Business with Friends: A Balancing Act

Two years ago, I went into business with one of my oldest friends, opening an Internet sales company. Our first year went well, but business stalled our second year and my friend argued that we needed to bring in a consultant to help us gauge our status and develop new strategies. I was adamantly opposed to the consultant -- it seemed like a lot of money to point out problems that we were already trying to fix -- and my friend proposed that if the consultant's fee did not pay for itself with increased profits, then he would subtract that amount from his share of the annual bonus we pay ourselves.
Well, I was right. The consultant did nothing but waste our time and our profits remain stagnant. Now, with the financial year come to a close, it's time to begin working out the annual bonuses. He adamantly insists that we stick by the deal, but that would mean he forfeits a good chunk of his annual earnings. We pay ourselves just enough to get by week-to-week, and I feel bad that he will suffer. We can afford to pay him the same bonus I will be receiving, but I'm not sure whether to enforce our deal -- and teach him a lesson -- or let this be a pass. Where's the line?
For some reason, I recently caught an episode of "Life of Ryan," the MTV reality series about 17-year-old skateboarding superstar Ryan Sheckler. I didn't intend to watch the program, but I happened to catch the first scene, where Ryan's best friend, Casey, is looking for a job, so the multimillionaire skateboarder offers to hire Casey as his "assistant." From there, Schadenfreude prevented me from changing the channel, because I just knew how it would end -- badly. (And it did; the second Ryan told Casey to do something, their friendship changed and... you know the rest. But at least the kids realized it was a bad idea soon enough to stop the business partnership and save the friendship partnership.)

I mention this to point out that, no matter the teenage scenario, forming a business relationship with someone you have a long-standing personal relationship with is always going to be extra difficult. Friends act differently than colleagues; they aren't accustomed to being told what to do. This can be both a blessing and a curse. You're caught somewhere in that middle ground.

Your friend's behavior with the consultant was both reckless and admirable. In a business with two heads, consensus rules. You couldn't reach a consensus, so your friend gambled. He felt so strongly about the benefits of hiring a consultant that he was willing to put his money where his mouth is. Again, admirable, but a bit reckless.

For a small business to succeed, you need to take chances and trust your gut. You also need to check that gut against the greater good of the company, especially when you're not the sole decision maker. If hiring the consultant had opened up new ideas that boosted earnings, your friend would have looked visionary. But just because it didn't, that doesn't mean he's wrong. He was looking for a new way, which is what you always need to be doing.

It's how he went about getting his way that rankled you. He cut a bargain, which is what kids do. "If you buy me this toy, I promise to clean my room every day for a month." In adults, this is a bit folly. It's great that he was willing to sacrifice if his gut failed, but that's not a good strategy because if he's consistently wrong it's going to be the company that ultimately pays the sacrifice.

Ultimately, your decision comes down to doing what's best for the company. In that regard, I think you should pay him his bonus. This incident has drawn a rift between both your business and personal partnership, and now you have a chance to return that partnership to a happy place. You talk about a desire to "teach him a lesson." I think you can do that even if you pay him. Your friend will still learn a lesson (hopefully); the need for consensus on all decisions will be further established; and, in the process, you will achieve more power and control in the decision making process. You were right. He was wrong. You both know this. When a similar scenario arises in the future, you will have the better track record and, thus, the final say.

It sounds like you have good potential in your relationship. He's the risk-taker. You're the pragmatist. If you can find a balance, it has the chance to be a great team. I wish you luck.

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