digest
Short Summary
Main recommendation: Before bringing on a business partner to run an existing venture, assess the entity's current value, the market value of each person joining, the other key hires needed, and how much capital the business requires, then test the relationship over 30 to 60 days before committing. Dan Martell frames this as a dating-style trial: a test project lets you see how a potential partner performs before you give them ownership.
Key Points
- Value the existing entity first by separating its assets (pre-sales, working code, or just an idea) to set a current valuation before negotiating ownership.
- Estimate each partner's worth either by market salary they would demand or by the annual value they have created in past companies.
- Identify the other roles (CTO, CMO, advisers, legal support) you will need in the next twelve months, since they require compensation in cash, equity, or both.
- Determine how much capital the business needs to reach breakeven and who pays salaries until then, and ideally require new partners to contribute real cash, even if borrowed.
- Test the relationship over a 30-60 day window, defining the partner's first 90-day goals and running small experiments, a practice Martell credits to Seth Godin.
Details Worth Noting
- Concrete instructions:
- Write down the current valuation of the entity, separating its assets (pre-sales, working code, or idea stage).
- For each prospective partner, estimate value using either the salary they would demand in the market or the value they created per year in previous companies.
- List the team roles needed over the next twelve months (e.g., CTO, CMO, advisers, legal) and note the cash, equity, or compensation each will require.
- Calculate the capital needed to reach breakeven and decide who funds salaries until then; ask the partner to put real money in, even if they must borrow it.
- Define what the partner must accomplish in their first 90 days, such as product management, sales, or building customer support.
- Run small tests, for example: contact 10 existing customers to convert free accounts to paid, or ask 10 ideal companies to pre-buy, or have the partner draft a business plan with sequenced steps to reach goals.
- Martell notes that people who hired without testing often gave away half their business and saw those partners leave within six months.
- He cites Richard Branson's Virgin Group of 400 companies, which he observed while spending a week with Branson, as context for managing many CEOs.
- The four quadrants (employee, business owner, self-employed, investor) come from Rich Dad Poor Dad, and Martell positions partnership as the step from investor to builder.
Bottom Line
Equity splits should be negotiated from measured value and proven performance, not handshake optimism, so test a candidate's real contribution before handing over ownership.
