From the April 1999 issue of Startups

One of Rachel Bell's first memories of Sara Sutton is of her lip-synching to Duran Duran at a friend's bar mitzvah.

Sutton recalls Bell's star turn as Plum Blossom in the school play.

The two are best friends, and have been since the fifth grade. But it wasn't until 1995, when they were 21, that they decided to go into business together. Bell recalls, "My father told me that summer, `Rachel, you don't have to go into corporate America. There are so many great opportunities to start your own business.' "

So Bell teamed up with Sutton to create JobDirect.com, an Internet enterprise that connects college and graduate students with employers. Today they have annual revenues of $3 million; 24 employees in their Stamford, Connecticut, offices; and more than 110,000 resumes filtering through their database each year.

These two make for quite a success story. But for every Sutton and Bell, there are plenty of partnerships that turn life into a living hell.

Just ask Greg Gorder, an attorney with Perkins Coie LLP in Seattle who's given legal counsel to plenty of allies-turned-enemies. On the upside, Gorder says, going into business with a friend means working with "somebody [with whom] you have high degrees of trust and compatibility. On the downside, start-ups are hard on relationships, and you may, through achieving business success, lose something more important than money: a best friend."

Working It Out

The first time Alex Andrade saw Liz Davidson, she was roller skating in her New York City apartment. Davidson's roommate had invited Andrade over to do his laundry. As Davidson whizzed past him, "I really had no idea what to think," admits Andrade. "I definitely didn't think I'd be managing money with her six years later."

That was in 1993, and the two soon linked up like two Legos. (Before you ask-theirs has always been a platonic friendship.) "She was doing investment banking; I was doing brokerage. She was definitely the more serious, motivated worker," says Andrade, 27. "[But I] liked that we could really talk about politics, other people, serious stuff. We really got along well."

Three years later, Andrade was at law school in Texas and Davidson had moved to Los Angeles. When she decided to take the entrepreneurial plunge, she knew who she wanted to jump with her.

"I am very risk-averse about people," admits Davidson, who had no qualms about her best friend. "I'm a bit of a cynic. But I knew he was honest and decent and could commit-and that I could work with him."

It was a good call, for the investment firm of Davidson Andrade LLC is doing well. Although it's still a two-person staff, with the help of the office building's secretarial pool, the firm manages more than $30 million in assets. Davidson, 27, is CEO and runs day-to-day operations; Andrade is the firm's portfolio manager. Each has the final say on their respective duties.

The two could be a case study of why friendships and business do and don't mix.

  • Why their business almost didn't work: Deciding how to divide a company is messy, and at first, Davidson and Andrade split theirs evenly. But months later, Davidson was financing a lot of the company (Andrade was still in law school), and most of their equity had been brought in by her contacts. Uh, oh-rumblings of resentment arose.

While Andrade wanted to move back to New York City, Davidson was keen on Los Angeles. They compromised on San Francisco and soon realized their work styles were
as similar as, say, South Park and Gorky Park. Andrade is laid-back; Davidson, no-nonsense. She says what's on her mind; he doesn't. Even the trust factor was still in a primordial stage. When Davidson hired
a lawyer, Andrade telephoned the attorney "to make sure he was representing both our interests-[but I did it] without consulting her. That caused a problem."

  • Why their business has worked: Well, they are friends. Says Davidson, "I think we care about each other's happiness as much as our own."

Andrade agrees: "When she structured my [salary and] incentives, it was really detailed and well-thought-out-almost more than I would have done for myself." And one time, when Davidson telephoned Andrade in Texas and revealed she felt he had a disproportionate share of the company's worth, it started an argument. But just as she decided to bury her bitterness, she received an "amazing letter," in which Andrade agreed with her.

"He gave up more than half his equity," marvels Davidson. "I will never forget that. It showed me again how committed he was and how much he cared about fairness."

But despite their mutual respect, Davidson knew of best-friend businesses that had bombed, and she insisted Andrade participate in lengthy phone sessions with a Virginia-based business counselor before moving into their Frisco digs.

"So many people wait until they're ready to kill each other, and then they're like `Well, we'll go into therapy,' " observes Davidson.

Paying for therapy, Andrade maintains, was "more important than a new computer or great office space. If we can't get along, this will not work."

And if it doesn't? Gorder recommends best friends in business plan an exit strategy. After all, what if one partner wants to go do something else?

Calling It Splits

Jeff Duke is doing something else. He's skiing in Colorado.

Duke, 34, met Jeff Strunk when the two were bellhops in the early 1980s in Colorado Springs, Colorado. They didn't get along at first, recalls Strunk, "but several months later, we were at a party, got drunk together and have been best friends ever since."

In 1986, the two Jeffs wound up in Maine, working as weekend ski instructors. In the summers, they sold T-shirts, jewelry and other gifts, and by 1989, Strunk had created a bar game that would eventually be called Stack-now one of eight games produced by Strunk Games, a Kingfield, Maine, corporation with three full-time employees, eight part-timers and 1998 sales of $650,000.

In 1996, Duke wanted out. In part, he was uneasy with corporate fashions. (Duke now never has to wear a suit; he owns Tidal Transit Co., a seasonal business in Maine that specializes in guided kayak tours.) But both partners concede differing management styles were a factor.

How so? Duke is reluctant to reply, not wanting to hurt Strunk's feelings. (The two are still friends; they go rock climbing together.) Finally, Duke offers an example: "There was a time when Jeff really thought Stack was going to do better than it did. It looked like Waldenbooks was going to pick up an order, and-well, he ordered too many dice." Pause. "Two million dice. Four years later, I think he still has some in the basement. It was just an example of his going overboard."

There were arguments-uncomfortable for the nonconfrontational Strunk, whose stepfather eventually bought Duke's shares of the company. Would Strunk advise going into business with a bud? He hesitates, then: "I'd say, Do it. But make sure it's a solid business. Then you don't have to struggle with it, and you won't have to struggle with your best friend."

Forever Friends?

During their first year of business, Strunk surmises, he and Duke logged some 30,000 miles in road trips across North America, selling their game and having a blast: "Experiences like that last for a lifetime," he says. And Bell believes she likely wouldn't be in business today if it weren't for Sutton. "People doubted us in the beginning, saying `You guys are 21; you haven't graduated from college-what are you doing?' " recalls Bell. "If I didn't have Sara on my side, and if she didn't have me on her side, it would have been a lot easier to give up."

Giving up is not a concept familiar to Davidson or Andrade. "I will invest almost anything to make this work," says Davidson. "People always think you invest in the product or the equipment, but the biggest investment is in the partnership-in each other."

Friends Don't Let Friends Hire Friends

In 1997, Adam Portnoy started Surfree.com, a San Francisco Internet provider. When a staff was needed, Portnoy sought out his friends. He hired Sarah Wright.

Their friendship was firm . . . until nonfriends were hired. Explains Portnoy, 28: "Sarah was used to having a casual rapport with me. But I was the one enforcing the idea: `No, it can't be casual anymore.' She could walk into my office and talk about things while other people couldn't, and it [created] an imbalance within the office. That's when we hit some rough waters."

Portnoy and Wright bickered constantly, until they had a heart-to-heart on a business trip in the heart of New York City. Now their work relationship is stronger than ever.

"We still spend time together, but not nearly as much," admits Portnoy. "Because, you know, all of a sudden, outside the workplace, you're hanging with your boss." Right. Who wants that?

Make It Legal

No matter how well you think you know your pal, protect yourself with a partnership agreement that specifies:

  • How authority will be shared
  • How ownership interest will be shared
  • How decisions will be made
  • How the purchase price of the business will be determined if one partner wants out
  • How the money will be paid

    It's a good idea to consult a lawyer for help.

Would You Rather . . . Have A Biz Or A Bud?

Randy Horn has a message for best friends thinking about going into business: Don't. In October 1997, Horn, now 31, and his closest pal did. The two met in business school at UCLA and did the usual studying, quaffing beers and talking about women. "We were very close," says Horn, who doesn't want his ex-friend's name in print for fear of further riling him.

Shortly before graduating, they presented a business plan to investors for a board game called Zobmondo (based on the concept of, "Would you rather . . . ?" Sample question: "Would you rather get kicked in the head--or a paper cut in your eyeball?"). Investors were intrigued, but Horn and his co-honcho couldn't concur on how to co-run their newly founded company. "Because we had people interested in investing, we had to present ourselves as a `happy couple,' " explains Horn. "Determining whether we could work together went on the back burner."

They couldn't. They had differences on splitting equity, communication styles and levels of commitment. Finally, the partnership unraveled. "I think the moment I realized we would never, ever again be friends was when lawyers got involved," says Horn, who is now sole owner of Zobmondo Entertainment LLC.

It's Not Who You Know, It's What You Know (About Your Friend)

What makes your friend a hoot during the weekends doesn't necessarily make him a hit during the week. Just ask Azriela Jaffe, a Lancaster, Pennsylvania, business author who did scores of interviews for her recent book, Let's Go Into Business Together: Eight Secrets for Successful Business Partnering (Avon Books, $12.50, 800-236-7323). One entrepreneur she talked to went into business with his best friend--a closet alcoholic who came out of the closet.

"[The alcoholic] was showing up late, leaving early, taking days off," Jaffe recalls. "The breaking point was when he showed up drunk with a client. The business failed; the friendship failed, too."

Most friends don't question each other's potential problems when starting a business, says Jaffe. She asked her interviewee if he had ever seen any warning signs of his friend's alcoholism. "In hindsight, yes," the man replied. "The guy drank all the time-whenever I was with him."

Geoff Williams (gwilli2181@aol.com) is a freelance writer in Cincinnati and part-time features reporter for The Cincinnati Post. He's still smarting over a failed peanut-butter-and-jelly sandwich business he ran with a best friend in elementary school.

Contact Sources

Davidson Andrade LLC, ldavidson@davidsonandrade.com , http://www.davidsonandrade.com

Jeff Duke, P.O. Box 3384, Crested Butte, CO 81224, (970) 349-0314

JobDirect.com, rachel@jobdirect.com , http://www.jobdirect.com

Perkins Coie LLP, gordg@perkinscoie.com , http://www.perkinscoie.com

Surfree.com, (888) 678-7373, http://www.surfree.com

Zobmondo Entertainment LLC, (800) 417-0017, http://www.zobmondo.com