What I learned after countless failed business partnership Ep 308

Summary Notes


In a business-focused discussion, Jason and his co-host address the challenges of lead generation, partnerships, and equity arrangements. Jason emphasizes the importance of defining roles and responsibilities in partnerships, advocating for performance-based relationships over traditional equity sharing. He advises against partnerships based solely on mutual interests, suggesting that partners should bring unique skills, capital, or time to the table. Jason also introduces the concept of phantom equity and profit sharing as alternatives to direct equity stakes. The conversation shifts as they tackle the delicate issue of dissolving partnerships, with Jason recommending direct communication and the use of promissory notes to handle shared debt. He stresses the need to clarify expectations and outcomes with partners, ensuring that agreements align with the business's goals and personal responsibilities.

Summary Notes

Introduction to the Call

  • Jason opens the floor for questions, seeking input on decisions, strategies, and general encouragement.
  • The call is a platform for discussing customer acquisition, value maximization, retention, and sharing business experiences.

"Welcome to the call. Today I want to open 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."

The quote marks the beginning of the call and sets the stage for an interactive session where participants can ask questions and discuss various business-related topics.

Business Partnerships

  • Jason advises against hastily entering into business partnerships.
  • Emphasizes the importance of discussing difficult topics and potential future issues upfront.
  • Highlights that partnerships should be formed based on complementary skills, resources, or time.

"Jason, bring you on a business partner. Don't do it. And go ahead."

Jason is cautioning against bringing on a business partner without thorough consideration, which is a prelude to a broader discussion on the topic.

Lead Generation (Legion)

  • Speaker C admits lead generation is their weakest area.
  • Jason inquires about the time commitment Speaker C dedicates to lead generation.

"So I've had this business for over a decade, and Legion's just. It's always been my weakest."

Speaker C identifies lead generation as a significant weakness in their business, prompting a discussion on the subject.

Evaluating a Potential Partnership

  • Speaker C is considering partnering with Kyle and is seeking advice on the decision-making process.
  • Jason advises that partnerships should be based on unique value brought by each partner and not just mutual interest.
  • Discusses the necessity of defining roles, responsibilities, and exit strategies before forming a partnership.

"Partnership with Kyle. And you're making these consideration. You want to know the decision process is that."

Speaker C is contemplating a partnership and is looking for guidance on how to evaluate the decision to partner with someone.

Risks and Considerations in Partnerships

  • Speaker C acknowledges the inherent risks of partnerships and seeks to understand them better.
  • Plans to discuss concerns with Elizabeth Morgan but also wants Jason's experienced perspective.
  • Jason stresses discussing "ugly" details like potential separation or exit strategies early on.

"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."

Speaker C is preparing for a meeting to discuss partnership concerns and is seeking Jason's advice based on his extensive experience with business partnerships.

Defining Partnership Terms

  • Jason outlines that partnerships are beneficial when partners bring something the other lacks.
  • He warns against forming partnerships based solely on mutual interests.
  • Discusses the difference between a true partnership and a minority deal.

"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."

Jason provides a rationale for forming partnerships, emphasizing the importance of complementarity between partners' resources and abilities.

Equity and Ownership

  • Speaker C intends to maintain a majority stake in the business.
  • The discussion touches on the structure of the company and how a partner might be incorporated into it.

"I would always maintain a majority, and it would be a scaling. My company is an s corp, so he would basically get a piece of the company as."

Speaker C expresses the intention to keep control over the business while potentially offering a share of the company to a partner, indicating a strategic approach to partnership equity.

Performance-Based Relationships

  • Performance-based relationships involve compensation tied to specific achievements, such as hitting revenue milestones.
  • Phantom equity is suggested as a compensation structure, which vests only upon a sale of the company.
  • Equity can be paired with profit sharing or revenue sharing.

"That's more like a performance based relationship with kickers. I would structure it as phantom equity." "So it's equity that doesn't actually vest unless there is a sale."

These quotes indicate that Jason is recommending a performance-based relationship, specifically suggesting phantom equity as a structure. Phantom equity is a type of incentive that provides benefits only if certain conditions, such as a company sale, are met. This ties the compensation directly to the performance and success of the company.

Distinguishing Between Partners and Service Providers

  • Not every business need requires an equity partnership; some roles are better suited to service providers.
  • The mentor's advice emphasizes paying for services like accounting rather than offering equity.
  • It's important to consider whether a partnership is necessary or if a service relationship is more appropriate.

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

This quote reflects Jason's recollection of advice from a mentor, emphasizing that not every business need justifies giving away equity. It suggests that some roles, such as accounting, should be paid services rather than equity-based partnerships.

Equity vs. Lucrative Relationships

  • Equity is not always desirable; it can come with liabilities and a desire for control or profit from an exit.
  • A lucrative relationship, such as a pay-per-service or revenue/profit share, may be preferable.
  • The desire for equity should be evaluated based on the individual's goals and the company's future plans.

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

Jason expresses a negative view of equity from the perspective of unnecessary liabilities unless the individual desires control or expects to profit from a company sale. This suggests that in some cases, other forms of compensation might be more beneficial and less risky.

Structuring a Performance Agreement

  • A performance agreement can be an alternative to equity, offering compensation based on specific contributions.
  • Many ecommerce companies operate successfully with a model where service providers receive a percentage of revenue without equity.
  • The structure of the agreement should be based on the company's sales and the contributions of the marketing efforts.

"You just need a performance agreement. This is, like, standard."

Jason suggests that a performance agreement is a typical and effective way to structure a relationship with someone contributing to the company's success, particularly in the context of ecommerce.

Equity's Role in Motivation and Control

  • Understanding why an individual desires equity is crucial for negotiating agreements.
  • Equity can signify a desire for control or a share in potential future sales.
  • It is important to directly ask what the individual wants from the relationship.

"I guess I have to see or talk to Kyle and figure out why would equity matter to him?"

This quote shows that Jason advises Speaker C to have a conversation with the individual in question (Kyle) to understand his motivations for wanting equity. This understanding is essential for creating a mutually beneficial agreement.

Profit Sharing and Revenue Sharing

  • Discussions revolve around the nuances of profit sharing and revenue sharing agreements.
  • The importance of clarity in defining the specifics of an agreement is highlighted.
  • The context is a negotiation between two parties regarding the division of financial benefits.
  • The speaker suggests tailoring the agreement to the preferences and advantages of each party.

"For you, it'd be advantageous to a profit share. For him, it'd be advantageous to a rev share."

This quote suggests that different types of sharing agreements may be more beneficial to one party over another, depending on their role and contribution to the business.

Networking and Community Engagement

  • The speaker encourages listeners to connect on LinkedIn and engage with the podcast community.
  • There's an emphasis on building relationships with the podcast's audience and broader network.
  • The speaker also encourages listeners to suggest connections that might benefit the community.

"Just to let you know that we've been starting to post on LinkedIn and want to connect with you."

The quote implies a strategic move to expand the podcast's presence and community interaction through LinkedIn.

Dissolving Business Partnerships

  • The conversation addresses the complexities of separating from a business partner.
  • Factors like the profitability of the business and the presence of a shared 'kid' (a metaphor for the business) are considered.
  • The attractiveness and financial success of the 'kid' are humorously noted as factors that might influence the decision.

"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."

This quote uses humor to analogize a business to a child, suggesting that the value and success of the business can affect the decision to part ways.

Handling Business Debt and Responsibilities

  • The dialogue delves into a specific scenario where a business partnership is struggling due to uneven contributions.
  • One partner is responsible for sales (front end) while the other handles the back end, but the sales partner is not performing as expected.
  • The issue of shared debt and uneven workload is central to the discussion.

"Last six months, he hasn't really brought in any sales. So now that I'm selling and doing everything...why should I also pay 100% of the debt and fulfill the product and do everything else on the back end?"

This quote reflects the frustration of a partner who feels they are unfairly shouldering the burden of the business's debt and workload due to the other partner's underperformance.

Communication in Difficult Situations

  • The speaker advises on the best approach to having difficult conversations with a business partner.
  • The key strategy proposed is to directly address issues by asking questions and communicating concerns transparently.
  • The approach is framed as a 'hack' for relationship management.

"Easiest way to have hard conversations is just ask the questions that you ask here...literally what you should just tell them."

The quote emphasizes the importance of direct communication and suggests that concerns expressed behind someone's back should instead be brought to them directly in conversation.

Business Dissolution and Equity Transfer

  • Discussing a fair resolution when dissolving a business partnership.
  • Agreeing that one partner takes over the business while the other pays off their share over time.
  • The importance of signing documents to formalize the dissolution and equity transfer.

"You should just take the business, and I guess I can try and start paying off my share over time."

This quote outlines an agreed solution for resolving a business partnership where one party takes control and the other pays off their share gradually. It highlights the need for a formal agreement on the equity transfer.

"Let's sign these. That way the things dissolved, and then you transfer your equity to me, and you have a note back to me for 50% of the debt."

This quote emphasizes the importance of signing legal documents to dissolve the partnership officially and transfer equity, ensuring clarity on the debt repayment responsibilities.

Drafting a Promissory Note

  • Simplifying the process of creating a promissory note.
  • The note outlines the terms of the loan, including payment schedule and default consequences.
  • Promissory notes can be straightforward and legally binding, even for large sums.

"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. What happens if they default? And that's it."

This quote provides a brief guide on drafting a promissory note, detailing the essential elements such as the amount, payment schedule, and default terms. It suggests that even significant financial agreements can be encapsulated in a simple document.

Handling Debt and Equity in Business

  • Separating the equity and debt aspects when resolving business finances.
  • The option to dissolve the current company and create a new entity to save costs.
  • The process of dealing with shared debt and agreeing on repayment terms.

"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 shit."

This quote discusses the approach to separating equity from debt during a business dissolution, emphasizing the transfer of shares to the active partner.

"The second piece 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 promissory note that you can write or we can both sign together towards the lenders."

The quote further clarifies the process by breaking it down into equity and debt components, stressing the need to address both separately and create a promissory note for the debt.

Future Involvement and Revenue Sharing

  • Addressing the ongoing involvement of a former partner in a business.
  • Considering the potential for the former partner to sell products and earn commission.
  • Evaluating the likelihood of the former partner generating significant income post-dissolution.

"And then as far as his involvement in my agency, just he can quote unquote, sell my product and earn a commission and do whatever he seems with it or not."

This quote raises the issue of a former partner's continued involvement in the business, specifically regarding their ability to sell products and earn commissions.

"Obsess about the fact that it's like, what if he gets rich on my product? Because he wasn't getting rich on your fucking product for the last two years. So I don't think it's going to start."

The quote conveys a pragmatic view on the potential success of the former partner in selling products post-dissolution, suggesting that past performance is indicative of future results.

"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 we split the revenue, whatever."

This quote suggests a possible agreement where the former partner can continue to sell the product with revenue sharing, indicating a willingness to maintain a business relationship on different terms post-dissolution.

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