Jason Hartman hosts the creator of Slicing Pie, Mike Moyer. They discuss real estate investing and how to partner with others fairly. Mike breakdowns various factors in what it takes to have a fairly incorporated partnership. Real estate is relatively easy to partner with now. One of the main discussions is cash versus non-cash contributions.
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you follow in Jason’s footsteps on the road to your financial independence day. You really can do it on now. here’s your host, Jason Hartman with the complete solution for real estate investors.
Jason Hartman 1:03
Welcome and thank you for joining me today. This is your host, Jason Hartman. It is a beautiful, gorgeous day in Las Vegas, Nevada. A beautiful day in a rather ugly city. Yeah. I’m not a fan of Las Vegas. I gotta be honest with you. Not that I live in the exact right place. If I lived in Henderson or in Summerlin, I’d probably like it better, but I think I’ll be moving sometime in the near future. I’m just too lazy to move. It’s such a hassle. Very few things in life are more of a hassle than moving. It’s probably one of the worst things. Yeah, I’ve done it a lot in my life. Maybe I’m just a glutton for punishment. Not sure but maybe Austin, Texas will be my next one. I’ve thought of moving there for many years. If you have any opinions about this, feel free to share your thoughts at Jason Hartman comm slash ask Jason hartman.com slash ask, but I really do want to live a few more places before I decide where I’m going to settle down. Places that provide the most opportunities to meet that wonderful lady that I’d like to settle down with. Yes, haven’t met her yet. I don’t think that definitely is a criteria in choosing your city. I saw an interesting article the other day that said, Millennials are actually not that mobile. Now, this is kind of Contrary to popular belief that millennials move for jobs and so on and so forth. And as I was reading the article, and I was thinking about the housing market, and how it impacts us as real estate investors and all this great stuff, I was thinking, Well, what is my normal question, folks? You know, my normal question, right? What is the question? The question is, compared to what, compared to what, in the aggregate, they’re still pretty mobile, that group, but they first got to get out of their parents home, you know, they’ve got to leave the nest. And the boomerang generation as you know, comes back they go to college, they go away and then they come back and they’re like, hey, why pay rent? Why pay a mortgage? I already got a mortgage to pay. It’s called my student loan, but I didn’t get a house with it, etc, etc. So that’s an odd situation with Generation Y. Gen Y has an odd situation. Hey, speaking of Gen Y, our venture Alliance member Brandon is going to be talking to a few of you his fellow Gen wires, about a new membership opportunity for the venture Alliance. Yes, a junior membership opportunity. So you may hear from Brandon soon. He’s got a couple of you in mind he’s going to be reaching out to so look for that. And what am I thinking about today? Well, I’m thinking about our guest today, who is fantastic, by the way, and has developed a fantastic system, because you’ve heard the terms about partnerships and equity sharing and bringing a partner in on your real estate State deals and all of these different ways to do that. Well, today, you are going to hear a very good way to do it. Now it is amazing to me that I think it was. Maybe it was New Year’s Day 2018 it was possibly New Year’s Day. 2018 I remember very specifically having my last slice of pie. Yes, my last slice of pumpkin pie. My favorite. I love pumpkin pie. I love chocolate too. I love income property. But chocolate is better than income property. The question though is, what is better than chocolate is anything better than chocolate? I’m not sure maybe pumpkin pie and pumpkin pie is pretty good. But today we’ll talk about slicing pie as it applies to real estate deals. And I think you’ll really like this. There are many ways to do partnerships and one of our clients you’ve heard on the show before thiam. He’s a very social, very pleasant, nice guy. He has I think 19 houses now. And he recently interviewed me. And we talked about the 280 ish give or take units I have. He thought my investment portfolio was some secret. It’s not a secret at all. I don’t know, I guess I just don’t talk about it a lot. I have over the years many times, but maybe Matthias has not listened to the prior 953 episodes. But I think he has actually so I don’t know. But yeah, I’ve talked about it a lot. And I have done some slicing pie. I have invested with other people, in fact, really all but one and over decades. I have had many partners on real estate deals over the years and you know, they’ve all worked out pretty darn well. I think only one really worked out poorly. But income property is a pretty easy thing to partner on. Why do I say that? Well, as long as neither party lives in the property, it’s pretty easy. As long as you keep it arm’s length, then you know, you’re just doing some math, you’re just slicing the pie. But there are some nuances to it that you might think are valuable today, as we talk to Mike Moyer, the author of slicing pie now understand that the slicing pie model, and I’ve had him on my other shows, when we’ve talked about startups, he’s been on my speaking of wealth show, and so forth. But today, we’re going to focus the slicing pie methodology for real estate investing. So, again, I think you’ll get some stuff out of this. Mike was nice enough to speak to our venture Alliance mastermind group at our Chicago event, and hey, maybe we’ll have him out at a future meet the masters or some other event in the future to talk about slicing pie for real estate investors. But what am I thinking about today? Well I’m thinking about a few things before we get to Mike. Number one, I’m thinking about how I want to say welcome to the venture Alliance. Our newest members, our guy and Mary Ellen, you may have met them at some of our events. They were at the masters. It’s great to have them on board. And I know they will also be planning to come and join us in Sweden in April for the Ice Hotel trip. Yes, we are just two more people. I think we’re just two more people away from greenlighting that trip, so very, very exciting. bucket list item the Ice Hotel, go to Jason Hartman Ice Hotel calm and check that out if you’d like to join us, venture Alliance members and non members can go as well. Then the venture Alliance mastermind of course, venture Alliance mastermind calm. What am I thinking about though, I am thinking about absorption rates, absorption rates as they apply to real estate. This really goes into the concept of How much inventory is there in the marketplace at any given time? I’m not going to talk about statistics today. I’m just going to talk about the concept. Why am I not talking about statistics? Because if I do, I will mislead you. And I never, ever want to mislead you. People at CNBC, and in all the other media, let them mislead you with their sound bite, quickie statistics that aren’t very meaningful. Why aren’t they very meaningful? Well, first of all, because there’s no such thing as a national real estate market. All real estate is local. There are about 400 real estate markets in the United States. And then many more around the world. Of course, all real estate is local. But also you have to segment the market by price by product type. A lot of things okay, this is not as simple as all those people make it. You really got to drill down very deep When you’re talking about real estate statistics, so today, just conceptually, I want to talk to you about the three basic types of markets. Now, you’ve heard me talk about that before and you think I’m going to talk about linear, cyclical and hybrid markets. No, I’m not talking about that. Those are geographical markets, or Well, they do change a little bit. So they’re also based on time. But what I’m talking about now is a market condition barometer for the market. And that is really how many months of inventory in housing there is or in any type of real estate for that matter. You know, how much supply of office spaces there how much supply of retail space during the retail apocalypse we’re going through now? How much is there of anything in any marketplace, not just real estate, of course. So there are three kinds of markets. Now, other people will name these differently. than I do. And there are varying opinions as to how you know which market you’re in in terms of how many months of housing supply. Now most people will say, there is a buyer’s market and there is a seller’s market, and there is a balanced market, right. You’ve probably heard that before. I am going to say that there is a buyers market, a seller’s market and a a broker’s market. Yes. I’m gonna think kind of selfishly here because I’ve been in the brokerage business all my life since age 19 years old. Yes. I’ve been doing this a long time, folks, because, hey, I’m 22. So three years, just kidding. These three types of markets we’ve got How do you know which market you’re in? Well, the way you know which market you’re in, is by the speed of absorption of properties, or the speed of absorption of the product in the marketplace. How do you know how that is going? Well, you can look at the months of supply on the market. You take a snapshot in time, click snapshot in time. And you say, if no more properties appear on the market after today, how many months of supply do we have? And people have differing opinions about this. So just call it a reference point call it a rough estimate, but it’s close enough. Some will say if there are zero to four months of inventory on the market, you’re in a market that is a seller’s market. Why is it called a seller’s market? Because in the seller’s market, the sellers have the advantage because demand for property exceeds supply of properties. Now, you might think, well, if it takes four months to sell a house, that doesn’t sound like it’s moving very quickly. Well, that’s not what I said. I didn’t think It takes four months, I said four months of supply. And some will say, up to five months of supply. And that’s a seller’s market. So for example, if you have people absorbing properties at the rate of, we’ll just do this in thousands, okay? You know, this just an arbitrary number, okay? Well, let’s just do it in one or two, right? If you have one person buying a property per month in whatever your given market area is. Now, obviously, you want to add a lot of zeros to this, but we’ll just make it real simple. And you have four homes on the market, then it will take four months to absorb the supply at the rate of one per month, right? or five months, people would call that a seller’s market, mostly four foot zero to five months, really, you know, maybe four, okay, depends who you’re talking to. Right? depends who you’re talking to the balanced market or what I like to call the brokers market because it’s the market I like best. And I know you like what I like, right? So, yes, I like the balanced kind of even keel market. several episodes I said ago, I said I hope the market slows down. Yep, I did say that. And in the same breath, I said, I hope I don’t regret saying this. So, I would like to see it be a little more calm than it is right. We have very low inventory. But I think I think we got a pretty good outlook. I’m still very bullish on the real estate market. And you know, me, hey, you’ve been through the thick and thin with me. I’ve been talking to you for 14 years. Okay. So you know that when I tell you, things aren’t good. You’re getting hopefully you believe an honest answer on my outlook on the market. But hey, when things aren’t good, that’s when you should be buying the most right now. Now, Grant You’re never going to know where you are in the cycle in terms of how bad they can get. Because in 2009, people thought it was gonna get worse. And it only got better, right? It’s very hard to know when you’re at the bottom or when you’re at the top. But one metric is this absorption rate or the months of supply not exactly the same thing. But conceptually, they go together, they’re aligned. So four to seven months or five to eight months is considered kind of that balanced market that brokers market as I like to call it, okay. And then if you have more than seven to nine months of housing inventory, you are in a buyer’s market. That’s what most people call a bad market. Right. But those are dumb terms. You know, a good market is a seller’s market and a bad market is a buyers market and the middle of the road market. Well, hey, that’s the brokers market. I think it is easiest for brokers to operate in that middle. type of market. It’s the one personally I like the best. But things are crazy right now. It’s a crazy, crazy market prices rising quickly in most places. Interestingly, and I wish I had more time to talk about it. We’ve gotten to get into slicing pie here, but I was looking at a housing forecasters or a housing economist kind of website the other day, and he was offering some really good interesting insights. But again, I couldn’t really listen to him as a definitive source. Because his areas, even when they were by the city, were to macro in nature. So I hope I’m going to get this guy on the show. I’ve invited him a couple of times. So that’ll probably happen soon. But yeah, there’s a lot to this. We could talk about this for days. Okay, we really could. But let’s talk about partnerships. Let’s talk about equity sharing. Let’s talk about slicing pie. I’ve had many partners and I do have partners currently on some of my properties, and I pretty much have always liked those partnerships, only one went kind of badly. So Icehotel Oh, San Jose event Don’t forget San Jose is coming up. We are selling tickets very briskly for that. By the way, the early bird pricing goes away soon. Okay, you can go we’ve got a website just for that event, by the way. Now. It’s Jason Hartman university.com Jason Hartman University calm and the Jay Chou event is really interactive. You’ll do the math, you’ll work the numbers, you’ll know how to do the math and work the numbers, how to analyze a real estate deal and how to build a portfolio. The portfolio building game we do at that event, has just received rave reviews and people absolutely love it. So join us in San Jose, that’s March 3. Jason Hartman University comm Of course you can also register for the event at Jason hartman.com. But if you want to look at a page, just about this Jason Hartman University comm Okay, without further ado, here is Mike Moyer, as we talk about slicing pie. It’s my pleasure to welcome back a returning guest and that is Mike Moyer. He’s the inventor of a phenomenal system called slicing pie. He’s an award winning speaker, author of eight books, focused on business. He’s an adjunct faculty member in entrepreneurship at both Northwestern University and the University of Chicago’s Booth School of Business. Mike has presented the slicing pie concept to audiences all over the world. And he also presented to our venture Alliance mastermind group when we were in Chicago, and it was a pleasure to host him there. And it’s great to have him back on the show. Mike, welcome. How are you?
Mike Moyer 17:55
Very good. Thank you very much for having me.
Jason Hartman 17:57
Good. Good. Well, hey, I gotta tell you something. I am extremely disappointed with. And that is that when we talk about pie, I think I just had my last piece of pumpkin pie for 11 months. It is amazing to me that we can’t have pumpkin pie you’re around. Just thought I serve via silly humor here. But no slicing pie is a phenomenal model that helps keep business relationships and maybe real estate deals equitable because contributions from various members or partners are never equal. And slicing pie helps offset that and make it make the relationship equitable.
Mike Moyer 18:38
Right, right. startups are unique in that when you invest in a startup company, the chance of losing everything is very real. When you invest your time your money, you can lose it all in other companies and stocks and even real estate. A lot of other investments are very few investments that you can actually lose at all. You might lose some of your money. You’ll lose all your money but stock is more like the star. It’s more like a gamble Las Vegas Then there’s like a company, because there’s a chance of losing it all and we now can’t exist. You have to make sure there’s a tool in place allows you to wake those bets on the table. Mm hmm.
Jason Hartman 19:09
Yeah. If someone is, you know, maybe maybe there’s two people that they want to go in on a property and buy a real estate deals together. How might they use slicing pie? I’m, I’m using it in one of my businesses. And there have been some real challenges and problems with that relationship. But I think slicing pie really helped. Keep it good. Well, as good as can be expected, I’ll say, and you’re you’re familiar with those problems we’ve had. How would you use it in a real estate deal? Is it much different?
Mike Moyer 19:43
Well, one of the main contributions to real estate deals is cash. So in startups, like a tech company, for instance, does cash is certainly involved. There’s also a lot of non cash people’s time. And the main contribution to a real estate deal is cash. There’s some non cash, most of its cash show if all you’re doing purchasing a property for rental for instance, then you can divide up the equity based on amount of cash expense. If you provide 70% of the cash number by 30%, we can do a 7030 split, which is logical. However, if we’re doing the we’re flipping the property over, someone’s managing the property, for instance, and an investment of time as well, that time should be taken into account, you can Slice the Pie and cash financing piece can be treated separately. So there’s usually multiple components to a real estate deal. There’s there’s the loan financing, bank financing, and there’s sort of down payments out of people’s pockets. And there’s time and energy involved in managing maybe remodeling for instance. So it wouldn’t be fair for us to split the equity 5050 if you did all the work on the remodel, for instance, and put your own mind towards remodeling so you have to account for your non cash contributions. So the first go to for financing would be your bank loan, and a bank loan, not at risk. Now, I know that there’s risk associated bank loan but there’s no cash out of pocket. into the timeout pocket. So it’s treated as non risk in slicing pie, which might sound strange to your listeners. But once you read the book, you’ll understand why the risk part will be the down payments people make, and the investments they make out of their pocket into the company into this property. And the time has been too, you have to says instead of caremark itself, salary for somebody spending time not paid that time, they would be counted toward slicing pie.
Jason Hartman 21:24
Okay, so we went in a little deep kind of quickly there, and I want to make sure we just make sure we got the broad strokes here. So maybe I’ll just back up a little bit here before we go, kind of take another deeper dive again, you know, in a relationship, people contribute different things. So slicing pie accounts for and maybe there’s more than this, but accounts for things like intellectual property, contributions of equipment, or like you give the example in a startup. Well, you know, everybody’s got their own laptop computers and they bring them in and, you know, the startup is brand new so they don’t go out and buy new computers, everybody already Only one right? Then there’s cash and there’s time. And those are valued differently in the slicing pie model, but maybe what are all the things someone can contribute? And then they’re valued with different multipliers. Maybe you can explain that.
Mike Moyer 22:14
Well, the basic philosophy behind slicing pie is the person’s share the equity should be based in their share the risk taken. So risk comes in the form of not being compensated. So if I spent a year’s worth of my time working for your startup, I’m not compensated, but I’m worth $100,000 a year on the open market, and I’m risking on $1,000 a year. If I put my laptop into the company, and it’s worth $2,000, and I’m risking $2,000. So there’s two basic kinds of contributions you can make a non cash contribution, which does not require cash out of pocket, and a cash contribution, which does require cash out of pocket slightly by CISA slightly differently, but the main concept is that when you acquire things for a company, we purchased them at fair market value, we don’t pay more so I’m sorry, a lot more on company. We pay 150 bucks a lot more. No matter how we’re going to use it, I might use a demo my own lawn mower I like to use mow doesn’t lawns make thousands of dollars, I still pay the fair market price for the for the lawn more so, you buy things for a company whether it be people or intellectual property license rights or equipment yours acquired at the fair market value, a company share the pay the fair market value or provide equities instead. So the fair market value would translate to equity using the slicing pie model. And the basic model is that for every dollar and non cash contributions somebody makes to a company, they actually contribute two slices to the pie. And for every dollar in cash contribution, they make activity for slices to the pie. So you simply count for what you’re not being paid. multiplied by the number of slices in the pie and your shares always equal to your slices divided well this license. Reason is the difference in cash and non cash is because if I paid you $50 an hour to work for me, and you want to buy something that costs $50 it will take you more than an hour to earn enough money to buy the thing because when I pay Do I pay employment taxes on it? When you receive the money, you pay income taxes on it, when you bought the thing, but you pay sales tax on it, plus cash is more scarce as a member of the factory. So we have to wait cash higher than non cash.
Mike Moyer 24:13
balance out the difference non cash and cash. Right.
Jason Hartman 24:16
You know, an interesting little kind of a side about that is when someone makes a cash contribution. It’s already been tax, you know, 1000 ways, right? So they’re almost always unless they’re using a retirement account. You know, they’re making a cash contribution in post tax dollars. So yeah, you’re right, because they had to, I think this is macro, but they had to do the labor to earn the cash, pay that all the tax on it and then contribute it. So yeah, that’s a good point. So cash has the highest multiplier in the slicing pie model of four to one. So if you contribute $1,000 to the business, and if it’s a real estate deal, it’s a business you know, you might think They’d like oh, well, there’s a store or a startup or something. But you know, real estate deals a business too. So if you contribute $1,000, just for example, then that has a four times multiplier. So it’s worth $4,000 worth of pie Is that how you would equate that or say that,
Mike Moyer 25:17
or thousand slices in a slice is a fictional unit of address contribution. It’s the same thing as a poker chip. Okay, so it’s like buying 4000 poker chips, the poker chip itself cannot be used for anything separate, playing the game, right, that slice to determine what it is. And that’s what’s important thing to think about when you think about financing is a real estate deal. Because if the financing comes from the bank, it’s not out of your pocket. Mm hmm. It doesn’t count at all. Mike comes out of your bank account, they would go in and slice it.
Jason Hartman 25:43
Very interesting, huh? Okay, good, good. And so then the time contribution gets a two times multiple. So the partners in this business or real estate deal decide, hey, each of our time is or maybe one person’s time is worth more than the other, right? So one person’s time might be Build at $50 an hour and the other might be 75. Right? And then right payment for that time is on a two times multiplier, right?
Mike Moyer 26:10
Yeah, two sizes per dollar. So if you’re an experienced contractor, you may build out at a higher rate than the inexperienced contractor. Mm hmm. So friends, find a real estate deal view, I have no no experience remodeling houses, but you might have a ton of experience and be able to do some of the work yourself. You’d fill out a different rate, right? You’re doing contract work, your salary, your hourly rate would be similar to learning a contract or otherwise costs. You always want to make the most efficient use for cash. And you get two slices per dollar for every non cash contribution you put in. The reason you put those multipliers is to create some consequences when somebody leaves the company and leaves the pie. So finding the company and I fire you for no good reason and take your equity back. That’s not fair. Is it? No, not fair. I would be upset similarly. If I fire you for good reason. And take your angry back. They may be they may actually be fair. So if you if you don’t want to lose your equity don’t get fired. So what happens is, if I fire you for no good reason you keep your slices in the pie, meaning they just give you two slices. So far, you have a good reason you lose your non cash slices and you readjust your cash slices to one that’s creating penalties for you to get fired. If you want to keep playing the game. Don’t get fired. Now should think twice before I fire you for no reason, because it costs me a lot of equity. So we’re gonna make sure people’s interests are aligned when it comes to the relationship and people’s decisions they make.
Jason Hartman 27:31
Yeah, you know, Mike, this is the key to life is an alignment of interests. And I talked about that on the show all the time. The relationship, for example, between a income property owner and the property manager, I would contend much less aligned than it should be. There are certainly the largest part of that relationship is aligned. You know, the manager wants to collect rent because they get a percentage of the rent. The investor wants it to be rented and you know, is usually happy to pay a percentage of the rent. But there are some areas where these little sort of nickel and dime, I’ll call them almost garbage fees, where the relationship becomes misaligned. And then the problems arise. And in the slicing pie model, it’s interesting because I’ve been having some problems with this partnership. The partner wanted to quit. And we talked to you and I think you kind of settled that debate a little bit for us. Thank you for doing that. You said that, well, hey, look, if you quit, you lose your pie that you’ve earned for your time. But you don’t lose the money you invested. You always keep the equity that you bought with cash, right? Can
Mike Moyer 28:45
you elaborate on that a little bit. So you can’t put someone in a position where they can steal someone’s money. So if I took you on as a partner, and I convinced you to put $10,000 in a night fire drink kept your money, that’d be equivalent to stealing right? What I can do is fire you And pay you back $10,000 later date. What always surprises me when someone quits a company, and then is upset that they lose their equity for their time contributions. If they’re quitting the company, they clearly don’t believe in the future of the company anymore. So while they want to keep equity in the company and believe in, right, they own the company, and they own 100% of it, and they walked away, they lose their entire investment.
Jason Hartman 29:19
You know, really, Mike, that’s pretty much the same idea as owning a vesting of equity in a company when you’re an employee. So, you know, companies reward good employees with, they call them the golden handcuffs, right? You know, so they say, hey, look, if you stick around for a long time and do a good job, you know, after the first three years or after the first five years, you’ll start to be vested and you’ll vest at a rate of, you know, 10% per year or whatever, there’s a schedule for this right? You’ll end up if you really build your career here. You’ll end up with equity in the company. But look, if you leave too soon, you’re not Gonna have any equity, you’re just gonna have your paycheck,
Mike Moyer 30:03
right? time based vesting is a tool that’s very commonly used to help mitigate some of the damage done by a bad equity split. But it’s not really a very good tool because it all it really takes into account is time doesn’t take into account contribution. So in order to like use time based testing program, I have to predict what you’re going to be or worse in the future and allocated chunk of equity in advance. Right? Were you actually doing any work?
Jason Hartman 30:26
You said contribution. Now, what does that mean contribution when he said
Mike Moyer 30:29
that, so if I’m worth $200,000 a year, and I don’t get paid, my contribution is $200,000 a year unpaid equity, don’t pay salary. If you’re worth $50,000 a year, and you don’t get paid, your contribution is $50,000 in unpaid salary. So there’s differences and contribution has to be accounted for. Now, as a startup, I don’t know when I’m going to pay you six months or a year. It’s just it’s unknowable. It’s been hard to predict that in advance and allocate a chunk of equity through flux. That is a few topics exercise that happens all the time. So we’re happy So I’ll allocate a chunk of equity, knowing deep down in my heart that it’s wrong. And then I’ll slap on a time based vesting program hoping things go the way I planned, you’ll stick around. But there’s nothing preventing you from quitting the day after your stock best. There’s nothing preventing me from firing you the day before your stock vest, right? I’ve seen both scenarios in practice, right? And it’s a good thing. When I’m paying your full market salary. Then I’ll I want you to stick around then, and timezone matters, then I can give you a bonus and accuse besties presence. I was working with a guy who has a 15 year product development horizons, extremely long product development horizon. And he wants to make sure scientists stay on board for 15 years. He’s giving them a major chunk of equity and you know, multi million dollar chunk of equity that invests in 15 years. So none of it will last for 15 years. That’s a long way.
Jason Hartman 31:56
That is a long ramp.
Mike Moyer 31:57
ramp. Yeah, but if you fires them Before that 15 year mark, then vesting we prorate it. If they leave anytime for the 15 year mark on their own or get fired for good reason, they lose 100% of equity because all that matters disguise time because it’s paying their salaries off in real time, you know, current compensation. Yeah, yeah. Interesting. So the time is the only factor in time they’ve invested shooting us back slightly by his investing tool and through startups. Right. Right. Now, Mike, a couple questions here. Does it only work for startups? And if so, or if not, how do you define startup? I mean, I mean, what is the you know, the business is sort of considered a startup, but then it’s a year old or two years old. But it’s still sort of in that? I don’t know, you know, that’s a real opinion sort of thing. What’s a startup? You know, it’s hard to define, isn’t it? Well, people have different definitions for startups. My definition is people are taking personal risk. And personal risk means don’t take money out of my pocket or I’m not getting paid when a professional investor is somebody who invest somebody else’s money. venture capitalists, for instance, and that person is charged to be a fiduciary of that money. So when they make a deal, they are deemed by our culture as having the skill set to appropriately value an opportunity. An entrepreneur is not in a position to value their own opportunity, because they’re always gonna be overly optimistic, which is why they’re starting entrepreneur in the first place.
Jason Hartman 33:22
That’s true. That’s good. We have those people.
Mike Moyer 33:25
It’s not really ethical to value your own company, we’re at a time when there’s no predictable revenues or customers. Sure, you have predictable revenues and breakeven points and customers that you can’t put a value on it. So you can put a value in your equity in reliable marketable value in your company. You can start using that dollar amount as the sort of denominator for equity deals. So Mike stock is worth $1 a share, and I want to reward you for $50,000 in equity, I needed 50,000 shares. If I don’t have a stock value, but I can’t use stock values determine how many shares you get to allocate shares relative to your risk. It’s always relative my risk relative to the rest of teams risk, five exam thousand dollars a year $200,000 or 5053 $200,000? That’s 5633. Right, right.
Jason Hartman 34:12
So like most startups certainly don’t go well. In fact, most businesses in general don’t go well. It’s so amazing that anybody even gets into business because the odds suck. They’re just, they’re just terrible. Like, if you looked at it from a purely sort of empirical, analytical point of view, this would be crazy. like nobody would do it. Right. You know, there has to be some sort of emotion or ego behind it, because otherwise, probably nobody would take the risk. It’s, it’s, you know, the odds are definitely against you, right? But does slicing pie work when things go badly? And, you know, I’m thinking of my own deal, right? It’s not going that well. The partner doesn’t like it anymore because the pie is Actually shrinking, although the partners share of the pie is increasing based on, you know, number of hours contributed to the business, but the whole pie overall for both of us is shrinking. And that’s not so good. Well, it’s tricky in your minds. There’s no way to know if it’s actually shrinking. You’re not. I mean, you can look at your numbers and see the revenues are going down, for instance, but there’s no telling it the next day, you might get a big deal, you know, your your rows increase overnight. Or you might be having a huge customer and the next day, they might quit you. So you know, one thing that’s really I always stress to people who can’t predict the future, you know, what’s Apple Computer going to do tomorrow as you can go up or down? I mean, we have tons of data on that company. It’s still it’s a crapshoot, whether it’s going up or down. Even with the best data in front of us, you can’t predict the future, all we can do is see what’s actually been played and see what decisions have been made.
Mike Moyer 35:50
So if I believe in the future, I’ll stick with the company. If I don’t believe in the future, I won’t stick with the company. So when things go south, that’s when you want to start thinking about how do I get equity back but Equity background like you might push somebody on the company.
Jason Hartman 36:03
Yeah. Well, I agree. You know, that’s the thing to be an entrepreneur, it requires a lot of faith. And it is amazing to me and you know, I’ve never had a real job, Mike, how in the morning, the world is falling apart. But in the afternoon, you got some really great news and your whole mood is better. You never know what’s going to happen. And and that’s the thing. It does require a lot of delayed gratification, a lot of faith. You know, a lot of maturity really, because, you know, maturity is what gives us the ability to delay gratification. It’s phenomenal how something will just happen that will just change the whole thing in a moment. And you never expected it. It could be great news could be bad news. It goes either it goes both ways all the time. Yeah, you’re definitely right about
Mike Moyer 36:57
that. One thing I noticed a lot is this whole life have, you know is my idea. So I get more equity than you, as people who come up with ideas often want to get a big chunk of equity for it, which is understandable. But it’s problematic in the sense that so many companies pivot away from the original idea and pursue something else. So if I give someone a chunk of equity for an idea, and I later pivot away from it, I just reward someone for an idea that wasn’t that good. Yeah, right. You Slice the Pie model it would you design a royalty that idea only when revenues came in. So if the idea was good, it would generate revenue and therefore equity. True, true, you never know what’s gonna happen. You never know what’s gonna happen.
Jason Hartman 37:34
Mike, did you share with us all of the elements that contribute to the pie? We talked about time money. Now you mentioned royalty. So what is that under? What what’s that called? Is it just called intellectual property or how many intellectual property how many things are there
Mike Moyer 37:50
basically time money ideas, which would be done through a licensing deal or development time, relationships with regard to Commission’s potentially Facilities supplies equipment. Slicing pie allows you to run your company like you run the real company, pretend you are funded. The decision you should make is on every case is when I need to buy something. If I had the money, how much would I be willing to pay? Magic ATM machine, everything ran out of money take money out of the ATM machine as long as you make good decisions to keep producing cash money to go to the ATM machine is essentially slices allows you to convert your equity into basically a secondary currency was used to buy things. But when you don’t think about that way you think of equity is a finite resource. You think about you know, gosh, do I give 2% of the advisor or five advisors or 10% of this advisor? What you need to be thinking is if I was going to pay this advisor, how much would I pay them and if I have the money I pay it. I don’t have it. I should use slices. So if I want to get license a book for instance, okay royalty in that book. If I had a manufacturing plant one license someone’s idea I give him a license for it. If I want a salesperson could get a big Rolodex, I pay him a commission. So there’s always a fair market value. Everything has a fair market value. It’s much easier to observe the fair market value or negotiate the fair market value. It is to negotiate equities, but it’s going to have some future value. Okay, good, good stuff.
Jason Hartman 39:13
Now, Mike, I want to conclude with this and I think our listeners are gonna absolutely love this because you have made it so easy for people to implement your slicing pie system. First of all, you’ve got the book you’ve got while you’ve got several books, now, you’ve got the software, you’re doing a deal to combine your slicing pie software with a company called harvest. I can’t wait till that happens because that’ll do the actual time tracking. Then you’ve got agreements, you know, like, if nothing else, you can save a ton of money on lawyers, you know, just by buying the template agreement, or you’ve also got a referral network of attorneys who practice your system. I mean, folks, one of the challenges I I’ve always had in business, and I just love entrepreneurship is that I can’t do that many deals because, you know, you got to think so creatively and who’s contributing wide. And it’s just really complicated. And you never know the slicing pie model has taken a lot of that confusion out of it, and made it possible to engage in more partnerships in an equitable, fair way. Tell the listeners about some of that, just before you go about some of these tools. They just make it pretty easy to launch this. Well. I call it a universal one size fits all model to the allocation and recovery of equity in a bootstrap company. That means any company on the planet can use the exact same model to do their equity split. And just like you mentioned, there’s so many in every other model in the world. It’s it depends on this depends on that happen. The future is possible. Yeah,
Mike Moyer 40:50
too much. Out of the box. There’s a great story on my website. There’s a guy a guy who started a company with someone he met on Reddit. He never met him before they put slicing pie in place. worked out in a pretty successful company because it didn’t have to negotiate the equity. So they just use it by the free model to use it doesn’t you don’t pay me for it. But then today, I do sell contracts and books and software and things that help support people in it. There’s a lawyer who wrote an article for Forbes not long ago. And before he discovered slicing pie, about 50 to 80% of the deals that he worked with in startups wound up in some kind of dispute that required legal intervention.
Jason Hartman 41:29
Oh, yeah. litigation on this kind of stuff is so frequent. It’s it’s not even funny. It’s just all the time.
Mike Moyer 41:36
commonplace. But he said in the past three, four years, he’s done over 1000 consultations, not one has one legal dispute. Wow. Yeah. That’s, that’s amazing. Okay,
Jason Hartman 41:45
so these resources are available and what do people need? Do they just buy the agreement and, you know, fill in the blanks or should they get? I mean, you’re probably not going to tell him not to use a lawyer. Nobody’s gonna say that. But what’s the basic how do you start
Mike Moyer 41:59
like By the moral agreements by doing the right by those who help you get to where you’re going, every country has slightly different legal restrictions on that. And so just because something’s legal doesn’t make it fair doesn’t make it more, right. Good point, though slightly by itself will always guide you in the right direction, make the right decision to implement it legally, and to make sure you’re not taxed inefficiently. This was the biggest problem. You need to find a lawyer in your area. And I have lawyers in Europe and South America and Africa and United States. And you can download the legal form and most lawyers do a free consultation with you. lawyers don’t make a ton of money on corporate formation. It’s not really a good business. What they want to do is form a relationship with you are the kinds of contracts and intellectual property contracts, things like that. It’s actually by sort of a foot in the door for lawyers to work startups, right. So the first step is to kind of buy into the slicing pie philosophy in the books do that it’s videos online, there’s summary papers online, there’s all kinds of ways to learn that. Once you get that in place, you can hire a lawyer to my website. If you have a lawyer that you work with already that doesn’t notice it by I’m happy to talk to them and no charge and provide legal guidance, and templates, whatever they need good software on online is a way to track your contributions and pay it out because you know, QuickBooks tracks your cash transactions and your payroll. If you’re not paying anybody you’re not tracking payroll, so slightly BI tools to do that for you. Mm hmm. It’s gonna help to keep this but and it’s fairly easy to use once you get your head around and matter of keeping track of who is betting what sure McCool does all the work for you.
Jason Hartman 43:30
You know, fantastic. Well, Mike, good stuff, where can they find all this stuff? give out your website. And now you also offer consultation calls in your fees are reasonable. So share whatever websites you’d like people to have
Mike Moyer 43:44
fly sci fi comm and click on the learning resources. You set up a phone call with me through clarity. On this morning. I do call this all the time.
Jason Hartman 43:53
Fantastic. Well, Mike Moyer, thank you for joining us.
Mike Moyer 43:55
Welcome. Thank you very much for having me again.
Jason Hartman 43:58
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