The Prof G Pod with Scott Galloway - Office Hours: A Guide to Business Partnerships, Consumption vs. Investing, and What to Do if Your Adult Children Are Still Living at Home

Episode Date: October 4, 2023

Scott offers advice to a listener considering entering a new business partnership. He then takes a question about the proliferation of the sports betting industry, specifically the way it preys on young men. He wraps up with advice to a parent whose adult children still live at home. Music: https://www.davidcuttermusic.com / @dcuttermusic Learn more about your ad choices. Visit podcastchoices.com/adchoices

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NMLS 1617539. Welcome back to the PropG Pod's Office Hours. This is the part of the show where we answer your questions about business, big tech, entrepreneurship, and whatever else is on your mind. If you'd like to submit a question, please email a voice recording to officehoursatpropgmedia.com. Again, that's officehoursatpropgmedia.com. Again, that's officehoursatpropgmedia.com. And just a quick note, I get, and I'm not exaggerating here, a dozen plus emails a day from a very thoughtful, usually young, usually man, asking for advice. And I apologize, I just don't have time to get a fraction of them. I don't have time for my students. I really do appreciate you reaching out. I think part of taking control of a situation is to ask people for help. So, you know, I commend you, but I apologize. I just cannot get to the majority of them. Anyways, enough of that

shit. First question. Hi, Scott. This is Matt. I'm 37 and a successful consultant in the real estate development space. I wanted to start doing my own deal instead of just adding value to those of others. I casually floated the idea of investing with me to a few people in my network. I got a bite from one of the top brokers in the area who now wants to partner together and bring in a big fish family office investor he's connected to. I think about your quote, find the largest pile of money and stand as close to it as possible, and this is certainly it for me. My question is, how do I aim to structure our partnership and investor relationship to best protect myself? I've asked this to mentors who have seen many a

partnership go south, and the common thread in their answer was, the best way is just to partner with good people. While my potential partner and I have complementary skill sets, we don't actually know each other very well, and he has many more years experience in deal structuring. So my follow-up question is, what's the best way to suss out fit in a potential business partner? Thank you for all you do and for becoming such an important voice in my life. Matt, thanks for the kind words. So first off, it sounds to me like you're doing really well. It sounds like you have a great job and you're thinking about doing stuff on your own and people

clearly are impressed with you and want to invest with you and partner with you. So there's two questions here. One is about deal structure when you raise capital for an investment, such as an investment in real estate. And then there's the notion of who to partner with. And I'll go in reverse order. In terms of who to partner with, you ideally want to find someone who has skills and assets you don't.

So one plus one equals three, peanut butter and chocolate. It sounds to me like you're going to be kind of the sweat equity here. You're going to be the elbow grease. You're going to make shit happen. You're going to do a lot of the work. And this other person sounds a little bit more senior to you and probably has a little bit more experience. I think the key to any partnership, at least initially in terms of fit, is one, reference check that person, find other people that person has partnered with and see what they say about this person. And two, spend time with them and just make sure that you're a fit on an interpersonal level. Do you guys get along and enjoy each other? You don't need to enjoy each other's company, but you need to be able to tolerate each other and have a certain

level of respect. A business partnership, you know, shares a lot of the same attributes for success as a romantic partnership or any relationship. And that is, you need to bring a sense of generosity here. It is human nature, especially among young men, to inflate their contribution to the relationship and to diminish or dampen the other person's contribution. And if in one year you do more work, maybe bring in the right deals, and you still end up splitting the economics, that's okay. If it in one year you do more work, maybe bring in the right deals, and you still end up splitting the economics, that's okay. If it happens in year two or year three, you need to move on or restructure the relationship. But a decent way to enter into any partnership or

relationship is to try and not keep score. And if you are mentally going to keep score, which is hard not to, always try and be on the positive side and be generous with that person and be very transparent. When they do something that bothers you, let them know, but don't be vindictive. Move to forgiveness as quickly as possible. Try and be as generous as possible and, you know, hope you can develop what is usually the key foundation of most successful companies, and that is partnership. There's very few people that start companies solo. The majority of great companies were built by, you know, a Wozniak and a Jobs or a Gates and a Balmer. They're usually kind of a peanut butter and chocolate where certain people bring different attributes because no one brings

it all. In terms of a deal structure, there's all sorts of benchmarks. You don't need to create anything. What you need probably is a decent real estate attorney that knows how to structure investment deals. And typically or traditionally or roughly, a deal where someone is giving you capital and you are going out and say buying apartment buildings, typically they want you to put some skin in the game. So say you're going to invest $10 million or buy $10 million worth of property, or maybe buy 20 or 30 million, but you only need 10 million in equity capital because you can raise financing for the other 10 or 20 million. So 10 million in equity capital is required. Typically in most real estate deals that I dealt with, and it's been a while, they want you to put up 2% of the capital so they know you're

invested in it. And you put up 2%. So 2% of 10 million is 200,000. It might be less than that. It might be more than that. And in exchange for that, you're going to get 20% of the economics of the deal, such that if you buy $10 million worth of real estate and it grows to be worth 30 million over, say, 10 or 15 years, you own 20% of that $20 million gain or $4 million. Well, let's be realistic. Say it doubles in six or seven years, which is still would be a home run. It goes from 10 million to 20 million in exchange for your $200,000 investment and a lot of work and a lot of work. And by the way, you should build into the economics a modest salary for yourself. You need to eat, but you're

going to own 20% of the upside. Now, if you have a partner, you're going to split those economics. And maybe the partner comes in and in exchange for you working more, that he comes up with the majority of that initial equity capital, that 2%. But there are all sorts of benchmarks. There shouldn't be a negotiation. You should be able to walk into the capital provider and speak to your partner and say, you know, these are sort of the benchmarks. These are sort of the ranges for deals. What you're going to be is called a general partner. And that is you are responsible for allocating the capital and running the investment business. The family office will be the limited partner, and that is they're providing the capital. But let me finish where I started. The fact that you're thinking this way, the fact that you're attracting potential partners and capital means that people believe in you and

want to invest behind you. Thanks for the call. Question number two. Hi, Scott. My name is Mike. I'm from Oakville, a suburb of Toronto. I've been enjoying and learning from your content for a while now. Thank you for that. I'd love to get your take on the recent proliferation of online sports betting platforms. My home province of Ontario has now fully sanctioned online sports betting as long as it gets its cut. The same appears to be true for more than half the U.S. states. Like you, I am a father of two boys. I know you spend a lot of time thinking about the challenges faced by boys and young men. If they didn't already have enough to contend with, now they seem constantly bombarded by sportsbook advertising.

I think you could do a lot of good by sharing your thoughts about this issue. You have a great deal of influence over many young men and at least one 52-year-old man. Thanks, Prof. G. Mike from Oakville. Again, thanks for the nice words. You sound infinitely Canadian. That is, you sound both smart and nice. Look, I'm torn here because you don't want to infantilize people. If they can get on a plane and go to Vegas, it kind of makes sense that other states want that tax revenue. And people should be allowed to make stupid decisions. And it's their money. And if they want to gamble it, fine. And let me be clear, I'm not against gambling. I'm going to Vegas twice

in the next two months. I'm going for F1 and I'm going to see U2 at that new Sphere thing, that new $2 billion golf ball that's supposed to be amazing and relive my college years with three college friends. I will put on a kilt. I will get two or three thousand dollars. I will go down to the casino. I will drink. I will go to the craps table. I will yell out stupid things. Baby needs new shoes at the top of my lungs when I throw the dice and ask my friend to kiss them and he will he will walk away from me. But I absolutely love Vegas and I love gambling. But for me, it's consumption. And I know that at the end of the night, I fully expect to lose it all. And it's worth it to me because I have the money. And it's a ton of fun. The same way I'm going to take my son go-karting this weekend. And that's going to be a ton of fun. Last weekend, you go to the Arsenal game and that's a ton of fun. 2-2 versus Tottenham, kind of a decent outcome for the Galloway household where the dad likes Arsenal and the oldest likes Tottenham. That could have been ugly. So we're actually okay with the tie or the draw. By the way, I love the new Tottenham coach. He's this Australian guy who coached Celtic. Who is my arch enemy? That's right. My dad was Rangers because he was Presbyterian growing up in Glasgow. Anyway, Scott, okay, bring it home. It's fun to gamble. It's consumption, but you got to think

of it as consumption. And my advice to young men is just like online trading or trading stocks, you should assume you're going to lose it all. And if you're enjoying and you're learning doing day trading, then fine. But keep in mind, it's consumption, it's gambling. Now, as it relates to gambling, you're in big trouble if you ever believe you're going to beat the house. If you take a small amount of money, 10, 20, 50 bucks each week and play fantasy football and do online gaming, okay, have fun, not have at it. But an addiction is something you continue to do despite the fact it's having negative ramifications on other parts of your life. And when you start spending money that you could use better elsewhere, right, it would make more sense to go on a date. It would make more sense to buy a new suit. It would make more sense to pay off some of those student loans.

It would make more sense to maybe save some money so you could get back to junior college, whatever it might be. Save some money so that you could move out of the house, right? For most young men, I think giving up smoking and stopping gambling would probably be the easiest way to increase the quality of their lives. There's some scary stats here, so let's give some context. In May 2018, the U.S. Supreme Court lifted the federal ban on sports betting. Since then, more than 35 states and D.C. have legalized sports betting, and some, everyone's legalized it, and Americans have bet over $220 billion on sports. According to Grandview Research in 2022, the global sports betting market was

valued at $84 billion and is expected to be worth $182 billion by 2030. The National Council on Problem Gambling has said that our nation is experiencing the largest and fastest expansion of gambling in history. According to the American Gaming Association, Americans bet a record $31 billion in sports in the first quarter of 2023. That's a 15% increase year on year. So basically gambling is growing as fast as, you know, search right now. In a Pew Research Center survey conducted in July 2022, 24% of male respondents said they participated in sports betting in the previous 12 months, while 15% of female respondents said they participated in sports betting in the previous

12 months. So this is something that I'm going to say, use the word, I think, a praise on young men. I don't know how to politely put this. I think the people who tried to, at Robinhood, who tried to pretend that day trading or at Coinbase, that tried to pretend that buying crypto was anything other than gambling, were trying to pretend that they were doing anything other than tapping into some, using dark psychological techniques, whether it's gamifying it, whether it's visual stimulation, whether it's giving you the impression everyone's making money but you. I think these folks are mendacious fucks. I think this is a terrible development in our economy. Why? Gambling has the highest suicide rate of any addiction. Why? Because if you get addicted to meth or even opiates or you're addicted to alcohol, whatever it is, addicted to online shopping, people are going to figure it out pretty fast and hopefully intervene. The thing about a gambling addiction is that people don't figure it out until you are really, really deep. And when I say deep, I mean fucked. And there's a lot of instances of people who commit suicide. And a lot of times it's they

were hiding their financial stress and they didn't want to disappoint people. And they didn't want the loved ones to feel like they've been lied to. I mean, there's a lot that goes into this. And a lot of times that financial stress is a function of an addiction called gambling. And the really difficult thing about this is that everything seemed to be fine. So what are the downsides of various addictions. At the end of the day, I don't know if regulation works here. Probably the best regulation is life lessons. Hopefully someone loses real money, enough money that it hurts, but not enough money that it damages their lives. And again, I just think at the end of the day, as dads, we got to be more present in the lives of our kids, specifically, specifically as it relates to this issue, young men who are much more prone to become gambling addicts.

Thanks so much for the question. We have one quick break before our final question. Stay with us. Hey, it's Scott Galloway. And on our podcast, Pivot, we are bringing you a special series about the basics of artificial intelligence. Thank you. reporter for The Verge to give you a primer on how to integrate AI into your life. So tune into AI Basics, How and When to Use AI, a special series from Pivot sponsored by AWS, wherever you get your podcasts. Support for this podcast comes from Klaviyo. You know that feeling when your favorite brand really gets you. digital relationships with their customers during Black Friday, Cyber Monday, and beyond.

Make every moment count with Klaviyo. Learn more at klaviyo.com slash BFCM. Welcome back. Question number three. They were on the swim team in high school. One of them was in the debate team. They both got accepted to UC schools and graduated with one degree in geology, the other a degree in neuroscience. And they moved back home and they've been home for the last couple of years and have absolutely no interest in finding a job.

And I'm just wondering what, if there's anything we can do and, you know, if this was part of a bigger problem, um, you know, a lot of our friends suggest the tough love, you know, kick them out of the house. But to be honest, you know, none of my friends, we had any of us had this issue and, um, the parents I talked to, they don't seem to have the issue. And, you know, my wife and myself as well, kind of reluctant on, you know, possibly severing the relationship by, you know, with this tough love approach. I was hoping there's something other than the nuclear option. So anyway, any ideas you have? I appreciate it. I love the show. Thanks, Scott. Bye.

Robert from Southern California. This is everywhere. This is everywhere. So the first is forgive yourself and forgive your boys. I can't tell you how many really thoughtful, nice young men raised in good households, given a ton of opportunities, good kids. They're not bad people. And they don't, they're taught that they can have it all, or they want to follow their passion. And no job is quite, you know, they let perfect be the enemy of good. And they never like take the job or they find they get a job and they find that working kind of sucks. And at least your first job is going to suck. I can pretty much guarantee that. And for whatever reason, they don't have the grit or the discipline to stick it through. They have a bit of a cashmere hammock in the sense that they probably live in a nice home and mom probably still does their laundry and the fire isn't there.

And then the longer it takes them to get a job, the more unemployable they become. I want to be clear. I don't think there's an easy answer here. And also, anyone who tells you that tough love is the way to go doesn't have kids. Let me tell you what all of us say, what me and my friends all say. I'm going to pay for their college. If they get through grade, if they don't get good grades, I'm going to stop paying. And then once they're out of college, boom, that's it. And that never happens. Why? Because your kids are probably good kids.

Because you realize how hard it is for young people, specifically young men out there, because you love them a great deal. Because probably a little bit, you kind of like, in some instances, having them around. I know men in their 40s and 50s who still live at home and basically live off their parents. And so what do you do here? I think the truth has a nice ring to it. I think you got to sit them down. I don't know if it's individually. I don't know. You know the dynamic of your family. Does your wife have a better rapport with one or both than you and just say, look, this can't be exciting for you. This isn't good for us. We need a plan here. We need a plan. Is it just starting to make a little bit of money? Is it going back to grad school to get a degree that will, you know, get you the

certification you need to get a better job or a job that's acceptable to you? But you got to start making some money, boss. And the only thing I would suggest is don't try to shame them. That doesn't help anybody, but sit down and say, all right, what are we gonna do here? And where I try and allocate capital around young men is three places.

The first is, I'm like, all right, we're gonna start getting really fit. We're gonna get strong. I think that just helps with mental health, makes you feel better about yourself. I think every man should feel as if they could walk in any room and know if shit got real, they could either kill everybody or outrun them. I'm not suggesting you do either of those things, but I think it'll make you a kinder, nicer person who's more attractive to others when you're strong and feel good about yourself and have that

mental wellness. So we're going to start working out a lot. And maybe that's something you can do with your sons. I've started doing it with my 16-year-old. My father used to do it with me, and it's lasted my whole life. Two, we're going to get involved in organizations outside of the house where there's opportunities for random encounters, whether it's a church group, a baseball league, a writer's group, class, a nonprofit, getting people to register to vote, tutoring kids in high school in need, whatever it be, you need to be out of the house, working in the agency of something bigger than you, where you have the opportunity to meet, have random encounters. And then three,

you got to start making some money, boss. Do you have a car and a smartphone? Okay, it's Uber. Do you want to be an Instacart person? Do you want to, I mean, there's just the employment market, the employment picture is really strong. You can make decent money doing a variety of things and then start thinking about what's next. But one, forgive yourself and forgive them. Don't shame them. Understand that this is happening everywhere. An open and honest conversation. And then jointly say, we need to develop a plan, I'll help you. Or you need to come back to us with a plan. This is happening everywhere. lived with his mother after I got out of college, when I was working at Morgan Stanley and was aimless, and then took a year off and did pretty much nothing after Morgan Stanley. I mean, pretty much nothing. People peak at different ages. So know that, you know, your son's story has not been written yet. And it is your job to help them write it, put some ink in their pen, be a bit of a

motivator. But, you know, I don't think it's tough love. I just write it, put some ink in their pen, be a bit of a motivator. But, you know, I don't think it's tough love. I just think it's love. Thanks so much for the question. That's all for this episode. If you'd like to submit a question, please email a voice recording to officehoursatpropertymedia.com. Again, that's officehoursat ProfiteerMedia.com. This episode was produced by Caroline Shagrin. Jennifer Sanchez is our associate producer, and Drew Burrows is our technical director. Thank you for listening to the ProfiteerPod from the Vox Media Podcast Network. We will catch you on Saturday for No Mercy, No Malice, as read by George Hahn,

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