Grill’d founders, Simon Crowe, Simon McNamara and Geoff Bainbridge, have seen their friendship deteriorate after working together to grow the $300 million burger chain. Below, we discuss this case in detail and consider some tips on how you can protect your friendship if you decide to start a business with friends.
Crowe thought of the idea for Grill’d in 2004. He enlisted McNamara and Bainbridge to help him execute his vision, offering them a 20% stake each in the company. Crowe and McNamara were childhood friends while Crowe and Bainbridge met while working at Fosters in 1999. Their friendships had been close and long-lasting. Crowe evidently thought the ex-CEO of Boost Juice (McNamara) and a former Foster’s Group executive (Bainbridge) would make excellent business partners, as well as being lifelong friends.
In 2011, Crowe became wary of McNamara’s involvement in another food business, Spud Bar. Crowe and Bainbridge decided to buy out McNamara’s 20% stake in the company to ease tensions and reduce any potential conflict between Spud Bar and Grill’d. In 2013, Crowe became aware that McNamara and Bainbridge had become business partners in the trampoline business, Bounce. Crowe later discovered that Bainbridge had invested in another food business, Pizza Religion. He saw this as a betrayal of Grill’d and began restricting Bainbridge’s access to the financial records of the company.
Crowe offered to buy Bainbridge out by offering him $30 million when his 25% stake was in fact worth an estimated $80 million. Bainbridge alleged that Crowe changed the calculations of the valuer to offer Bainbridge less than what his shares were worth.
Bainbridge initiated legal action against Crowe in June 2016 seeking an oppression order from the Federal Court based on his allegations, and that Crowe had denied access to the financial records of the company. He further claimed that Crowe had breached his directors’ duties and used company resources to fund his personal purchase of the company Koko Black. Bainbridge was also seeking to have the Grill’d chief financial officer removed from the company.
Crowe responded by initiating his cross-claim to get an order from the Court to force Bainbridge to sell his shares in the company, citing that it is impossible for them to continue working together. Crowe is currently the managing director and owns 75% of the shares in Grill’d. As of late November, Crowe appeared to have offered Bainbridge to stay on as a director. However, Justice Middleton will hear the matter when it recommences in 2017.
Lessons from Grill’d
This case highlights that going into business with friends can be a perilous undertaking. However, there are practical and legal steps you can do to help the process run more smoothly. This section explores five tips on how you can set up a business with friends and avoid a very public meltdown like the co-founders of Grill’d.
Firstly, find someone who shares your values when it comes to running a business. Find a co-founder who has the same strong views on the direction of the company and its values.
2. Work Together Beforehand
Think about working together first before launching your business together. You need to know if your strengths complement their weaknesses and understand how they deal with pressure. Often, the best type of friends to co-found businesses are work colleagues. That is because you already have an idea of how you each work, manage your time and prioritise your workloads.
3. Have Clear Roles in the Business
Each person should clearly understand who is responsible for what aspect of the business. Knowing each other’s strengths and weaknesses can play a crucial part in assigning responsibilities. Decide who will be the CEO and the COO based on each other’s skills and experience.
4. Don’t Focus on the Business All the Time
While talking about the business out of work hours is inevitable, it is also important to schedule time when you can simply be friends and forget about the office for a while. Your personal and professional lives will naturally be intertwined. However, you need to make time to discuss the personal away from work, as well as have some fun together. That will help to keep the friendship alive, as well as the professional relationship.
5. Have a Shareholders Agreement
If you decide to operate a business with friends, you must have a written agreement in place that covers practical considerations such as how the business will run, as well as how you will deal with conflict. For example, if your business is set up as a company, you will need a shareholders agreement. A shareholders agreement will address the following:
- How you will operate the business, including how many directors you will have and how the business will conduct meetings;
- The duties of directors;
- How you will issue or sell shares;
- What happens if a director or shareholder commits an event of default, such as a breach of the agreement or serious misconduct; and
- What happens if there is a dispute or a conflict of interest.
Ideally, you should make sure that this agreement is in place within the first six months of starting the business. A shareholders agreement will provide each of you with protection from the outset if the business doesn’t do so well or you find you have difficulty working together.
Going into business with friends can be a difficult path. Nevertheless, there are some practical and legal points to consider before starting the business that can protect you in the long run. While these may not safeguard you entirely, the Grill’d case study should provide some food for thought.
Are you starting up a company with friends? Need practical advice? Get in touch with our business lawyers on 1300 544 755 or fill out the form on this page.