co-founders of Google to one day comment on the synergy of their startup days. How did their school-based friendships evolve into highly productive business partnerships?

While we wait for their insight, I suspect that both team members would say they enjoyed a mutual respect for each other's intellect. And like all imaginative entrepreneurs, I suspect they challenged each other to think bigger about the goals of their companies. This is the fun part of startup brainstorming.

But with a shared vision of success comes the more mundane need to develop a shared vision of the tactical road to success. Clearly, there will be problems along the way. How will they be handled? What happens if the company runs out of money? What if one partner's skills can't keep pace with business demands? What if investors or board members request that one or both partners step aside in favor of different management? Should partners be loyal to each other or the business?

Entrepreneurs should know, not just assume they know their partner's attitude about product priorities, funding, first hires and how money will be spent. Here, cautious, thoughtful discussion is required.

In addition to candid discussion of potential partnership pitfalls, here are three other recommendations for high growth entrepreneurs.

1. Avoid 50-50 splits: While there is a certain goodwill value to a 50-50 split, the contribution of founding partners is rarely even. One partner typically has a bigger savings account for providing emergency capital or guaranteeing debt, can work longer hours, or bring more customers or contacts to the partnership. Allocating a larger percentage of founder's shares to one partner helps resolve stalemates faster and minimizes resentment due to one partner not fully absorbing 50% of the startup pain.
2. Get a written partnership agreement. Hire the best lawyer you can to teach you the subtleties of buy-out provisions and corporate dissolutions.
3. Spring for personality assessments: Credible personality assessments offered by companies like Lighthouse Consulting can predict a partner's aptitude for team building, problem resolution and leadership. These statistical assessments, often used by venture funds for due diligence on executive team compatibility, can highlight relationships that are more likely to fail under stress.

They can also pinpoint extreme attitude differences that may make it more difficult for 50-50 partners to compromise on a day-to-day basis. Assessments which are based on proven psychology standards plus follow-up coaching services can cost $300 to $1,500 per person. Partner compatibility tests run about $500 to $700 per person, which is a small cost compared to the potential fallout of a failed business.

So, can partnerships with friends work? I think so. Actually, the best seem to involve people who treat the partnership as something special. They take precautions and handle all relationship management issues with care.

Take Command Action Step

Partners can provide tremendous emotional encouragement during the early days of a business when sales don't seem to come in as fast as originally anticipated. Partners also make the victories more joyous celebrations. But there is another element of support that is too often overlooked by startup partnerships – the influence of a partner's spouse. If your partner has a "significant other," spend some time talking through his or her commitment to the new venture. All spouses must accept long hours, uncertain family cash flow and added stress into the family dynamic. Take the time to consider a wider range of factors that might affect individual partner productivity. You can do it!

Do you need time-saving tips to help fund and grow your business? Ask Susan How! Write to small business funding expert Susan Schreter at susan@takecommand.org