To protect the identities of those referenced in this story, no names have been altered, because I do not care about your privacy.
With friends like these, who needs enemies?
The sentiment "don't work too closely with your friends or family" is a pretty common one, and not without good reason. However, there are rare cases of the "perfect storm" so to speak, where a friendship dynamic exists that can stand the bureaucratic tests of running a business. I've actually got a lot of opinions on how things go when "working with your friends", but I'm more specifically interested in talking about a based-on-a-true-story case that affected me in the recent past.
This is almost like a postmortem report for me. I want to examine all the things I did wrong and their outcomes, in an attempt to show and warn others that giving out your trust even to those you think you can trust can backfire on you without sufficient checks and balances in place.
Let me start by saying that we are going to change some names, my opening line in this post was a bit of a fib. Not necessarily for privacy reasons, but more or less because I am contractually obligated by myself to do so.
Without further ado, here is my story of naively trusting then losing one of my best friends and business partners.
Around 2015 I became very good friends with a guy named Ryan. It was quickly clear that we shared so many common interests, but most of all, shared a voracious entrepreneurial spirit. Within two years we were already making plans for various business ideas, anything we could come up with to make money really.
In 2017 Ryan conceived a startup plan for an e-commerce website. Myself being a web developer was the obvious first choice to partner on this endeavor. This project was a lot of fun, and the business concept as a whole I felt could actually be viable if enough energy were put into it.
Unfortunately things came to a halt after less than 12 months in operation. I attribute this mostly to the relative inexperience of Ryan and the team he had put together to manage this web store. No harm no foul there – there were measured approaches to purchasing stock, generous profit margins, and a decently sized market. Overall it was likely simply a failure by circumstance. There were not really any "signs" during this period that I would have noticed that could have led me to believe Ryan may someday betray our partnerships. While things with this particular company weren't working out, both of us were still very optimistic about future prospects.
In 2020 Ryan had formulated a new business idea and was ready to start executing on it. This time it was a service-based company complete with a storefront – this made for much more straightforward marketing and whatnot.
I assisted in this business as well, mostly on the website end. The bane of my existence as the "person who helps friends make websites" is the fact that next to none of these friends care to give input or critique to the draft or final product! No problem, I can usually figure out the final details myself given enough time.
This new business seemed to be very successful, and it made me very proud to see Ryan go from the startup owner that I knew him as in 2017 to this effective salesperson and manager in 2020. However with great power comes great responsibility. Very quickly into the success of this business – even less than 12 months of operation – Ryan's personality started to change, at least it seemed like it to me. I still have a difficult time putting my finger on what exactly changed here, and what it changed into. My best friend seemed to become more defensive in general, a little more closed off regarding his business endeavors, and worst of all in my opinion: adopted a very pretentious and pompous air of superiority.
My thoughts on this were simply: he's young, and he's found his first successful venture. I remember those days and I too was quite the little asshole (still am on occasion). I always assumed this attitude would fade as he grew into the business and it became less of a novelty and more of a job. I was wrong. Oh, was I so so wrong.
Into the Fold
By the end of 2020 I was personally impressed with Ryan's abilities as a whole: he was a "people person" through and through, fantastic salesperson, and hard worker. Ryan had already been working with me on a project that I had started back at the end of 2016, and I felt that he had earned his spot as a partner in this company.
In January of 2021 I signed Ryan on a co-owner of one of my oldest and most successful projects.
My intention with this was actually to remove the burden of "socializing" from myself and place it on Ryan. He was already heavily involved with the communities and groups that our customer base was part of and he had an overwhelmingly positive relationship with all of our customers. To me this choice was easy: Ryan needs to become "the face" of this organization.
And become the face he did: I felt I made a very good decision, Ryan was happy with this "promotion" and excited about taking our organization further. I was excited for the same.
However, this attitude seemed to break down over the course of 2021. I believe this is in large part to the "pretentious" attitude that Ryan began to adopt shortly after starting his own company. The man who was previously the best friend of all of our customers started to alienate some of them. He began lashing out at anyone with negative comments or opinions on the organization. His ability to take criticism faded to absolutely nothing, and even I began to be wary of criticizing Ryan for fear there'd be a verbal outburst.
By the end of 2021 things were looking rougher and rougher each day. Our organization by October of 2021 had alienated and for lack of a better phrase pissed off a sizable chunk of our customer base. This was exacerbated at the end of 2021 when Ryan publicly took shots at our competitors and their customer base.
It was at this point that I started contemplating my own future in the organization.
At the beginning of 2022 I decided to formally step back from the organization that Ryan and I shared. I neglected to state every reason for this departure: surely if I had, Ryan would have challenged it with a defense of why his behavior is appropriate.
My mindset at the beginning of 2022 was actually drastically different than it is now. While I had a serious personal problem with the attitude Ryan was representing our organization with, I couldn't deny that – despite alienating a small chunk of customers – he was ultimately making a positive impact. The organization itself grew, our Business-to-Business connections were strengthened in 2021, and I felt that leaving the company to Ryan would be a good thing.
I didn't like the way he was choosing to run it, but he was running it and it was reasonably successful. For that reason I decided it'd be best for me to step back and just let him do his thing. After all, I wasn't nearly as active or well-known in the circles that our customers frequented. He was. If anyone were to fully become the face of this company, it should be Ryan.
For the duration of 2022 I was pretty hands-off. I managed finances for the company for the first quarter of 2022 but quickly realized that I should probably just give Ryan the necessary financial access he needs to do his job. I actually felt pretty bad about this, as if I were blocking someone's progress now.
By May of 2022 Ryan was given a company checkbook, but still didn't have direct access to our banking systems. A checkbook is plenty to get your job done, and it worked out well for a few months. I was completely hands-off at this point, happy to see my company running itself without me.
August 2022: I received a message from our bank stating that our account was in a 24-hour overdraft grace period. I immediately assumed this was a mistake, and didn't even bother to check the account until later that day.
Indeed, the account was negative by around $500. This was the result of a check being written, but very few deposits over the course of the year.
I immediately reached out to Ryan and let him know. Again, I blamed myself: Ryan didn't actually have access to the bank account. He had no way to see what our balance was. He wouldn't be permitted to walk into a bank and look at the account details either. So I figured, hey you know, what could the guy do? Our company has a relatively high overhead and I couldn't blame him for keeping up with vendor payments.
He told me he had no idea it was negative, obviously, and essentially said that he bets the issue is that he had a large amount of cash on hand that he hadn't deposited yet. I called our bank to ensure he could deposit cash to our account without being an authorized signer, and they said yes. I then told Ryan that I would personally bring the account back up above $0 in the meantime and that he should go deposit that cash ASAP.
The cash was never deposited. Between this and the overdraft, this was my first clue. I completely neglected it and didn't look any further into the track record of our finances in 2022.
In October of 2022 I decided to head out to an event that our organization was putting on. I hadn't really seen anyone all year and felt bad about basically just ditching them at the beginning of the year, so I was excited to hang out for a few days.
Within the first 24 hours I was taken aback by some of the things that the employees of the organization were saying. I was told stories about Ryan verbally abusing employees or even customers, getting upset over minor inconveniences, and overall just creating a very toxic environment within the company. This was all very surprising to me. I had always thought of Ryan at least in part as a protege of sorts – I assumed that my own management style had rubbed off on him at some point.
After attending the event, hearing some offputting stories, but also seeing what I assumed was one of the most successful events of our organization's career, I headed home very confused and unsettled.
One thing stuck out to me. It wasn't the stories of verbal abuse or shouting at customers, these can be fixed relatively easily. No, it was several similar sentiments:
Ryan owed people money.
This is a man who would frequently claim he hated borrowing. I had loaned him money in the past and it had always been quickly repaid. I had absolutely no reason to think that Ryan would be stealing from the organization.
That is, until I started balancing our checkbook against our bank account.
I started working from the end of 2022 back, assuming I'd only find a few instances of either checks that shouldn't have been written, overages, or instances where a deposit should have been made first. I got through October, September, August... I eventually traced erroneous payments all the way back to May.
I immediately confronted Ryan about this: what's going on? Where is all of our money? I'm still giving him the benefit of the doubt and assuming he's got a hoard of cash that he just keeps forgetting to deposit. He told me that these were regular expenses and that yes, he did indeed still have cash to deposit. Additionally he told me that there were actually a couple "sponsors" that he was still waiting on checks from.
At first I took this at face value. However I quickly started questioning it. I reached out to some other trusted employees within the organization to get a better idea of how this year had went for the company. The stories were relatively consistent: this was one of the best years for the company. There is no reason to think that we shouldn't be well-off financially.
I began examining checks individually. It was very easy for me to identify "regular expenses" as I had been writing the same checks myself for the past four years. There was a serious issue here.
In total, over $36,000 was written in checks alone. I was able to account for just under $21,000 of these expenses as "normal". This leaves $15,464.00 outstanding.
It was at this point I began to feel a pit in my stomach. The best case scenario here is probably that Ryan is just neglectful and accidentally over-spent. The worst case scenario is that he was knowingly siphoning money from our company over the course of 2022.
I confronted him about this. He denied it categorically: he did not write erroneous checks, he did not overspend. He maintained that every cent spent by him this year was legitimate. So, I demanded that he justify each unaccounted expense that I identified. He told me that he would, and I gave him until the end of the week to do so.
As the end of the week rolls around, my spreadsheet has neither been viewed nor edited by Ryan. Not a single unaccounted expense had been justified, and I was still staring down a nearly $16,000 deficit.
During my investigation of the individual checks, I found some very alarming instances where checks were being written from our company to Ryan's employees at his other company. Not only is this a blatant breach of fiduciary duty as a co-owner of our company, but it is flat out against the law. I found instances where checks were written and explained as company expenses, only for me to turn around and ask the employees if said expense ever showed up at the company, and them to tell me no. For instance, he could buy $1000 worth of copy paper, but the copy paper would never show up, because the $1000 went to something entirely different.
I directly called him out on this one, and he denied it. No, these checks were not being written to his employees. All of this despite me explaining how I identified the employees.
After nearly a week of trying to get a straight answer on this situation, I decided that I had probably exhausted my options in terms of trying to mediate this for a mutually beneficial outcome. Ryan would not tell me the truth about anything, and I didn't feel that anything I could say would change that.
In November of 2022 I examined our partnership agreement and identified several areas of which Ryan was in breach. With this in hand, I drafted a withdrawal agreement that would remove Ryan as a co-owner from the company. Additionally this agreement stipulated that 50% of the total unaccounted expenses must be repaid – for a total of around $7,700. We gave him six months to complete this repayment.
At this point, Ryan was out. Our company was all but broke, despite having one of the best years to date. Most of all though, I was sad. I was profoundly sad that my best friend would do something like this. Not only commit the fraud and theft in the first place, but to persistently lie about it in the face of evidence. I presented what I believed to be irrefutable proof of foul play, and he essentially told me that I was wrong.
There was definitely a moment where my mindset flipped from "maybe I am wrong about this" to "no, I definitely have it right". When I presented Ryan with the withdrawal agreement – accusing him of breaking fiduciary duty, mishandling finances, and also requiring a repayment of over $7000 – his response was: "if that's what you want".
It's not what I wanted, but it is what was necessary. If someone who invested several years of their life into an organization they are a partner of turns around and basically says "okay, whatever" when you oust them, they don't need to admit fault. They've already implicitly admitted it.
I want to be very clear here: I could have avoided this problem with more comprehensive management on my part. Am I to blame for the loss of nearly $16,000? Personally, I believe in part that I am.
First, I blindly trusted another human being. This was the foundation for the rest of the mistakes, I had naively forgotten my process of "trust but verify". Verify, always verify.
Second, I allowed myself to be played like a fool on several occasions. I was given the "run around" so they say, where Ryan would buy himself time with various excuses. At the time I believed it best to let him run that excuse out rather than nip it in the bud and get to the bottom of the problem.
Finally, and probably most importantly: I neglected to engage with the employees of the company after my departure. I love the people that work with us, but despite this I had little to no contact with them after stepping away from the company. If I had talked with them, even just a simple check in to see how they're doing, I could have uncovered these systemic problems much sooner.
I don't think that the lesson here is to never work with "friends and family". After all, there are many successful businesses formed by friends or families. I'd be lying if I said it didn't complicate things, though. I can guarantee my attitude towards this situation in the beginning would have been entirely different if Ryan wasn't my best friend at the time: I could have easily reigned in his attitude and pompousness and stayed with the organization.
You know what they say: hindsight is 20/20.
I am not angry, I am sad. I am deeply disappointed by this situation and how it unfolded. I don't want to forcibly extract money from a friend of mine.
The only thing that I can do now is wait. Ryan was given six months to repay a chunk of the stolen funds, and I've got that in writing. The plan is to go to court over the entire amount stolen should Ryan fail to repay the lower amount within six months. This is obviously not something I want to do, but I promise you that I will.
I suppose you really have to be careful who you interact with in a financial context. Luckily in this case the amount of money in question was a manageable amount, and ultimately our company will come out on top. However, as we grow, I am certainly keeping an ear to the ground for potential unrest.
Since signing the withdrawal and repayment agreement at the beginning of November, Ryan has repaid exactly $0.00.
Be careful who you loan money to. Be careful who you trust. Be careful who you call your friends.
Ryan, if you're reading this, I am deeply deeply disappointed in you. I'm not mad at you. You let me down. I trusted you with something very important, and you completely let me down.