What I Learned After Countless Failed Business Partnerships

Summary

• Don't bring on a business partner unless necessary; partnerships are only needed if they have a skill, money, or time that you lack.
• Define all potential future issues with a partner before starting, including exit strategies and clear roles.
• Consider phantom equity or profit-sharing agreements over traditional partnerships to avoid unnecessary dilution of your ownership.
• Ensure the relationship with a partner is performance-based with specific incentives tied to tangible milestones or results.
• If a need in your business arises, such as lead generation, it doesn't mean you should give away equity; hiring a specialist might be a better option.
• Assess the true motives behind a potential partner's desire for equity; if the goal isn't control or a profitable exit, equity might not be the best option.
• In partnerships, set clear performance agreements, which can include revenue splits or profit sharing, rather than direct equity stakes.
• To dissolve a partnership amicably, address issues directly and honestly, asking what the partner thinks is fair and suggesting equitable solutions.
• Utilize promissory notes for any debts to be handled post-separation, and define the terms clearly and concisely.
• Recognize that equity and debt issues should be handled separately, first transferring equity, then addressing the debt owed.
• In situations where a partnership ends, consider allowing the former partner to sell your product for a commission, avoiding unnecessary complications.

Video

How To Take Action

I would suggest sitting down with your business partner to talk about all potential future issues, including exit strategies, before you get started. It's like planning for a storm before it happens. Make sure you define clear roles and what each of you brings to the table. Remember, you only need a partner if they offer a skill, money, or time that you don't have.

If you're considering giving equity for something like lead generation, think again. Hiring a specialist might be a better choice than giving away part of your business. It’s like hiring a gardener to mow your lawn instead of giving them a piece of your house.

Now, if you’re looking at splitting profits or sharing revenues, that's smart. Set up a performance-based agreement with specific incentives. It's like baking a bigger pie together and then sharing the slices based on who did what.

To end a partnership smoothly, have an honest conversation about what seems fair for both sides. Use promissory notes to handle any debts cleanly. Keep it simple, like making a promise with details on paper.

And if your partnership does end, letting your former partner sell your product for a commission can be a good way to keep things friendly and simple. It's like staying pals after a breakup because you both love the same dog.

So, to sum it up, talk about the tough stuff with partners early, keep equity in your pocket unless it's absolutely necessary, tie rewards to actual results, and always look for the simplest solution—whether you're coming together or moving apart.

Quotes by Alex Hormozi

"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"

– Alex Hormozi

"Just because you have a need doesn't mean they have to be equity owner"

– Alex Hormozi

"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"

– Alex Hormozi

"Equity sucks because then you just have liability which blows"

– Alex Hormozi

"The biggest hack in all of relationships is the way that you talk about someone behind their back is literally what you should just tell them"

– Alex Hormozi

Full Transcript

the floor up to ask you guys because i'm sure because it's been it's been 30 days since last time we spoke so if you guys have questions in the chat burning burning things decisions that are impending things you are unsure about strategies that you need to validate or even just a a verbal high five please put in the chat and then um i'll go i'll go 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 legion's just ne it's always been my weakest function and um i'm more i follow you real quick what's that can i pause you real quick on that one how many hours a day do you spend working on legion not a lot because i get caught up in other stuff yeah so 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 uh 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 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 you've been i've had eight filled partnerships so i know nothing about this is you have to have re like talk about all the ugly first yeah right so right now you guys are in lust right you guys are like making out getting you know having having sales 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 exit strategy all that yeah so like that's what has to get defined and you now could define roles and responsibilities the only reason to have a partner is if 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 is not necessary right and you're just diluting your equity said are you looking at doing a true partnership or are you looking on doing like a minority type deal um i would always maintain a majority and it would be a scaling you know my big company's an s corp so he would basically get a piece of the company as he helps me hit certain million dollar milestones at to the point of max maybe like a third of the company okay well that's that's different that's more like a performance-based relationship with kickers i would 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 that would be probably how i would structure it either profit or rev share depending on you know how you negotiate it okay but just as a just a side note for everyone on here like i remember i had a mentor really early on he's like and i was i was taking on all these partners left and right because i didn't know what i was doing and uh he's like listen you're gonna need an accountant he's like you just pay the accountant he's like he's not a part 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 eight percentage of something 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 gonna 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 right so then the only thing that that he should want or that you should probably negotiate for is the stuff that he wants which is a percentage of revenue or 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 um okay does that make sense yeah you need an import a performance agreement this is like standard you know there's tons of e-commerce companies that like they take ten percent of top line from from sales attributed to the marketing that they make and they're full service they don't have equity in the company but they get 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 because yeah i'd be like just say what do you want or the or control but right just ask what do you want he's probably gonna say i want to participate in the upside cool what specifically because if it's sale i'm not going to sell so what specifically i want to p i want a piece of what i'm bringing it cool so then let's do it based on do exercise x or y for you it'd be advertised to do profit share for him it'd be advantageous to do a rupture it's up to you right okay that makes sense and the next question looks like it's relevant peter's gonna exit yeah okay so peter this is for you how to sever ties with a 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 off and go our separate ways it's even worse than 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 um 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 to the idea was to use my agency to generate sales to then pay the debt of the other llc back however um i'm responsible for the back end he's responsible for the front end like the sales yeah last six months he hasn't really brought in any sales so now that i'm selling and doing everything exactly it becomes their 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 trying to figure out like how to uh rip 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 about someone behind their back is literally what you should just tell them so it's like hey man you said that you were gonna do all the sales and i was gonna 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's 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 it'll be like ah you're right you're like so what do you think's fair he's like well you should just take the business and um i guess i can try and start paying off my my share over time you're like cool that's what i was thinking too let's sign these that way the you know the things dissolved and then uh you transfer your equity to me and you have a note back to me for 50 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 what happens if they default and that's it like it's a very simple like i've done 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 promise orders that are simple yeah that makes sense so there's the equity that's where investors are to our lenders right so i want to make sure like so this 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 right that's number one or we dissolve the company i create new entity i'd prefer to say 300 what's up to you right the thing is is you could do that right now it doesn't like and you could just say like i don't really give a if you sign this and it saves me 300 bucks like this is not really discussion because there's nothing here right the the second piece is uh is okay now let's 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 promissory note that you can write you know or we can both sign together towards the lenders okay make sense and then you get then you're done yeah and then as far as his involvement my agency just he can quote unquote sell my product and earn a commission and do whatever he seems with it or or not because that's the other you know tricky part is he's also involved in my agency but more so because you guys are making any money so it's not like he's gonna start making money now yeah okay right yeah that's kind of what i'm thinking as well yeah it's like let's let's obsess about the fact that it's like what if he gets rich on my products he wasn't getting rich on your product for the last two years so like i don't think it's just you know what i mean you know my my thing was like i wanted i want him to pull some sales in for us to actually sell the product because then we would actually pay the other thing that's fine then i would say and on top of this i'll still continue to give you the the thing you can still sell it and you know we split the revenue whatever yeah okay cool sweet