In today’s episode of The Startup Chat, Steli and Hiten talk about a favorite topic of Hiten – doing business with friends.

Doing business with a friend can be a tricky one. If it’s not managed properly, you could end up with ruined relationships or worse, a failed business.

In to this week’s episode, Steli and Hiten share their thoughts on what you should do if you want to do business with a friend, how to manage the relationship so that you don’t ruin it and much more.

Time Stamped Show Notes:

00:00 About today’s topic.

01:13 Hiten’s reaction when Steli suggested this topic.

02:33 A lesson Steli learned recently.

04:48 How Steli improved his business relationship with his friend.

03:53 Why you need to make time for both business and friendly relationships.

07:33 Why you have to be willing to talk.

07:45 Why friends don’t make good business partners.

08:21 The number one mistake to avoid when you do business with friends.

08:38 Why nothing should be too small to bring up.

10:36 Why discipline is so important when you work with friends.

3 Key Points:

  • Eventually, work took over and it was the only thing we were talking about.
  • Friends don’t make good business partners.
  • When you work with friends, you have to be willing to talk


Steli Efti: Hey everybody this is Steli Efti.



Hiten Shah: And this is Hiten Shah. Today on The StartUp Chat we’re gonna talk about one of my favorite topics, doing business with friends. So Steli, have you ever done business with a friend?



Steli Efti: The question is, have I ever done business with somebody who’s not a friend? And the answer to that question is-



Hiten Shah: Oh wow!



Steli Efti: It’s been a long time. It has been a long time.



Hiten Shah: Oh wow! Wow.



Steli Efti: Yes, yes.



Hiten Shah: Okay, okay. Alright, it’s like that. Okay well like okay. I do business with friends as well. I’m not sure if I haven’t, yeah I guess I’ve always done business with friends or family which is a whole other thing too. Friends and family, let’s do business with friends and family, let’s tell people what they need to know. What do they need to know Steli, what do they need to know?



Steli Efti: First, they need to know what’s not recorded, which was your reaction when I suggested this topic which it’s breaking my heart I don’t record everything we say. Usually I just, usually it’s a little bit of background for the long term listeners that might care. Usually we get on these calls, its really every episode is raw recorded first cut, there’s no real edits. We record our first thoughts, the conversation is really raw, the way it happens. I suggest a few topics and 99% of the time Hiten just goes, “Yeah let’s rock and roll.” On this one I said, “You know doing business with friends lesson learned,” and there was a pause and then Hiten said, “Yeah, fuck.” I was like, “Shit, I wish I had this on,” his reaction was so beautiful. And this single word which is why I love the word fuck so much, has so many meanings at once. It was beautiful, it was heartbreak, it was all kinds of things. So I think this is gonna be a rich and beautiful little episode. Here’s the thing, there’s a lot of lessons that we’ve talked about that we might repeat here quickly that are just lessons of life and lessons of how to deal with human relationships that apply in all cases and especially in the ones with doing business with friends. I’ll say one thing and then we’ll spit bong and go back and forth maybe. One lesson that I’ve learned recently that has been a new one, I can go back to the old lessons that I think are fundamental basic common sense stuff that took me a long time to learn-



Hiten Shah: No no no, let’s talk about the new stuff, the new stuff.



Steli Efti: But the new stuff, right? So here’s one lesson that I learned recently, which was … Maybe a year ago or so, one of my best friends, a very very good friend of mine that I’ve been working with for over a decade now with on multiple businesses in multiple ways. We got a little bit into a funk. The thing that kind of happened without me realizing it was that, I think our personal relationship and our personal friendship, kind of got sidelined because we didn’t create a singular space for that. And only our professional relationship existed in any interaction we had. Although we always were very casual and we’d make jokes and all that good stuff at the core, but I’m still his boss. That created kind of a weird thing where his behavior towards me changed. I eventually told him this as a joke, but then I realized that there was a big lesson here and we needed both to change. I told him, “You know I’m getting the short end of the stick on both ends in situations where I wish you would … Deal with me as if I were your friend you deal with me as if I were your boss. And in situations where I wish you’d deal with me as if I were your boss you deal with me as if I were your friend.” And he had to laugh real loud on that. And I was like, “We need to figure this out. I wanna just be casual friends with you and have you tell me about your life and tell me about, just be comfortable around me again, independently if things are going good or bad in business. And then in business I want you to maybe not feel so comfortable or so confident that I’m going to, I don’t know, we’re always gonna work together and we always trust each other and no matter what happens things are gonna be fine in the long term.” And then we started really working on this. So now, beyond, like we would now, when we do a business trip we’ll have two days before that we say is friend time. And he came and visited me and just hung out as friends where we didn’t talk about business and we hung out with our families, we went out, we had a good time. Then we’re like, alright and now the business stuff starts, the business part of our little trip. And even since we don’t both live in the same place, we will schedule once a month now a friend call, where we’re not gonna talk about fucking work. We’re just gonna talk about our lives, our families, how things are going because the work kind of just took over everything. And in a little bit, either it didn’t give any, allow any oxygen anymore for us just to be casual friends. And for him to feel comfortable to be, I don’t know, silly and talk about his personal stuff with me anymore. There was a big lesson there that I hadn’t, or a challenge in friendship and business that I hadn’t encountered before and it took 10 years for us to get into this. But we kind of got into a relationship funk of some sorts and how to figure it out. And it took us like a year or so of not being really happy with how our friendship is going, until we really kind of realized what we needed to do.



Hiten Shah: So you started basically making sure you had time for both modes.



Steli Efti: Yes. And because-



Hiten Shah: And that way you were doing less mixing.



Steli Efti: Yes because both of us are such workaholics and we love talking about work, I think eventually work just took over and it was the only thing we were talking about. So we didn’t have any space in order to talk about our personal lives and just be friends. And I think doing that for really long time, kind of put us in the situation where, I think I was more comfortable probably because of my situation in life. But he I think I felt less and less just comfortable being my friend. Just got stuck in this role of being somebody that works with me or for me, right? I think giving our friendship explicit space just like a date night when you’re married for a really long time, was the thing that we needed.



Hiten Shah: Yeah. Okay. I really think that this is really just gonna be about one lesson, to be honest Steli. But let me play this out and see what you think.



Steli Efti: Alright.



Hiten Shah: I think when you work with friends, you have to do something that you two did. It really balls down to that. It’s the most important thing. It doesn’t matter if the friends your co-founder or you’re managing them or they’re your boss, right? Those are the basic scenarios, right? You have to be willing to talk and communicate and be honestly even more brutally honest than in your other relationships. And the reason for that is, friends don’t make good business partners or even business relationships. The reason for that is, you have feelings for that person outside of the work you’re doing, you actually do. And yeah you can work together and then become friends and I think that’s a little bit different. That’s a little bit different because the … Situation started at work. The situation started, the relationship started because of the work you were doing, not because of just being friends and wanting to be friends with the person first. I really feel like this is the number one mistake. You hear it when people talk about working with friends. This is the reason why people say, don’t work with your friends cause what if you have to fire them.



Steli Efti: Yeah. I mean at the end of the day … I think we constantly come back to this like timeless principle that you have to communicate and nothing is too small to bring up. Especially when it comes to conflict, the earlier the better, right? Because small conflicts over time become bigger and bigger problems and eventually they become insurmountable. If you have an issue with somebody weekly, something that bugs you about them and that happens over a decade, at some point you’re gonna explode and then it’s gonna be such a big deal. It’s gonna be really hard to deal with and solve, versus if you address it the very first or second time it happens, it’s probably a very small thing. You’re not as emotionally taxed and loaded and so you’re gonna be able to talk rationally and openly and transparently in a way that’s not hurtful. It’s gonna be much easier for the other person to hear you and maybe adjust or explain, add context for both sides to arrange or understand each other better. I think that this situation, this was a thing that at first I didn’t realize, he didn’t realize. Eventually I did realize and I was unhappy about, but I didn’t really know how to fix it. And it took us a while to be able to verbalize what even the problem really is, like what’s really going on here. And since we were able to talk about it, we started to just solve it, right, and things have gotten a lot better. But I’ve had this situation before, I mean maybe … I don’t know if I wanna bring up, this is a whole other episode, how to fire your friends. I mean we did a whole episode on how to let go of people.



Hiten Shah: We did.



Steli Efti: And whatever we said there is gonna apply 100% to friends as well and family members. I think since we both had been working, investing, helping and doing business with friends and with family, I think that we both would never advise anybody or tell anybody, “You should never work with friends, or you should never let people you work with become friends.” I don’t think that’s a good principle. I think that … If you wanna work with friends, if you wanna do business with friends, you just gonna have to be even more disciplined and you can’t afford any kind of laziness in the amount of honest, transparent, communication and how much you communicate and how much you invest in the relationship. And how honest both sides are and realistic and self aware on what the dynamic is of the relationship, on what the pros and cons are, and that it could mean that at some point we’re gonna stop doing business together, stop working together. And the friendship is still, hopefully has a chance to operate in a different space with different context and different rules. We could be amazing friends and really not be great co-founders or really not be great coworkers and that should be totally fine. I think as long as people are really honest and upfront and work really hard on those relationships, they should be able to be fine. I’ve worked with many friends now for over a decade. Many of these relationships are closer today than they ever were before and I wouldn’t want it any other way. But I think it comes back to what you said, the basic lesson of, “You have to keep talking.”



Hiten Shah: Yeah, I mean, yeah. I just go back to that because as you were giving your example, I was thinking through well, I work with my friend right now, she’s my co-founder. I was friends with her at first and … As long as we’re able to figure out how to make friend time, things are pretty good. If we don’t figure that out, then things get really muddy really fast. That friend time is just like, taking away all that responsibility in a way, of the work, right? Making that not a thing and being able to just hang out with someone because you enjoy them, right? Not because you’re working with them which are two different, very vastly different things. I mean you would think that, “Oh I enjoy this person, so I’m working with them.” Actually no. You’re working with them because you want to work with them. You are friends with them because you want to be friends with them. And there is a big strong separation there. And if you get muddy and all you’re talking about is work which is super easy for most of us to do, then you’re not getting that friendship, you’re just not. That can turn into this really boring and almost like you lost something in your life feeling. That’s kind of how it can feel.



Steli Efti: Yeah that’s the whole idea of like, you’re sacrificing your friendship for the business relationship, but it doesn’t have to be that way. Right?



Hiten Shah: No.



Steli Efti: If you’re aware-



Hiten Shah: It shouldn’t be.



Steli Efti: If you’re careful about it, it doesn’t have to be that way. But if you don’t pay attention it’s very easy for it to turn that way.



Hiten Shah: Yeah and even the other way, right? You’re sacrificing … The work-



Steli Efti: The work.



Hiten Shah: Because you’re friends. Yeah.



Steli Efti: Yeah.



Hiten Shah: That’s horrible too. That means the work doesn’t get done right or you’re not willing to fire somebody or you’re not willing to give feedback, right?



Steli Efti: Yep. Love it. This is it from us. This is actually a topic, I mean we always love to hear from our listeners and we do hear frequently from all of you guys which is awesome. But this is maybe a particular one where we’d love to hear from you. Tell us about your lessons learned, tell us about your current struggles or your current … Things that you’re particularly proud of when it comes to working with your friends and family or doing business with them. Just shoot us an email and share your stories with us. It really helps us and we really appreciate it. So just ping us at any time,, and until next time, we’ll hear you soon.



Hiten Shah: See ya.