The Game with Alex Hormozi - What I learned after countless failed business partnership | Ep 307

Episode Date: June 10, 2021

What does the perfect partner look like? Today, Alex (@AlexHormozi) is joined by guests to talk about the pros and cons of bringing in business partners and the important factors to consider!Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned on his path from $100M to $1B in net worth.Timestamps:(0:41) - Define roles, responsibilities, and share structure for business partner.(3:54) - Cons of improper partnership structure.(6:09) - Business partner separation: what happens?Follow Alex Hormozi’s Socials:LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition

Jason, bring you on a business partner. Don't do it. And go ahead. So, welcome to the game where we talk about how to get more customers, how to make more per customer, and how to keep them longer, and the many failures and lessons we have learned along the way. I hope you enjoy and subscribe. Welcome to the call today. I want to open the floor up to ask you guys, because I'm sure, because it's been 30 days since the last time we spoke. So if you guys have questions in the chat, burning things, decisions that are impending, things.

things you are unsure about, strategies that you need to validate, or even just a verbal high-five, please put it in the chat, and then I'll go on from top to bottom. Jason, bring you on a business partner. Don't do it. And go ahead. So I've had this business for over a decade, and Lee Jen's just, it's always been my weakest function.

And I'm more... Can I pause you real quick? What's that? Can I pause you real quick on that one point? How many hours a day do you spend working on Legion? Not a lot because I get cut up in other stuff. Yeah. So you think about doing a partnership with Kyle and you're making the consideration,

you want to know the decision process. Is that right? Yeah. I mean, A, I want to know if it was a good idea, which I know there's risks involved. So then I'm like, what are the risks and what consideration? I'm meeting with Elizabeth Morgan this evening to bring up my concerns. But I wanted to get your feedback. because you've probably seen a lot.

I've had eight filled partnerships. So I know nothing about this. Is you have to have, like talk about all the ugly shit first. Yeah. Right. So right now you guys are in lust, right? You guys are like making out, you know, having, having stale sex and just like, it's, things are amazing.

Right. You don't want to have the really ugly like, how are we going to split up alimony if we, you know, if we get divorced later conversation. Right. Exit strategy, all that. Yeah. So like, that's what has to get defined. And you now could define roles and responsible.

responsibilities. The only reason to have a partner is if they have skills you do not have, or they have money you don't have, or they have time you don't have if you're on the flip side. Like you have money and they have time. Right. So that's where that's where partnerships are useful. The number one way most people do partnerships though is like, hey, I'm cool, you're cool. We love the same thing. Let's go into business together, which is a terrible way to do a partnership because one of you not necessary. Right. And you're just diluting your equity. That being said, are you looking on doing a true partnership or are you looking on doing like a minority type deal.

I would always maintain a majority, and it would be a scaling, you know, my company's an S-Corps, so he would basically get a piece of the company as he helps me hit certain million-dollar milestones to the point of max, maybe like a third of the company.

Okay, well, that's different. That's more like a performance-based relationship with kickers. I would structure it as Phantom Equity. which means what? So it's equity that doesn't actually invest unless there is a sale. And if he were to leave,

then he doesn't get the equity. And so you can pair those two things together so you can do like equity with profit sharing. And so that that would be probably how I would structure it, either profit share or rev share, depending on how you negotiate it. Okay. But just as a side of everyone on here,

I remember I had a mentor really early on. He's like, and I was taking on all these partners left and right because I didn't know what I was doing. And he's like, listen, you're going to need an accountant. He's like, you just pay the accountant. He's like, he's not a partner. He's not a partner in my business. He's like, I just pay an accountant. Right.

So it's like just because you have a need doesn't mean they have to be equity owner. Right. There's plenty of companies that are owned by people who are not lead generation specialists. You know? So I think if it were me, I'd probably try and set up a really lucrative relationship. that isn't necessarily a partnership. So I'd say like, you know, it's pay per or a percentage of something to that extent, right? I don't know if you're ever planning on selling because the only reason someone would ever want equity is if they want control or they want to be able to make money on an exit.

So the only two reasons you want equity. Otherwise, equity sucks because then you just have liability, which blows. So unless he wants control, which I don't think he does, and unless you think you're going to sell, which I don't think you are or I don't think you want to, just you've been doing it for a decade, unless you're just sick and tired of it, but I don't get that impression. Wow. Right. So then the only thing that he should want or that you should probably negotiate for is

the stuff that he wants, which is a percentage of revenue or a percentage of profit based on XYZ. So I think that's what you should. I don't think you need to make this an equity partnership at all. I think you just need an agreement. Okay. That makes sense? Yeah.

You just need a performance agreement. This is like standard. You know, there's tons of e-commerce companies that, like, they take 10% of top line from sales attributed to the marketing that they make in their full service. They don't have equity in the company, but they get a percentage of revenue. Got it. Yeah, I guess I have to see or talk to Kyle and figure out like why would equity matter to him. Yeah, I bet like just say what do you want.

Or the or control, but. Just ask, what do you want? He's probably going to say, I want to purchase me in the upside. Cool. Which specifically. Because if it's sale, I'm not going to sell. So what specifically? I want a piece of what I'm bringing in. Cool. So then let's do it based on X or X or Y. For you, it would be advantageous to do profit share. For him, it'd be advantageous to

a rupture. It's up to you. Hey, Mosin, Nation, quick break just to let you know that we've been starting to post on LinkedIn and want to connect with you. All right, so send me a connection request and note letting me know that you listen to the show and I will accept it. There's anyone you think that we should be connected with, tag them in one of my or layless posts and I will give you all the love in the world. All right. So let's get back to the show. Okay, that makes sense. and the next question looks like it's relevant. Peter's. Like the exit.

Okay, so Peter, this is for you. How to separate ties with the business partner and best practices go separate ways. So it depends on whether you have a kid or not, right? And how good looking the kid is and how much money the kid makes. Right. And so you guys have a business. If the business isn't making a ton of money, then most of these times you can just be like, hey man, like why don't we just both fuck off and go our separate ways.

It's even worse than that. The business isn't making any money and has debt. That needs to be paid off. So then you can just, I mean, then at that point you should just split the debt. If you want to, if you like, you can split the debt or you can, is this an LLC that you are ending or is this in general? So, so the way the business is set up is it is an LLC. And then I have obviously my own agency. So the idea was to use my agency to generate sales to then pay the debt of the other LLC back.

However, I'm responsible for the back end. He's responsible for the front end, like the sales. Yeah. In the last six months, he hasn't really brought in any sales. So now that I'm selling and doing everything, exactly. It becomes a point of like, okay, this debt is 50-50. However, if I'm doing 100% of the work,

why should I also pay 100% of the debt and fulfill the product and do everything else on the back end? Yeah. I mean, I'm trying to figure out, like, how to, uh, ripped that band-aid off and say, you know, the easiest way to, easiest way to have, have hard conversations is just ask the questions that you ask here. So like literally the biggest hack in all of relationships is the way that you talk shit about someone behind their back is literally what you should just tell them. So it's like, hey, man, you said that you were going to do all the sales and I was going to do the back end. Well, you're not doing the sales, but we're still both responsible for this thing.

So what do you think is fair? you'll have what you have in mind but a lot of times people who once you once you present the information like that'll be like ah fuck you're right you're like so what do you think's fair it's like well you should just take the business and um i guess i can try and start paying off my share over time you're like cool that's what i was thinking too let's sign these that way that you know the things dissolved and then uh you transfer your equity to me and you have a note back to me for 50 percent of the debt. Cool.

Does that make sense? Yeah. You can Google promissory note template one page. It's just like from borrower to lender, no interest, X amount by this, paid by this state in this increment. Like what happens if they default? And that's it. Like it's a very simple.

Like I've done a million dollar loans on one page. Like you're there, they hold up. And you're in real estate. So you should find plenty of promissory notes that are simple. Yeah. That makes sense. So equity. That's to where investors are to our lenders, right?

So I want to make sure like. So this is the equity and the debt. So there's two pieces, right? The equity, you just say, hey, I own 100% of this company. You're giving your shares to me because you're not doing shit, right? That's number one. Or we dissolve the company. I create new entity.

I'd prefer to save $300. It's up to you. Right. And the thing is, is you could do that right now. And you could just say, like, I don't really give a shit. If you sign this and it saves me $300. bucks. Like this is not really a discussion because there's nothing here, right? The second piece is, is, okay, now that we've dealt with the equity piece, now let's deal with the debt piece, right? And so

the debt piece, this is what we both owe, this is what we agreed on. This is what I will do, and this is the promise of your note that you can write, you know, or we can both sign together towards the lenders. Okay. Make sense? And then you're done. Yeah, and then as far as his involved in my agency, just he can quote unquote sell my product and earn a commission and do whatever he seems with it or not. Because that's the other, you know, tricky part is he's also involved in my agency, but more so because he doesn't make any money. So it's not like he's going to start making money now.

Yeah. Okay. Right. Yeah. Yeah. Yeah. It's like, let's not obsess about the fact that it's like, what if he gets rich on my product?

He wasn't getting rich on your fucking product for the last two years. so like I don't think it's just starting out. You know what I mean? Yeah, no, my thing was like, I want to, I want him to pull some sales in for us to actually sell the product because then we would actually pay the other thing all. That's fine. Then I would say, and on top of this,

I'll still continue to give you the thing. You can still sell it and, you know, we split the revenue, whatever. Yeah. Okay. Cool. Sweet.