Is starting a company with friends a terrible idea?
No.
But it is VERY risky, because you’re forcing two incompatible relationships together. If you don’t separate them and treat business relationships as an extension of personal relationships, both will collapse under pressure.
Cofounders who are friends fail because they treat conflict as a threat to their relationships. Those who succeed learn to use it as a tool.
Snapchat is an example of a company whose founders made very expensive mistakes in the early days, but managed to learn from them.
Why friend cofounders fail (Snapchat v1)
Let’s use the early days of Snapchat as an example of what NOT to do.
It started with three frat brothers (Evan Spiegel, Bobby Murphy, and Reggie Brown), a Stanford dorm room, and an idea for an app with disappearing photos. Evan was the business guy, Bobby was the technical guy, and Reggie (who came up with the initial idea) designed the famous ghost logo.
Verbally, they agreed to work together, and that’s where they made their biggest mistake. They relied on trust and assumptions, but never explicitly talked about contributions, vesting schedules, and disagreements. They thought, since they were friends, a handshake agreement was enough.
When they finally got to the equity conversation, it turned out that they were operating under very different assumptions. Reggie thought they were equal partners, while Evan and Bobby didn’t feel his contributions warranted giving him a third of the company. As tension peaked, Reggie was simply locked out of all accounts and communications.
Reggie sued. Here’s what it cost:
$157.5 mil in settlement payout
19 months in litigation during the most critical high-growth phase of the company
Massive PR damage since their early history became public during the discovery process
Mediator’s side note: as part of the settlement, Snap issued a press release officially crediting Reggie with the original idea of the disappearing photo app. To me, this sounds like a lot of resentment built up over lack of recognition. I wonder what would’ve happened if they had an actual conversation (preferably mediated by a neutral) instead of locking him out completely.
So why do friend cofounders fail?
They avoid conversations to protect their friendship. As a result, underperformance is tolerated, bad decisions don’t get challenged, and no one knows what to expect. Politeness out of fear kills companies (and relationships).
They operate based on trust and assume what worked for their friendship will also work for the business (spoiler: it usually doesn’t).
They ignore legal “formalities” and rely on handshakes instead.
How to survive as friend cofounders (Snapchat v2)
The Snapchat drama could’ve easily killed the company. And it would have, unless Evan and Bobby hadn’t realized they needed to grow up immediately. They had to abandon the frat bros operating model, and build a real system. With corporate documents, hierarchy and all.
So they hired a lawyer, formalized the board, established governance and voting mechanisms, and clearly divided operational decision-making based on domains. They talked about what kind of company they want to build, what kind of people they want to build it with, and what contributions would be necessary to build it.
Today, Evan and Bobby are one of the rare friends and cofounders who survived over a decade of massive scale. They achieved it by building a structure that removes arguments as a threat: when they argue, they attack the system, not the person.
How to build the friend cofounder structure that works
Succeeding as friend cofounders has nothing to do with luck and everything to do with architecture of the cofoundership.
There are four sub-systems to building this architecture:
Relational
The worst time to agree on the rules of the game is in the middle of one. So, before diving in, agree that your friendship and your cofoundership are separate and lay down the ground rules. Map out exactly how you will handle best and worst case scenarios. What happens if we get successful overnight? What if one of us burns out in a year?
Operational
Your biggest operational threat is lack of clarity. Define domains of authority, cooperation between domains, tiebreakers, inform/consult expectations. That way, everybody knows who’s responsible for what and nobody steps on others’ toes.
Cultural
Institutionalize the friction. Arguing safely needs to be a part of the team culture. Agree on rules of engagement for when you disagree.
Legal
Legal sloppiness is expensive (ask Snap). Get a good lawyer and put things in writing. No “we’ll figure it out later”, and no “don’t you trust me”. Clean agreements and corporate structures remove a lot of unnecessary friction and can literally save your company in a crisis situation.
Final thoughts
Cofounding with a friend can be extremely rewarding. You’re building something cool with a person you not only respect professionally, but also like to hang out with.
If you’re noticing tension or resentment, it’s data that shouldn’t be ignored - it usually means there’s a bug in your architecture. Process, find, fix, get back to building. That’s what I’m here for. Book your free assessment to learn how to make your partnership bulletproof.
