Dan Martell - How to Split Equity In A Partnership Business

00:00:00.000 Do you believe?

00:00:01.000 Do you trust?

00:00:02.000 Woo! 0.99

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? 0.87

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.

Dan Martell - August 28, 2017

How to Split Equity In A Partnership Business

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