His Employees Own 30% and Won't Level Up

0:00Uh, my name's Josh. Uh, I have a brick and mortar automotive repair shop. Uh, we did a million million and a half last year and that was growth for us. Uh, we're going to be over 2 million this year. >> Awesome. >> Uh, the capacity of the building is about 3 to 3 and 1/2 million. That's where I'm going to have physical limitations. Uh, my goal is to go multi-shop and get over 10 million. >> Okay. >> Uh, my biggest constraint that's been readily identified over the last 2 days is that my partnership is a liability.

0:28>> Your partner? >> Part I have two that hold 30% of the company collectively. >> Okay. So, you're 70? >> Yep. >> Okay. >> And I have all the control of everything. They they get a say in things, but ultimately it's me. Um, they were employees that I put an equity plan on the table, obviously prematurely in hindsight. So, I have to figure out either how to level them up or move them out. And then that is the leadership constraint that's holding us back at this moment.

0:53>> Yeah. Are they taking salaries? >> Yeah. They're both guaranteed $100,000 a year as a base and I politely tried to move them to commission and they resisted it, so I stopped. I'm going to Vegas to solve this. That's how it works. >> So, the 15% is it true equity? Is it like phantom or like what's the structure of the equity? Is it LLC or is it a C-corp? >> Uh, it's an S-corp and it's it's 30% >> True equity? >> Yeah, true equity. >> 15/15?

1:19>> Uh, 20 and 10. >> Okay. Got it. Um, >> And can I add one more thing? One of those partners I would like to keep >> Yeah. >> The 20 or the 10? >> The 10. >> [laughter] >> But I do want to move him off of equity if I can. Like if I restructure this and there's a buyout, I'd like him to be commission based if he'll go along with it. And you know, I might lose him, but >> Let me Yeah, let me ask this. Why, um, what's Let's say you cuz you want to go to multi-location, right?

1:48>> Mhm. >> So, with the next location if you're 100%, like how much does it really matter if you have 30 that's really just 20 is going to somebody that you don't want to have? >> No, it's totally fine. If they leveled up from a leadership perspective, we could just drive on. >> But if they don't level up, >> Yeah, I mean that's I mean it's kind of an ego thing. >> fire them. >> Right. And I [clears throat] mean >> You just still have to give them 20% of the profit or 30% of the profit.

2:14>> Right, which is why I want to figure this out now before I'm at 10 million. >> If you if you're not sure now, they're probably not the right fit. >> Yeah, I mean I think I've come to the conclusion, if I listen to my wife, she told me this a year ago. And I keep trying to put that square peg into that round hole, right? >> So, I think I'm trying to think of the best way to like reframe this, which is like I think you made a mistake.

2:47We all do. And I think you're paying down ignorance debt, and you're paying the interest right now in the form of 30%. >> [laughter] >> Agreed. >> Uh and the and I think we just have to look at what are the decisions that we actually have in front of us right now, which is do you want these people still in the business? Cuz there's 200,000 here you don't have to pay if you don't want to. So, if you chose to let them both go, then there's $200,000 back. You can also, if you want to, and this is not me like trying to play hard nose business, you can change your own salary to make it 100% of the profit.

3:18I'm not saying I play that way, but I'm saying like there's way there's levers that you can move here. >> Yeah, and and you know, for me, it's it's an ethical thing, >> Yeah, I know. >> right? I want to honor the agreement, right? And and they have been loyal and they work hard. You know, at the employee level, they bust their ass. It's just I'm not getting what I need from them at the owner level. >> Yeah. So, I think you probably will need to have a candid conversation, and there's also like you're I would go in saying

3:47>> [snorts] >> Honestly, like I I was trying to like script this out, but at the end of the day, you're going to overpay for these guys. And when you open your next location, you won't overpay for these guys. I think you're just going to like I Maybe you can do a buyout. It depends on the valuation and but then you get done that whole, you know, rigmarole, um which you can do, but you could also just say like, "Whatever." And I'm not going to pay you the salary anymore. You are owners. There's nothing you can do about that. Um but if you were employees, I would say that you're not up to standard. And so, raise the bar or I'm I'm dropping the salary. And then you can have a real conversation, but I just say like, "The next location that you do, it's going to be 100% you, and you just know that you've got this little kind of appendix, rather appendage, um that's hanging on on the other one."

4:35>> Right. Right. So, so treat it as uh location two can be a clean slate. I'll hold the equity in location one the little hit. >> Mhm. >> Um and the fact that if if they're cut from payroll, that's going to kind of blow up the whole situation, and they just may want to buy out to be free and clear. >> Yeah. >> Right. >> Like you like the options are leave it the way you are and just move on to the next location knowing that this one's unoptimized and this one will be more optimized. Fine. Nothing wrong with that. Or you have the hard conversation, and it either blows up and they want to get bought out, or it blows up and you save the 200, and then you have to find somebody to replace them, and then you can say, "Hey, like I'm going to take more expenses through the business because it just doesn't seem fair that I'm just going to pay you guys for this your life and no work."

5:20>> Right. Right. So, the the other parts of that, too, is >> only person who's done this, by the way. >> I'm sure. I've met some. Your Your advisors have been very clear of my mistakes. >> No, no, I'm saying like you're not alone. Like it's I feel like 20% of them are either having like, "Shit, I did this, too." Don't worry about it. >> So, then the second part of the question is like in the framework of more and better before new, right? For me, the justification or trigger point for a store two is I need to get store one above 2.5 million cuz that's where the math and the data says it starts to work.

5:50>> Yeah. >> But my leadership team is part of the problem of why I'm not getting to two and a half million. So, I have to bulldog my way through that. Violence is the answer. >> Yeah. >> And then, once I >> to make the call. I don't want to interrupt, but like, you have to make the call to make that business do what it needs to do. >> Right. >> And it's probably not those people, cuz you would have already done it by now. >> Yeah, no. I totally agree that I would be further ahead if I could have just hired the help that I needed. >> Right. And so, I think you have to hire the help you need. Like, what are the what are the obvious and uncomfortable things that have to happen? You have to bring in leaders.

6:20>> I already did, and it's working great. >> Okay. >> I bring in December I hired a manager, and I told the two partners, you guys aren't cutting it, so I'm going to pay this guy a lot of money to do the job you're supposed to be doing. >> Yeah. >> And then, he came in and crushed it, proved my systems work. You know, all the growth that we've had Uh >> And so, these guys are doing nothing right now? >> Well, no. They're not doing nothing, but they're they're doing employee work. >> Okay. Are they doing $100,000 a year employee work? >> No. >> Okay. >> 80. They're doing 80. >> Okay.

6:46>> [sighs] >> So, the $40,000 extra for their like, I think this is just going to be the inefficiency. Like, said differently, if you fixed it, and it's continuing to grow, which it sounds like it is, then like, lesson learned. And then, you're just going to start the other one. >> Yeah. Sounds great. >> think it just like, some of these I call these like, getting kicked in the dick type problems. Like, that's it. You just got kicked, and there's nothing you can do about it. You can try to have the hard conversation. Either they will take the offer, or they won't. And if they don't, you have to replace the two people. You save your $40,000 a year, cuz you're still going to have to replace them. And then, you just clip they clip their coupons.

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