Ugh. A whole article on asset allocation and the stock market, snooze town. How about talking about deals.
How one UA’er turned his skills into cash without using any money? That’s sexier..
This week we had a UA’er make an acquisition in an unconventional (our favorite) kind of way. We talk about seller financing, SBA loans, equipment loans and all manner of financial instruments as a means to buy or buy into a company constantly. What we don’t talk about as often is using sweat equity, or what I call your unfair advantage, to acquire equity. Using our network, ability to bring in sales, create partnerships, raise capital and turnaround companies as our cash instead of simply a loan or capital.
Fun right? All of us have a skill. Graphic design, sales, marketing, accounting, cost cutting, hiring whatever. What if you could take that skill and get revenue and equity for it? Not a job, as an owner?
After talking to my partner at UA, Ryan, one of our mastermind members, Mark, made an acquisition using one of our financing methods, called sweat equity. Ryan walked him through his model he used for acquiring a minority stake in a digital marketing company and our UA’er used that model to negotiate.
Instead of giving the company capital for 49% of the equity, he used his skills for equity. What does that mean? That means he got access to revenue share and equity using his ability to drive sales to a business.
Mark became a minority owner, with monthly payouts, without putting in a dime.
Let’s break down the how from Our UA’er Mark:
- Got a call from a potential client of his, focused on the medical device industry. Mark runs a digital marketing company so he was going to provide marketing services.
- The client wanted him to do a webinar, sales funnels, and help him create copy to close 25 new prospects.
- Normally Mark would just tell the guy the steps and/or charge for execution. But Mark has been listening to us talk about structuring deals that you do once and profit from continuously. So he got creative. Mark saw a lot of upside in this business and the owner didn’t have a ton of capital to pay him with. Mark verified the pipeline was real and that he could close those prospects. Then he pitched equity AND revenue share instead of a flat fee.
- He asked for 49% ownership in a marketing company for bringing in these additional prospects.
- The startup investment was valued at $90k, aka they wanted him to invest $90k for 49% of the company, but instead of giving capital he gave something else, ability to close sales. Using future revenue to take ownership.
- His role to start is to conduct a webinar with the new business’s clients to on board them.
- Each client they close is between $5k-$7500 per month revenue. He gets 49% of that.
- His buy in, outside of his marketing brain, is the fact that he has an onboarding funnel created already for his own marketing company.
- This is the second deal he’s been working on and the first to close.
So that means he got $90k in immediate equity value, for his skills and if they continue to do the $25k they do a month, he makes $12,250 a month with this new deal. The average conversion rate on a good webinar is 19%. If he is able to close that, that’ll mean 5 new clients at $5,000 each for another $25,000 in revenue to the company monthly. That will then mean a total of $24,500 Mark will earn from this deal a month or $294,500 a year. Here’s a breakdown: Ain’t that fun!
So, how can you replicate this?
There are typically 3 reasons you can get access to equity and revenue share without using any capital or loans.
- Grow revenue/sales
If you can grow the revenue of a company, you can structure a deal to become an owner. The owner is incentivized because you are bringing in money that wouldn’t be there regardless and the revenue they pay you out you have earned. You are a profit center not a cost center.
- Cut costs
If you can go into a business and help them negotiate down their prices, suppliers, optimize their team, and automate parts of the business you can typically structure an equity and revenue share to correspond to those decreases in costs you are saving the company.
- Do work the owner doesn’t want to
Finally, entrepreneurs rarely have too many resources. They always can use help. People will often trade you equity and revenue share for you to labor on a project they can’t get to or something not within their skill set
HOMEWORK: before you sell a client on ANYTHING…
- Think about how can you do work once and profit on it continuously?
- How can you think about turning your work into revenue share and equity?
- Why just get paid a fee when the path to wealth is ownership.
Disclaimer: We do not recommend you do sweat equity just for equity. That is a path to serfdom.
And just like that… $0 invested for $12- $25k a month in profit.
Codie Sanchez & Ryan Snow
Co-founders Unconventional Acquisitions