Legal Horror Story: Friendship and Business...Not a Good Recipe : Under30CEO Legal Horror Story: Friendship and Business...Not a Good Recipe : Under30CEO
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Legal Horror Story: Friendship and Business…Not a Good Recipe

| July 11, 2012 | 11 Comments

Legal Horror Stories: This series is brought to you by eMinutes.com to help educate and inform young business owners. See if you qualify to have your business incorporated for free today!

Today’s story comes from Emilio Estevez of Cosiety.com. Cosiety is an online platform allowing college students to exchange academic resources based on the courses they’re currently taking. Those resources include notes, used textbooks, and curriculum knowledge.

The Story:

The amount of things a first time CEO has to carry on his back in order to create a successful company is beyond overwhelming. It is nearly impossible to anticipate all of the issues you will encounter with every move. Our major issue haunting us today is a decision we made months ago which now looks like it may have been quite impulsive. However, you rarely notice something was a bad idea until its already taken place and is now a part of history.

When registering our company earlier this year our upper management consisted of myself, my partner, and our mutual good friend. At this point in time we all felt we were in positions that we were comfortable in; me assuming role of CEO, my partner COO, and our friend the CMO. Based on her late entrance into the actual involvement in our operation I believe our personal relationship came into play in the judgement that she was entitled to a portion of the equity of the company.

Disclaimer: Do not mix business with friendship….(reference: nearly every tech start-up partnership fallout).

We split the company in three with my partner and I taking the majority and leaving her with a rather decent portion. Time seemed to go quickly after this point and a lot began to change especially in her life. My partner and I lived and breathed the company but she progressively became less involved. At first it was understandable as an early stage start-up that things have to be done on the side in order to put food on the table and we knew that. However, the time that was put in on the side was not efficient and things started to become clearer. We finally sat down and spoke about it but it was a difficult decision because again there were personal relationships involved. She agreed that it was unfair to the company to be dead weight especially holding vested interest in it. Our relationship was now at an end, and not just the relationship with the company.

Today:

Fast-fowarding to today we’ve made amazing progress and are readying launch for our product, so far we’ve been purely bootstrapping and finally we’re creating buzz. At points like this is always where things find a way to take a turn for the worse. On paper our previous partner still holds equity in the company. After research and involving our advisors it seems that this is an issue that must be handled legally. At a minimum of a few hundred dollars while re-sparking a tarnished relationship it is something that needs to be fixed and might not be pretty.

We’re honestly not sure if since the fallout feelings have changed and if this legal matter in changing the equity will be as smooth as we’d like it to be. Ultimately, my advice is be extremely stingy and careful when forming your company and delegating equity. Be as certain as you can be with the people in your business circle, because it can surely cause you sleepless nights in the future.

How to Handle it:

Its really hard to approach someone you have a personal relationship with and tell them that you can no longer continue working with them professionally. Mixing your emotions with decisions about your business is something you can’t be told not to do, its a lesson learned best through experience. As far as that initial conversation it should be like pulling teeth, quick and to the point. The problem is most people naturally proceed with caution because ultimately this person is a friend. However, business is brutal and personal issues can easily affect your operation. Make that person understand that this is purely a decision made for the business and it is not personal and it is something for the better of all parties.

For others who find themselves in a similar situation they should not let it drag on as we did. If you notice someone is lacking or not giving the amount of effort they should to your company do not be afraid to trim the fat. This does not necessarily mean that you and this person can no longer socialize, it was just something that didn’t mix well with your business.

Have you been in this situation? What is your advice when managing business & friendships? Let us know in the comments.

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Category: Startup Advice

  • YODAT

    The guy’s name is Emilio Estevez?  Please, please tell me that this is Mr. Mighty Ducks.
    Doug Butabi: So anyways, I was standing there waiting to use the pay phone. Steve Butabi: Yeah, he was, seriously. Doug Butabi: And this guy who was on the phone, turns around and tips his hat like this. Steve Butabi: And who do you think that guy was? Doug Butabi: Emilio Estevez. Steve Butabi: The Mighty Duck man, I swear to God, I was there. Doug Butabi: Of course you were, you were the one who yelled the Breakfast Clubber’s name. Steve Butabi: I was like, “Emilio.”  

  • Jonathan

    A fair assessment, but there is one distinction that should be noted. It is fine to start a business with a friend, if you worked with that person in a previous professional capacity. Our business consists of four founders, and one founder who has since been removed from the partnership, and 11 months in, we have a stellar working relationship. The main reason? We’ve worked with each other in the past and know each other’s working style.

  • Jim

     and i was like, EMILIOOOOOOO

  • http://www.facebook.com/profile.php?id=571132181 Luis Arango

    Just a thought, but I would probably start a business on my own and hire assistance that can be let go sooner or later. Might sound difficult but it might save you a lot of headaches and probably losing the whole enterprise. Who wants partners that think the are more deserving of profits and never work as hard as you do?

  • http://twitter.com/anioko1 AniOko

    Something similar happened last week to us, now am thinking why don’t these things become very obvious? At least I have now learned through experience which is a hard teacher.

  • http://Under30CEO.com Jared O’Toole

    Thanks for the comment Luis. I think you have a good point but you can’t forget about the up side to a business partner. It helps a lot to have someone else to look to if you get down or things are rough in the early days (which they always are). Also most startups can’t afford to hire people right away so 2 or even 3 people as partners get a lot more done.

    You just have to be structured the right way! 

  • http://Under30CEO.com Jared O’Toole

     Very true…It definitely can work out without a problem but you just have to understand what the downsides can be. Many friendships get lost over failed or split business partnerships.

  • Emilio E.

    … I tend to forget that my name is Emilio Estevez until my name is published somewhere lol..funny guys. In regard to the things I spoke on in and you guys comments, its not impossible to involve friends into your business operation and yeah you should always have a partner however I agree that the person should have at one point or another worked with you professionally prior to. It leaves less room for problems down the line. pe

  • Mmarkey

    There is an absolutley wonderful book that has been written on this very topic – The Founders Dilemmas by Noam Wasserman who is a prof at Harvard Business School. Hands down, this is one of the best resources I have ever read.

  • Pingback: Legal Horror Stories- Interesting Series at Under 30 CEO « PXV

  • svfoxhotmail

    Any lawyer will tell you to be careful who you partner with. I had a d*ckwad friend who ruined every company I started. Then he was getting stock options from the company he worked at and decided not to invest in my company…After everything I did for him which is to much to list here. But his company in the end didn’t sell. I gave up on him and my company did well with just me doing all the work. He has the nerve to call and say so much shit I’m still angry. Be careful !!
    Sam
    http://www.wordunscrambler.com