Is It A Good Idea To Invest With Friends?

Image by: Chantel
By Michael Sterling

Investing partnerships rely on each other’s strengths. One depends on the other to pick them up when they are lacking a crucial part in the strategy, while trusting him to do the same. A truly successful business partnership is like a tango – in unison and working together towards financial growth, but what if you business partner just happens to be your friend?

Mixing business with friendships can either be the best idea or business suicide. However one thing is always guaranteed: whether you fall or climb, the results are going to be tremendous. And depending on what your financial goals are, you may be in for a very successful venture.

According to a study by professors at Harvard University, people who partner up in investment or business ventures tend to be less successful. The chances of successful returns dropped 22% if the two went to college together and 18% if they started it before that. This is because most of these collaborations are built based on character, not abilities.

Though your buddy might be a great guy and has the best intentions, is he really smart enough, strong enough, savvy enough, or gutsy enough to team up with? Partnering with friends is the most popular way to start companies, but it’s not necessarily the smartest, unless you both know how to handle it. 

“Bromance” Is Not For Business

It’s important that investment decisions don’t reflect on how the friendship normally runs. For example, if you tend to be the “wing man” when you guys go out, don’t let this seep into your financial and networking strategy. It’s crucial to make the line between buddy talk and business talk visible.

It’s easy when one has more knowledge and experience in finance, business, or management to rely on their expertise. However, in a partnership, it must be understood that one person cannot make all the decisions. As soon as you start to make credential decisions that effect your cash revenue in a good way, it’s easy for it to become routine. Make it equal.

Be On The Same Page

Make your financial goals clear from the get go. You both must be in it for the same reasons, otherwise, you will take it in two separate directions instead of a linear progression towards success. Don’t be blinded by your friendship, keep an objective eye on the plan, and create your strategies around that. Pick your fights and know when to disagree.

More importantly, know what to do when you don’t agree. Personal feelings are easily bound to get mixed in with every decision that’s made, which is why you need to remain professional in regards to investment decisions. Just because you know the other’s limits doesn’t mean you ought to push them. You don’t need to be right all the time. Your investing future is the main goal.

Compliment Each Other’s Skills

You may find a great deal of conflict if your partner is an expert in the same area as you, because it’s more likely that you will both disagree on more important decisions. However, this doesn’t mean one of you is right or wrong. Be sure that each of your skills are complimented by the other, and trust each other’s judgment.

A major part of a business partnership is trust, without it, you are doomed to be in a state of constant paranoia and anxiety. This is why most successful partnerships deal with only certain aspects of their investment decisions. For example, one may dig deep in research with particular companies, while the other researches the stock market and economic trajectory.

Either way, each skill needs to reflected and complimented or else there is no point for a partnership at all. Hit all branches in your strategy, don’t concentrate on one area. The point is to grow, not stay afloat.