EFP 166: The Case For Partnerships

Justin Cooke Justin Cooke February 5, 2017

Joe and I have done our fair share beating up on the idea of partnerships and with good reason! Many aspiring entrepreneurs look to partnerships to bail them out of other fundamental issues with their business or just to solve a loneliness problem. (There are masterminds for that!)

That being said – there ARE good reasons to bring on a partner and we wanted to cover some of those reasons with a podcast episode!

In this episode, we’ll look at 4 distinct benefits of having a partnership and then break down 6 partnership models we’ve found that have worked out successfully. Hopefully, you’ll find one in here that will work for you. (And if it did not – we’d love to hear your story in the comments!)

We’re back to just Joe and I on the show for this one – hope you dig it!

Check Out This Week’s Episode:

Direct Download – (Right Click, Save As)

Topics Discussed This Week:

  • 4 Advantages To Partnerships:
  1. More Freedom To Explore Opportunities (And Be Entrepreneurial)
  2. Head-Check From Someone Who KNOWS (And Is Vested)
  3. Layaway plan for expertise to get your plan off the ground
  4. Ability to move much more quickly (especially early on)
  • 6 Partnership Models To Choose From:
  1. The Marriage Model
  2. Sweat Equity Model
  3. Hired Gun Model
  4. Investor/Operator Model
  5. Loose Connections Model
  6. The Mentor Model

Mentions:


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Spread the Love:

“Partners are great for towing the line and making sure that you keep your eye on the prize” – Joe – Tweet This!

“It’s helpful to think of your business as a third party” – Justin – Tweet This!

Let us know in the comments!

 

Justin:                   Welcome to the Empire podcast, episode 166.

                                Joe and I have a pretty critical of partnerships on both our blog and a few of the podcasts we’re in. We’ve laid out some of the traps and things to avoid. We thought it might be useful to highlight some of the not so obvious benefits we’ve had as well. Stick with us. You can find the show notes for the one at EmpireFlippers.com/partnerships.

                                All right, let’s do this.

Speaker 2:           Sick of listening to entrepreneurial advice from guys with day jobs? Want to hear about the real successes and failures that come with building an online empire? You are not alone. From San Diego to Tokyo, New York to Bangkok, join thousands of entrepreneurs and investors who are prioritizing wealth and personal freedom over the oppression of an office cubicle. Check out the Empire podcast. Now your hosts, Justin and Joe.

Justin:                   Okay Joe, before we turn this into a love fest, I think we should mention that we sand by everything, all of the bad warnings and stuff we’ve given about partnerships in the past, right buddy?

Joe:                        I absolutely have to say that. Still when people come up to me on the street and say, “Should I get a partner?” The first thing I say is, “No, but you should hire someone.”

Justin:                   By the way, if you’ve got people coming up to you in the street asking about whether they should get a partner or not, they’re probably not talking about Empire Flippers business, man. I don’t know what kind of street you’re hanging out on where they’re asking that.

Joe:                        The metaphorical street, yes.

Justin:                   The metaphorical street, got you. Yeah, there are a lot of risks with partnerships and we’ve done that episode multiple times and it’s because people are more likely to partner so we want to make sure they’re aware of the concerns, some of the warnings, some of the negative aspects of being in a partnership before they jump in because we don’t want partnerships to be viewed as this miracle cure, right. Where if you get a partnership, it’s going to fix all these problems, and things are so much easier. I think that the entrepreneur should think about the businesses they admire or respect. The businesses that are really successful or built really interesting brands. Hardly anything of real or lasting value is built alone as a solo entrepreneur. Right. That’s just the case.

                                Now, maybe there’s an exception to the rule. Maybe you could be that solo entrepreneur that builds a multi-million dollar business and runs it on your own. Probably not. Right? Now, I’m sure I’m going to get some people on the comments or that tweet me and say, “Oh, look at this company. They did it on their own.” Sure, but that’s not common. I bet if you think about the businesses that admire and  respect, more of those businesses have teams, have partners, have investors, and have a lot of other people involved.

Joe:                        I would say that’s really a good positive way to think about it, Justin. Definitely when we first came out to the Philippines, we used to approach our business as something we could do by ourselves and all alone and just me and you and I think finding that groove of being able to share and interact with others that are on the same level with you or a little bit past where you’re at is a great way to grow as an entrepreneur. That leads perfectly to bringing in a partner.

Justin:                   I wonder if we would’ve as quickly realized that it’s going to require a team, it’s going to require connections and resources outside of ourselves if it was just me or if it was just you in the Philippines or if it might have taken even longer to get there. One of the other things we’re going to talk about in this episode actually is the fact that partnerships aren’t just a binary option, right? It’s not like, do I partner or do I not partner? I want our listeners at least to come to the conclusion that there’s multiple ways to partner.

                                Our model, that kind of 50/50 marriage business model may not apply to them and one of these other scenarios we’re going to go through may apply so I think that’s something important to keep in mind.

Joe:                        Yeah, that’s really interesting because most people think of partnerships only as one model, whatever that model might be. It’s good to go over and explore the differences between the different ones.

Justin:                   Yes. We’re going to look also at four benefits we’ve experienced through our partnership and then we’re going to cover the six different types of partnerships you can engage in that may make sense for you dear listener.

                                Before we do hat, we’re gonna pay the bills and we’re talking about our featured listing of the week. Joe, what do you got for us, man?

Joe:                        We’re talking about Listing 40824. Listen, this is a business I’m very excited about having on the Empire Flippers Marketplace. I’ve been asking this guy to list this business for quite some time. I’s a product and services business created back in July of 2012 in the web development niche. It’s one of the world’s top ranked world development agencies using a fast growing platform. The business provides a variety of products fit to Shopify store owners, so it’s specifically targeted towards Shopify stores and development and design based on those stores. I’m very excited again to have this business. I think it’s a great one for someone to pick up. It’s making just over $15,000 a month right now and we have it listed just a smidge over $500,000.

Justin:                   Yeah, it’s on a 33 multiple. The business has been around since 2012. I know the owner of this. I know it’s a solid business. One of the things I really like about this is it is selling to Shopify e-commerce store owners. There’s some risk when you attach your wagon to a particular larger company or larger business, but if I were to have my wagon hitched, I like Shopify. I’m a Shopify fan, so Shopify is not a bad company to attach my wagon to.

                                Anyway, the business is selling to e-commerce store owners, which is also a fun and exciting niche. Those are interesting conversations. Those are interesting customers and that’s one of the other I think benefits of this business.

Joe:                        Yes, I think it has a lot of upside for people that have both on type services or operate other types of web development, web design types of agencies. Those would be the perfect sort of fit or the guy that’s really looking to buy it out of the box business, comes with staff and that he can jump in and make way more than a living wage operating the business.

Justin:                   Yes, if you want to take a look at this it’s Listing 40824 and I’ll put a link in the show notes, you can take a look at those things ahead of our tour marketplace.

                                All right man. Let’s dig in at the heart of this week’s episode.

Speaker 2:           Now for the heart of this week’s episode.

Justin:                   All right Joe, this episode is the case for partnerships. We’re going to make our arguments on why partnerships can be a good thing and why we’ve gotten a lot of value out of our partnership. I hope I’m not speaking for myself here when I say that. Otherwise, we’re heading toward a really awkward interview.

Joe:                        Yes, no, of course. I mean for all the shit I give partnerships and try to tell people and steer them away from them. Our partnership has been very successful. Now we took a couple of bumps on the head early on in our business career, but I think we worked through it and now those have just led us to have greater success.

Justin:                   Yes, the fact we got through those, we’ve talked about those in previous podcasts episodes, some of the challenges in our businesses and business failures has been, I think even more helpful, like both just personally knowing that we can get through those types of hardships, but also to our business partnership is because we know how each other reacts in well, dire or dangerous from a business perspective situations. Right. That’s pretty helpful. All right man.

                                Let’s cover these four parts really quick. The first one is with a partnership, you may have more freedom to explore opportunities and be entrepreneurial. This is true even in a partnership like ours where it’s a 50/50 partnership, but it’s true also for most of the models we’ll discuss. What we mean by more freedom to explore opportunities is that, I feel like in our 50/50 model, I can explore new profit ideas, new side projects. Yes, it’ll be our side project together, but we allow each other the freedom and flexibility to do that. Because I know that someone else is running the shop, I feel comfortable doing that when we come across something that we want to explore. Does that make sense?

Joe:                        Yes, and I think it’s very true early on in the business where perhaps you haven’t found the right revenue model and you really need the room to explore and fail and realize that there’s still a business to come home to. At the same time, even when the business is mature, being able to take unique angles on different customers or marketing approaches, shaking things up and operations or trying different sales approach, it’s nice to know that the other partner is still there for you even if you made some mistakes.

Justin:                   Yes, and if they stumble into something, if your other partners stumbles into something that ends up being hugely profitable or beneficial for the business, you get the upside on that, right? But you also can see where they’re at and if they seem to be stumbling down a rabbit hole that has no end, you’re able to pull them back from that rabbit hole or pull them back from the break and get them back on track, so there’s some value there.

                                The second advantage we’re going to talking about is that you get a head check from someone who knows and is vested in the business. Now, here we talk masterminds quite a bit, and that can be very helpful when you’re talking to peers, when you’re talking to other people, either in your industry or around entrepreneurship and they can give you great third party advice, but they’re not going to know your business as well as your business partner. They’re not going to know the intimate details, they’re not going to know the goals. While third party opinions and suggestions can be helpful, I think in general, if I had to choose, I’d prefer my partners guidance and mastermind with my partner. I prefer our strategic meetings over I do just a random mastermind, Joe if that makes sense.

Joe:                        Yes. I agree. If you do, referring back to point number one, if you do start to go down a bad path, they can advise you, hey, they can pull you back from the brink. If you get that shiny new object syndrome where you’re just going after every squirrel out there, they can also try to help you focus more. Partners are great for towing the line and making sure that you keep your eye on the prize.

Justin:                   It also helps out in areas where you’re strong and they’re weak or you’re weak and they’re strong to balance each other out. That sounds cliche, but we found it many, many times in our business and found it to be successful.

                                The third advantage I’m going to talk about is that it’s a layaway plan to get expertise in and to get your business idea off the ground. A lot of businesses require quite a bit of skills or some expertise and that can be expensive when you’re first starting a business. There’s a lot of resources, there’s a lot of time and money that has been involved to get your business started. It can be difficult to do if it’s just you or if you don’t have that skillset, you have to hire for it and it could be super expensive. You’re getting that expertise on layaway. You’re going to pay for it later in terms of equity but by bringing on a partner, you’re able to pay them equity and to get that value right now.

Joe:                        I think this is a great way to think about it, Justin, as a layaway plan. This is usually why most people get into partnerships, honestly, is they just don’t have the money to pay someone and that’s when I usually come in and go, “Well, you should just make less money or maybe your business model is not good enough,” right? But I liked the idea of thinking of it as a layaway plan because that makes you think, “Okay, am I willing to really give something up now that I might have to pay more for in the future? Am I getting enough value right now that I’m going to have to pay more for that down the line?

Justin:                   A fourth advantage is the ability to move more quickly. This is especially true early on in the business and if you as business partners, whether it’s two, three or more, if you give each other room to breath, you’re able to grow a lot faster than you would be able to as a solo founder and you’re able to grow in different areas that play to your strengths. As a solo founder you’re only able to focus and work on one project or one area of your business at a time whereas if you have co founders you can just like, it’s just a bigger team right away and you’re able to work and grow in different areas in the business.

Joe:                        I’ll also say Justin to this point, when you have ups and downs in your natural ebb and flow of the work week, the work month, the work year, the other guy can pick up the slack.

Justin:                   Yes. Just to add to that Joe, I think when we started our business, right early on in multiple businesses that we’ve done, we always mentioned, think of your business as a third party, right? We don’t think of our business as being our personal piggy bank. We don’t think of it as our personal expense account or we don’t blend it that way. It is a third entity, a third party, and we try to make sure that the business is doing well. As we’ve grown and we have more people on the team and everything, it’s even more that case. We willed it to be true and now it actually is. Right Joe? We’ve, and this is weird awkward to talk about, but we’ve actually talked about what happens if you get hit by a jeepney? What happens if I get hit by a jeepney? How does the business continue? What is the next step of Empire Flippers if one or both of us are out of the business?

                                That’s, it’s actually now I think possible, whereas before it would have been, it’s us, we’re with the business. If we’re gone, the business is gone and I’m not sure that’s the case.

Joe:                        Yes. Which is why we all should take the same plane, but-

Justin:                   No, you laughed way to happily about that, I’m so glad. That’s you’ve been either holding that one for while, or you’ve been thinking about this pretty seriously lately.

Joe:                        No, it’s all good and I think that that brings up a good point of making sure that the business can operate on its own and gets you there quicker by having a partner. I’m not saying that you should bring on eight partners to begin, just so you can diversify your risk, but bringing on a single partner might help in that case.

Justin:                   All right. Those are four advantages to partnerships and that’s not exactly the most ringing endorsement we can make, but I think it definitely sets the pace for being open to partnerships. Let’s look at six different partnership models that our listeners and our entrepreneurs can choose from.

                                The first one we know pretty well is the marriage model, right? Just to explain this really quick, this is where you and the business partner own everything 50/50. There are no new side ventures that the other partner is not involved in. For example, in our business, if I said, “Hey, I want to go start a lollipop stand, I don’t know why I do that, but I want to go start a lollipop stand.” You automatically own 50% of the lollipops with the inventory of purchase. You own 50% of the rent to the expenses, real estate, everything. All of our business ventures, we’re 50/50 partners on no matter what we’re doing.

Joe:                        Yeah, I think that this one, and then we’ll get into the disadvantages in a second but this one well, it has worked for us, it’s definitely the one that I make sure people should be very careful about getting themselves into because if you’re not sure about the other person, you don’t have a history with the other person, you don’t know what you’re getting yourself into.

Justin:                   Yes. The others that have this model, good examples are our friends over at Tropical MBA, Dan and Ian, they’ve had this model as well, which is one of the reasons we’ve connected with them and talk to them quite a bit about partnerships because we at least with partnership problems have some of the same issues because of the model that we’re in. Some of the advantages to the marriage model is that there’s no questions or issues on rabbit holes. If I start heading down a rabbit hole, or you start heading down a rabbit hole. No, I may not like it. I may think it’s a bad, strategically it’s just a bad path of the business, but then I can say, “Look, let’s hit these goalposts. In two months if it’s not here, in six months if it’s not there, then it’s a loser. If you agree to that, then two months, six months down the road, I can pull you back out of that one. Right.”

                                The other thing is if you hit on something that’s awesome, that’s amazing and good for our business, I get it too. I have the upside there as well. Another thing with the marriage model is that your team knows you’re all in. Everything we’re doing in our business, Joe, our employees, our management and all of our staff, all of our contractors, they know the deal. They know we’re all in on this. They know we’re working together on this. Everything we get involved in, it’s not like, can I pull this guy away? Can I get this little side hustle going with them? Maybe I could work at a different agreement. Nope. None of that.

Joe:                        Yes, you don’t have to worry about all that kind of stuff. Even if it’s a relatively small project, side project, the one I said becoming the main business one day it all is for the greater good.

Justin:                   There’s no like well, there’s less conflicts or hidden agendas. Right? It’s easy to just be real or honest with your business partner. If I’m thinking about doing something and I’m trying to get whether I want Joe involved or at what percentage, I have to try and negotiate it. I have to try to play some power game. We don’t have any of that, it’s just easy to be just very straight up, “Hey man, here’s the deal, here’s what I we should do.” And we can discuss it very openly and honestly because there’s no question on seniority or who gets more of what.

                                All right, so advantages, I think there are some clear advantages. This is the model we’ve chosen after all. There are some disadvantages though too, and we’ve talked about this at length. I’ll mention the big one that we’ve seen firsthand is the entrepreneurial death spiral. For new listeners, this is the situation where everyone gets paid the same. Everyone has equal stakes, so if one party starts working less and it’s like, “Well, why am I working so hard? Can I work less?” That person starts working less, why can’t I work a little less than, and you get into this dangerous game of who can do less and get paid the same.

Joe:                        Yes, really again, we have talked about it several times, but it is the biggest danger here and I’ve seen it happen to other people. It’s happened to us in our early business ventures.

Justin:                   Have you talked to other people this happened to, because everyone I’ve talked to is like, they’re really interested in that. They’re like, “Huh, that’s interesting but I’ve never actually seen it.” Have you talked to other people that were in that session?

Joe:                        Yes, I have. Usually it happens so early on. They almost don’t even consider it an entrepreneurial venture. They had an idea, they got together, they worked on it for a month and a half and then they broke up because they didn’t fight through it, but it really was a version of the death spiral.

Justin:                   Yes, the death spiral is scary. One way to work around that is to have lots of experience and lots of time like work with other person and knowing that there are ebbs and flows to your work level, breakthrough, is that kind of thing.

                                Another disadvantage of the marriage model is that there can be disagreements on direction or focus that can end up being problematic. When you own everything 50 /0 and you’re talking and there’s, you’re both tugging at a different direction, strategic direction for the business overall and they’re at odds, that can put you in a difficult position. There’s gonna have to be some compromise and that can be difficult to make that compromise but also sometimes you can compromise yourself into a bad position. Right? You’re trying to find this middle ground scenario and that’s the third option that’s the worst. You know what I mean Joe?

Joe:                        Yes, I absolutely agree with you there. You got to be careful of compromising too much. From a guy that does negotiation all day, I can tell you that sometimes it’s just better to stand your ground and say it is what it is and this is as far as I’m going.

Justin:                   Yes, that’s a hill I’m gonna die on. Right. We have a deal in our business partnership where we have veto power, that’s what you call it, right? The veto power thing. At any one point if you want to do something in particular, I can bust out the veto card and say, “No, we’re not doing this.” Now, that’s used very, very rarely. We like to give each other enough rope to hang ourselves but if there’s something we’re just so against it, then we won’t do it. If you’re overusing that, you’ll find yourself not able to move in any direction and that’s a sign that you’ll need to back off the veto card a bit.

                                All right, man. That’s the marriage model. Let’s talk about the second partnership model, which is the sweat equity model. Now, this would be a scenario where you take a current team member, you take an employee on your team and you promote them to some sort or form of limited partnership over time. Now it could be a straight 50/50 or it could be only 10%, 20%, 30% equity depending on their skillsets and what you need them to do. Or it could be a scenario where you hire an employee, you hire a team member with a plan to grow them into a limited partner over time. You hire them with the plan to groom them to be a partner at some point.

                                Now, the sweat equity model, it brings some benefits. One of the advantages would be, it’s a way for it to keep key employees around. If you’ve got someone that’s still critical to the growth of the business and you need to keep them on board, in fact the further down the rabbit hole of the business you get, the more important they are, giving them some equity, sweat equity into the business can be a form of golden handcuffs. Keeps them around the business long enough to make sure you’re able to get all the value and the business is able to get all the value it needs out of the deal.

Joe:                        Yes, a lot of businesses out there use this model, so it’s probably something that most people are familiar with. You do have to use it carefully, especially if you’re a small business but I think that for the right type of employee, it might be a good way to keep them on board and show them that there is a path to being a more than what they started at.

Justin:                   Yes, and the have to earn the partnership. Right? They’re able to prove that to you over some period of time and you’re able to work even more and more closely together and they work their way into a partnership. Some disadvantages with this model is that you might be promoting an employee or a team member past their experience or skill sets so they may be great as an employee or you may have some temporary need for them or their value is super high and they leverage that by trying to get a partnership or get equity down the road. If that is the case and you realize that they’re not really in the best position, that can put the business in a really awkward and uncomfortable position.

                                The other disadvantage of the sweat equity model is that because you’re promoting a current team member or an employee or you’re hiring for someone like that, you don’t really get a chance to shop around for a partner. You’re either shopping for an employee or your stuck with the current team members you have and seeing if you can promote them to a partnership. There are some advantages of shopping for a partner, we’re just going to talk about in some of the other models.

                                All Right Joe, let’s talk about the hired gun model. This is number three. This is a situation where you as a founder, as an entrepreneur, you go seeking out a co-founder. You set out with the intention of finding yourself a co-founder. Now this can either be when you’re brand new, you’re just starting off and you’re like, “Look, I’m going to find myself a co-founder to build this, this idea I have that I want to turn into a business.” I think it’s particularly effective when you already have a business. If you’re a solo founder that’s already found product market fit, that’s already got some traction with customers, that’s got some revenue flowing in, and you say, “Look, I’ve got something of value. Let me put it out there that I’m shopping for a co-founder and see what shakes out.”

                                Our buddy Dan Norris over at WP Curve did this. For example, well, he already had the business. Now it wasn’t a raging success but it was successful. There were customers or people signed up, he was on to something and so it puts him in a high value scenario, right? He gets his choice of co-founders and they use sites like founderdating.com for example to find co-founders whether you’re new or you’re experienced, but there are sites out there set up for this.

Joe:                        Yes, over all six models here, I have to say this is my least favorite. I think that this leads itself to a lot of ankle shooters out there that you may not know what you’re getting yourself into, which will get into disadvantages, but I would rather see you have more of a history with someone that’s worked their way up and has some insight into how the company built itself rather than bringing on this hired gun who is just interested in really getting a payout and working his way into becoming a partner.

Justin:                   Yes. I think if you’ve done a lot of hiring at a high level, right, the hard gun model might be a better fit. One of the advantages is that you get to see a wide variety of potential co-founders. Through a site like founderdating.com or the others that are out there, you’re going to be able to go through quite a few different people and really look for someone that is a really good fit and you’re going to have a very, I think should be intensive interview process and going through them, which isn’t, let you find people with just the right skill sets and just the right temperament to work with you and just a really good fit.

                                Now, the downside, which you mentioned Joe, is that you have no relationship with this person and they could fool you. If you have less experience hiring at a high level, and by high level, I mean people that are senior people in a company and you don’t have any relationship with them, it’s easier for them to fool you. Besides them trying to trick you, they’re not even trying to trick you, there’s just things that you might miss, right. As someone who doesn’t have experience hiring at a hight level.

Joe:                        Yes, I would say, “Not so much them trying to fool you or con you, but just they’re overstating their capabilities perhaps, and you’re bringing something to the table that’s quite valuable.” Why not just hire?

Justin:                   Or just not asking the right questions. What if they’re not even giving you, overstating their skill sets or whatever. You’re just not even bothering to ask the right questions or check the right stuff. Yes, I think lack of experience in hiring can really be problematic with the hired gun model, but I’ve seen it work out successfully before. I think Dan Norris is a pretty clear example.

Joe:                        He’s a great example, but I see a lot of people do this almost out of entrepreneurial loneliness rather than anything else. They have this moderately successful business and instead of finding ways to advance it through contractors, employees or other methods, they feel like if they bring a founder in and give him some equity, well now they have someone to balance problems with off of and get into a model but I just think they’re giving up too much.

Justin:                   Yes, and this also, the hired gun model, it’s one of the other reasons, think about the show. We talk all the time, we talk on the side privately probably like, I would never hire this like crazy 200,000 a year sales guys, Mr. Mix sales Eaton that comes in and just absolutely is going to take over our sales and he’s going to crush it and do all this stuff. Those guys are just no, right. Just no. I feel a little bit like that with the hired gun model, we’re going to come in and we’re going to hire this awesome co-founder and they’re going to be great. I understand what you’re saying, well this one is a little scary. There’s one that’s even weirder to me and we’re going to talk about for number five, but let’s get into number four right now, the investor operator model.

                                Now this is one where one or more parties are a passive investors in the business while at least one, maybe more are the actual hands on operators. This typically works between two parties who know each other well, but it doesn’t have to be. Now, it’s because it’s two parties that know each other well or they have mutual connections and because that’s the only way you find out about this. There aren’t a lot of places to work with this investor operator model. That’s actually a problem we’ve been looking at or thinking about is that there are plenty of people with lots of cash and no time and there are people with plenty of time, no cash. How do we them up? Now we do that through our marketplace, people buying and selling online businesses, but what if there are other ways we could do that in terms of investments in funds and operators bringing their ideas to the table?

                                We’ve been talking about that a little bit and it’s interesting. Anyway, if you don’t have a marketplace and you don’t have a place to find those people, you generally will work through your own connections and contacts, which is why it’s helpful to have a, cast a wide net in terms of your connections.

Joe:                        Yes, I think this one is probably one of my favorite ones. I definitely think it provides a lot of opportunity for someone who doesn’t maybe have as much capital but has a lot of knowledge in a particular niche to go in and have someone provide a little bit of a mentorship plus the money situation and really be a one plus one equals three kind of situation.

Justin:                   Yes, I think the advantages, I mean both parties are going to get what they’re looking for, right? Someone wants to run something, wants to hustle, has the experience and wants to let their wings go, and someone else is looking for a much more passive thing they can stash their money into it, right? That they can invest in and it’s something that they have a bit more control over, but you get not too many chiefs. Right. You have one person really running it, the other people are strictly passive or mostly passive, but they can provide some mentorship or guidance when needed or requested.

                                There’s some disadvantages to this model as well. Passive means passive. For an entrepreneur that’s new to this investor operator model, they can’t do any backstreet seat driving. There’s a tendency to want to step in and take over the reins and you really have to trust your operator. For the investors it should be money they can afford to lose. They shouldn’t be putting Timmies college fund and to this model, it’s going to be much higher risk. We should be willing to stomach with Timmy’s college funds and then you need to find an operator that has to be effective, both effective and trustworthy. That’s why a lot of times you use connections or friends of friends through your network because to find someone that’s both got a track record of success and is trustworthy, it takes a bit to find that person.

                                Another downside or disadvantage of the investor operating model is it’s hard to find operators and or investors for this to work. If you’re an operator, it’s hard to find investors that are looking to do this deal and if you’re an investor, it’s hard to find operators that are effective and that you can trust to pull it off.

Joe:                        Yes. If someone can only build a platform where operators could find investors and investors could find operators.

Justin:                   Oh, my God Joe, you’re not doing that right now. That’s a presale right there. That’s a presale. That’s what you’re trying to throw up right there. Now I think it’s really interesting. We’ve been talking about this behind the scenes. We’re pretty far from actually launching anything like that, but I think it’s a super interesting idea.

                                All right, man. Let’s talk about the fifth partnership model. It’s called the loose connections model and I said earlier, there’s one that I’m confused the hell out of me. This is one that confused the hell out of me, so let me explain it. This is when you have two or more founders that are partnering together but they’re regularly working on other projects as well. I may have three, five, seven different businesses or projects I’m working on at any one time. I’ve got to, I’m 70% owner, and I’ve got a partner who is 30% owner of on this one. I got another one where I’m a 20% partner and another one and it’s a shotgun approach to entrepreneurship on all sides.

                                A good example of this in action or at play would be the Splitly founders, our buddies over there that started Splitly. They built it up. They both had multiple side projects going on at the same time. They had this loose connection or loose partnership. This is a weird one for me, Joe especially like us being in the 50/50 marriage model. It’s like, why would you do that? I don’t get it, and at times it’s interesting, it’s like, “Oh, I could have this side project that’s all mine. I can be involved in multiple deals with multiple partners like speed dating with entrepreneurship and partnerships.” Right. But on the other hand I’m like, “Oh that sounds horrible.”

Joe:                        Yes, well, I’ve seen it a lot, I’m glad you found an online version of it, but where I’ve seen this a lot is the restaurant business. You see guys come in and there’s like 10 different partners. One who is the lead guy and maybe has most of the say, but there’s a lot of passive partners and one of those passive partners actually owns a restaurant where he’s the lead guy and, it’s very incestuous and they all invest in each other’s restaurants and that’s the way they spread their risk around and whatnot. I know some guys here in Manila that do their businesses like that. I could see it working for something like that. Would I like to be involved in that kind of situation? I don’t know.

Justin:                   This is a grass is greener for me, so there are times where I’m daydreaming and I’m like, “Oh, that’d be kind of fun.” Or I’m talking to someone and I’m going like, “Oh, that sounds cool. ” Then I get back to reality. I’m like, “Nope,” but let’s talk about some of the advantages. One of the advantages is that it allows both or all parties to give a partnership and the business idea a trial run, right? It’s like, “I’m not going to fully commit to this. I can dip my toes in and see if it’s going to work.” That’s advantageous when no one knows if the business idea is gonna work. If you want to test three, five, seven, 10 different ideas and you’re pretty early on in the process, this is a pretty good way to do that without fully committing to it.

                                I think this is probably best for companies that don’t require any major capital or major resources or time to get off the ground or to get started. If it requires a ton of money or investors, you’re not going to be able to do this partially in partnership, and if it requires a ton of time, then you’re probably better off looking at something else like the investor operator model or something like that. Some of the disadvantages for the loose connections model is that there’s no ownership, right? Because everyone’s partially on that business, so who’s actually going to take the bull by the horns and run it? It can be a challenge because no one is really, it’s all partial deals. You’re also eventually going to have to make a decision, are you guys and on this one or are you out? Leaving it loose like that can be problematic for the business itself. Remember the businesses a third and the business needs to do what’s right for itself.

                                One of the other, I think, downside is that the business might actually fail due to a lack of focus by the founders and not some other reason. Now, businesses fail for a ton of reasons, right? One of the ones we don’t want it to fail for is because I just didn’t work hard enough at it or because I didn’t put enough time in it. If I would have put more time in or done more with it, it would have been this blazing success, but it wasn’t because I just wasn’t terribly focused on it. That’s just tragic. Correct?

Joe:                        Yes, I’d agree. Whenever you get too many people involved with their own agendas and separate agendas and separate businesses, this definitely becomes a liability.

Justin:                   All right. The sixth model we want to talk about is the mentor model. I also thought about calling this the mogul model and you’ll see why in just a minute. Basically the idea is, is that an experienced entrepreneur takes a young hungry apprentice or another entrepreneur under their wing. Maybe they buy a business or they cast them out a bit on their current business to get some equity for themselves. You’ll see this with guys like Greg over at Jungle Scout who’s bought up interesting parallel businesses that support his Jungle Scout community. I’ve seen with our buddy Travis buying up or taking a piece of some FBA businesses that are in or around him. It’s a way for them to take these younger hungry entrepreneurs, less experienced entrepreneurs and bring them under their wing and under their guidance and they get a piece.

                                From their perspective it’s like a loose connections model or an investor model, but they’re also agreeing to more of a mentorship role with these apprentices, with these entrepreneurs. They’re going to require more guidance than that passive investor model we talked about earlier. Now, I really like this one. I think it’s interesting. I’ve got friends that are doing it now, which I think is great to see and they’ve had some success. In terms of advantages, it’s a great way for you to expand your reach and your portfolio so you can only do so much with your own business, but if you’re filling this role for three, five, eight other, junior entrepreneurs, it’s a way for you to really expand that. It’s a way for you to diversify, to protect your downside.

                                I was talking to someone about this that is involved in a bunch of different FBA deals and we talked about how you don’t want to have multiple Amazon accounts, Joe, but if you’re using the mentor model, they all have their own Amazon FBA accounts they’re working with. You have partial equity in these six different businesses with these six mentees that you’re working with, so it’s a way for the mentor to protect their downside by diversifying their Amazon accounts actually.

Joe:                        Yes. I really like this model too, in fact, I can see this model probably being the one that you and I use in the future. We could set up the Empire Flippers Mentor Fund where we take on young operators and become their business partners in their venture. You know, just an idea.

Justin:                   Yes, we’ve talked about this privately. We could do something through Empire flippers or we do it, the Justin Joe Fund as well. I think there’s opportunity. It’s also I think a great way for the mentors to amplify their strengths so they can take on apprentices that want to grow in a particular direction. Maybe I’ve got some strategy or some tactics that work super well, right. I’m able to get to their business. They totally missed out on this, whatever it is. Let’s say it’s ad-words paid traffic, I’m an ad-words paid traffic god and I can just triple their business with this strategy. By bringing on, yes, they sold 40% of their business to me, but I’ve just more than doubled their business inside of three months, everyone is happy with that deal.

                                There are some disadvantages though, buddy, that in the mentor model that we should look at or the mogul model. It’s super hard to find mentees that you know and trust and can work with and that kind of thing. It’s really hard to find mentors that you know, or trust and want to work with as well. Just like we talked earlier about wanting to find with the investor operator model, trying to find people that you know well, I think you’ll run in some of the same challenges here.

Joe:                        I would agree and I think that that’s why staying connected and making sure that you’re involved in your community is important if you’re going to attempt something like this.

Justin:                   All right, but in those are the six models. For all this I hope that was helpful for you. We’re going to get into some news and updates.

Speaker 2:           You’ve been listening to the Empire Podcast. Now some news and updates.

Justin:                   First off buddy. We are hiring some customer service professionals. This job position is open until February 17th. I will put a mention out there that if you’d like to work with Empire Flippers and would like to work on our team, make sure you apply before February 17th. We’ve got a bunch of things coming up in the February and early March, so we want to do those interviews early, so earlier is better. We’re going to put a link to that position available on the show notes for this episode.

                                Joe, there’s been a change or listing submission process. It used to be that we required a bunch of information and screenshots and stuff from you up front when you first submit your business, we’ve changed that. We made actually the first submission really easy, required limited information and the reason is, our vetting processes changed so what we need for vetting, it’s multiple tiers.

                                The first tier is really basic, it doesn’t meet our basic listing criteria. What we are realizing is we’re having a lot of people go through the vetting process and get a week, a week and a half into it. Our team has looked to it, has spend a lot of time and effort on it. When it wasn’t qualified for one reason or another with a quick look, just a quick glance at it, someone could have said, “Oh, that doesn’t qualify” and it waste the seller’s time, it wastes our time. Waste our team’s time, waste money, so why don’t we find a way to sift through them earlier in the process. That’s what we’re doing now. You should be able to find out much quicker whether or not your business is initially qualified and then we’ll come back and ask more questions or ask more information about the business.

Joe:                        Yes. This feedback also comes from sellers who it didn’t work out for them and they didn’t qualify for us. A lot of people that we’ve talked to on the phone over the past years, are just trying to be faster and quicker to at least an initial yea or nay, and then we can get into some of the details.

Justin:                   We have sellers, we have friends that are seller and how lucky are we that we get those awesome feedback from them over steak dinner where we can sit down and talk about our business and they’re like hungry to give us advice. ‘Hey, I wish you guys would do this.” Or, “Hey, I think you should do that.” We’re getting around to actually implementing some of those things they suggested.

                                One more thing, two of our guys are in Chiang Mai right now. They’ll be there for a couple of weeks, Greg and James. If you want to meet up with them, you can reach out. They’ll be in Chiang Mai for a couple of weeks. They’d be happy to have a beer with you, sit down and chat. I’ll actually be in Hong Kong February 14th to the 21st. If you’re in Hong Kong and you’d like to meet up, give me a message on Twitter at Empire Flippers and we’ll see if we can set something up.

Joe:                        And I’ll be staying in boring old Manila, so if you’re in the Philippines, let me know.

Justin:                   Yeah, buddy in the Fort, Fort Bonifacio.

                                All right, dude. Let’s do some listener shots, also known as the indulgent ego boosting social proof segment. First up, Andy on Twitter said Empire Flippers, I really enjoyed listening to your Authority Hacker podcast. It sounds like an awesome company. I did a really fun interview with the Authority Hacker guys. They said, “Look, we’ve talked about buying and selling online businesses before. We’ve talked about this stuff. Can we talk about your apprenticeship program? Can we talk about how you guys hire and how you build teams?” I said, “Yes Andy, I’d love to talk about that. That’s super fun for me because I’ve been talking about buying and selling all the time. This would be a fun one.” I think it’s a little different. I’m going to put a link to it in the show notes. I had a lot of fun with it. The guys are doing some really interesting stuff over at Authority Hacker. I really suggest that you check that out.

                                Got another shout from our buddy Dan Andrews over at Tropical MBA. He said, “These reports are amazing Empire Flippers,” and just basically retweet out our Q2 and Q3 business report. This is where we highlight all of our top line revenue. We lay out our earnings and all the different ways we make money and talk about our success in Q2 and Q3 of 2016. I’m super late in getting that out. I did finally get it published, so if you want to check that I’ll put a link to that in the show notes as well. We should be a little quicker with our Q4 2016 that should be coming out in the very near future.

Joe:                        Yes. Finally done.

Justin:                   All right man. We’ve got some shouts on some blogs and I mentioned before, the Authority Hacker Podcast, I had a really good time there. We also got a great a shout from Greg Noonan on our guest post on Tech.Co about Creative Ways to Fund To Fund a Start Up. He actually talks about buying one. He talks about buying Empire Flippers, so thanks Greg for the shout.

                                That’s it for episode 166 of the Empire Podcast. Thanks for sticking with us. We’ll be back next week with another show. You can find the show notes for this episode and more at Empire flippers.com/partnerships and make sure to follow us on Twitter at Empire Flippers and see you next week.

Joe:                        Bye-bye everybody.

Speaker 2:           Hope you enjoyed this episode of the Empire podcast with Justin and Joe. Hit Up EmpireFlippers.com for more. That’s EmpireFlippers.com. Thanks for listening.

Discussion
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  1. Really enjoyed this episode and wanted to drop in with a quick comment in support of one of the models. I’m a big fan of the marriage model and I agree with you guys in that it works well for both my partner and I as well.

    When I decided to venture out from the affiliate site business that I run with my partner to start Bulk Buy Hosting as a side project, it still formed part of our 50/50 partnership, which meant that while it took some of my time out of our other business, we both shared in the success of this new venture.

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