Dan Martell - August 28, 2017


How to Split Equity In A Partnership Business


Episode Stats

Length

8 minutes

Words per Minute

196.64578

Word Count

1,622

Sentence Count

69

Misogynist Sentences

2


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

Transcript

Transcript generated with Whisper (turbo).
Misogyny classifications generated with MilaNLProc/bert-base-uncased-ear-misogyny .
00:00:00.000 Do you believe?
00:00:01.000 Do you trust?
00:00:02.000 Woo!
00:00:03.000 Trust is real.
00:00:05.000 Trust is real, real.
00:00:07.000 Do I hear something coming down?
00:00:09.000 Yeah.
00:00:10.000 Hello.
00:00:17.000 How to bring on a business partner.
00:00:20.000 Here's the challenge.
00:00:21.000 If you want to go far, you need to go as a group.
00:00:24.000 If you want to go fast, you can go alone.
00:00:26.000 That's like the quote.
00:00:27.000 I've known people to hire people that didn't work out,
00:00:30.700 give half their business to other people that left after six
00:00:33.880 months, thought that they could bring somebody else into their
00:00:37.000 organization to run it or even more common is they have a side
00:00:41.640 project that they want to hire somebody to run but when they do
00:00:45.520 that it's always failed.
00:00:46.580 This video is going to teach you how to connect with the right
00:00:50.180 partner, how to run through potentially negotiating,
00:00:53.300 bring them on and all of the challenges that typically come
00:00:56.500 when you bring on a partner.
00:00:58.300 We're gonna resolve that in this video.
00:01:00.600 Now, I've been blessed over the years
00:01:02.280 to have started five companies with mostly co-founders,
00:01:08.180 so I've always had partners in my life.
00:01:10.540 I've invested in 30 plus other companies,
00:01:13.120 so indirectly I became a partner as an investor
00:01:15.960 in that relationship, and I've started a ton of projects.
00:01:19.320 Like, the truth is is I've probably got
00:01:21.000 like 30 domains for websites.
00:01:22.920 Many of them I've actually brought to life.
00:01:25.300 So it always requires people,
00:01:28.020 and what I wanna walk you through is
00:01:29.600 really the specific situation of
00:01:31.880 you've got something that exists today
00:01:34.140 and you wanna bring somebody else in to run with it.
00:01:36.540 Because I really think that's when
00:01:38.400 things change and shift as an entrepreneur, right?
00:01:41.360 Like you can be an employee,
00:01:42.940 then you have business owner,
00:01:44.500 then you have self-employed, then you have business owner,
00:01:46.760 and then you have investor.
00:01:48.040 And it's the four quadrants from Rich Dad Poor Dad.
00:01:50.720 That investor section of having ownership in other companies
00:01:54.920 really comes together when you can bring on business partners
00:01:57.680 to actually build those businesses.
00:02:00.560 You know, I was fortunate enough a while ago
00:02:03.500 to spend a week with Richard Branson
00:02:05.060 and watching the way he operates his 400 companies
00:02:08.940 under the Virgin Group of Companies
00:02:10.300 and interacts with the CEOs
00:02:11.740 because a couple of them came while we were hanging out.
00:02:15.180 It was super fascinating and I want to share with you
00:02:18.320 just how I've always thought through those situations
00:02:21.140 to make sure that I found quality people.
00:02:23.620 We negotiated appropriately and came to those terms.
00:02:26.720 So the number one thing I wanna share with you is
00:02:29.520 what's the value of the business today?
00:02:31.420 I think if you have a new entity,
00:02:33.360 so maybe you spun something off,
00:02:35.100 you've got to assess the current value.
00:02:37.440 Some people call that the valuation, right?
00:02:39.440 What is it worth today as a thing?
00:02:41.780 Maybe you have some pre-sales to customers,
00:02:44.140 maybe you have working code, maybe it's just an idea.
00:02:47.080 But having an understanding of the value of that thing,
00:02:50.420 that entity as it stands today is gonna help you
00:02:53.520 discuss and negotiate how you should split up
00:02:56.100 the roles and responsibility and the ownership levels
00:02:59.020 in this new thing.
00:03:00.280 So it's very clear, you separate it, you look at it,
00:03:02.620 what are the different assets,
00:03:03.920 what's the valuation it has today.
00:03:06.160 So that's one.
00:03:07.000 Two is you wanna make sure that you evaluate
00:03:09.600 the market value, and this could be like salary value
00:03:12.860 or value creation value of the people
00:03:15.100 that are gonna get involved in this new business.
00:03:17.640 So if you have an existing business
00:03:19.760 and you started this other software thing,
00:03:21.300 happens very often, I have clients all the time that have
00:03:24.600 an agency build a new software product and want to bring in a
00:03:27.940 CEO or GM to run that business and they're trying to figure
00:03:31.520 out how do I assess the different people and the value
00:03:35.980 they bring to it.
00:03:36.820 So an easy way is just market salary.
00:03:38.780 If you were to go into the public work space, how much of a
00:03:42.660 salary would you demand and or if they're an entrepreneur,
00:03:44.800 those are always the best partners to bring in.
00:03:47.460 What's your value creation per year?
00:03:49.620 Like in the past when you built companies,
00:03:51.060 like how much value did you create in a year?
00:03:53.220 And let's use that to just discuss the potential break
00:03:56.620 because you have the value of the current entity
00:03:59.120 and then you've got the value of the people
00:04:00.800 that are gonna be participating in there.
00:04:02.360 So that gives you a sense of how to negotiate the equity.
00:04:05.060 Then finally, you wanna figure out who are the other people
00:04:08.200 that you're gonna have to bring on your team.
00:04:10.300 So this could be other advisors, this could be key hires,
00:04:12.780 it could be a CTO, it could be a CMO,
00:04:15.140 it could be legal support.
00:04:17.940 It's whatever the other people, to really make a dream team,
00:04:21.180 to make this thing successful, those should be considered
00:04:24.520 up front when you're building this new business
00:04:26.920 because they are going to require some level of compensation,
00:04:30.660 equity and or cash.
00:04:32.380 So that's really important to understand,
00:04:33.780 kind of directionally speaking.
00:04:34.960 The next 12 months, who are we gonna bring on this team
00:04:37.600 to make it rock?
00:04:39.100 Number four is how much money, capitalization,
00:04:43.600 some of those fancy PE, private equity people call it
00:04:46.740 capitalization, is the new business,
00:04:48.640 the business gonna require, okay?
00:04:51.280 To get to ideally a point of break even,
00:04:53.640 and to me that's a really important factor
00:04:55.840 because money needs to come from somewhere.
00:04:59.480 If you have a team already, they're being paid a salary.
00:05:01.780 Who's paying that salary?
00:05:03.260 All those factors, if you're bringing in somebody
00:05:05.260 to lead the business, I highly recommend
00:05:07.460 that you have them contribute cash,
00:05:10.360 not just time or free labor or expertise,
00:05:14.540 but actual hard dollars into the new entity
00:05:18.080 when you form that new relationship
00:05:21.140 because there's nothing that will get people more focused,
00:05:24.580 more serious and show commitment than taking their dollars
00:05:27.720 and putting it that they've earned into this business.
00:05:30.380 Even if they have to borrow the money,
00:05:31.500 I think it's very important.
00:05:32.620 So how much money is the business gonna require?
00:05:34.900 How do you capitalize it?
00:05:36.200 That needs to be figured out.
00:05:37.560 And then the fourth area that I think is critical
00:05:40.940 and you should never, and this is true for every hire
00:05:43.400 that you make is you should test the relationship.
00:05:46.400 The way you should do this is over a 30 to 60 day window
00:05:50.140 is figure out what role are they gonna primarily play.
00:05:52.280 If they're gonna be the CEO, the GM of this new thing,
00:05:54.920 figure out what are some of the key projects
00:05:57.880 they're gonna have to undertake in the first 90 days.
00:05:59.680 So maybe it's product management, maybe it's sales,
00:06:02.580 maybe it's building out the customer support team.
00:06:04.820 Whatever that direction is in the first 90 days
00:06:07.720 that you expect them to accomplish,
00:06:09.620 you wanna run little tests and experiments.
00:06:12.060 Maybe it's, hey, go talk to these 10 customers
00:06:14.660 that are currently in our system
00:06:16.400 and see if you can get them to convert
00:06:18.360 from a free account to a paid account.
00:06:19.740 Or go talk to these 10 kind of companies
00:06:21.700 that would be ideal customers for our product or service
00:06:24.480 and go see if you can get them to pre-buy our product.
00:06:27.140 So those are the things.
00:06:28.440 Or talk to our team about their vision
00:06:31.240 for what the product could be.
00:06:32.480 Talk to the customers about their vision
00:06:34.020 and then come together and put a product roadmap
00:06:36.280 or a plan together for me.
00:06:38.520 Or it could even be just write a business plan.
00:06:40.820 here's where we're at, here's where we want to be,
00:06:42.880 what would you do?
00:06:43.720 Strategically lay out the steps and sequence
00:06:47.160 that you think would be required to hit those goals.
00:06:49.760 Running a test project, having them work with you
00:06:52.940 before you work with them, okay, I got that from Seth Godin,
00:06:55.800 is critical in all hiring.
00:06:57.900 So highly recommend that you create that test scenario,
00:07:01.200 that work, I mean, it's no different than dating.
00:07:03.300 I mean, at the end of the day, you know,
00:07:05.120 you're asking somebody to get in bed with you
00:07:09.180 for a long term, and their financial outcome in life
00:07:12.620 is gonna be dependent on you.
00:07:14.660 That entity is gonna be dependent on them
00:07:16.820 and other people you bring in,
00:07:17.960 so of course you'd wanna test that out.
00:07:20.100 You'd wanna go on a few dates before you got married.
00:07:22.700 So, real quick recap, number one,
00:07:24.760 make sure what's the value of the entity today?
00:07:27.660 Number two, what's the market value of the people
00:07:30.300 that are getting involved?
00:07:31.240 That'll help you understand the percentages.
00:07:33.580 Three is who else do you need on the team
00:07:35.980 to make this a huge success?
00:07:37.680 And four, make sure that you create a scenario
00:07:39.920 to test the interactions, the communications,
00:07:42.420 the relationships.
00:07:43.620 You know, it's all fun and games when things are going great
00:07:46.160 but as soon as things go down,
00:07:47.860 people start getting sharp elbows.
00:07:49.420 So make sure that you do that.
00:07:51.500 As per usual, I want to challenge you
00:07:53.720 to live a bigger life and a bigger business
00:07:55.940 and I'll see you next Monday.
00:07:57.860 If you're the type of guy that likes to click buttons,
00:08:00.260 then click the subscribe button.
00:08:02.040 I also want to invite you to join my newsletter
00:08:04.280 where I share exclusive trainings and other invites
00:08:07.440 to events that I do all around North America.
00:08:10.020 And if you're ready to keep going,
00:08:11.500 I got two other videos queued up for you.
00:08:13.440 I will see you next Monday.