The Ross Perot school of business partners

Hey everyone,

I ran a live talk on starting businesses recently, and you had a ton of questions about people. Stuff like:

Let’s take a look.

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What do I start with: the right person or the right idea?

Ross Perot had a line I keep coming back to: choose the jockey, then let the jockey choose the horse.

I believe that completely. You can always change your idea. You can't change the people you work with.

What I'm looking for when I bring someone in: have they created things before? Have they taken leadership and made stuff happen without being told to? I can help someone find a good idea. I can't help them change who they are. So I start there — with people who are already winners — and we find the idea together.

The flip side is also true. Nobody wants to work on your ideas either. This is something I had to learn: I cannot walk up to a talented 26-year-old and say "here's my idea, go build it." That's not a partnership, that's a job posting. The idea has to emerge from the collaboration, or they're never really bought in.

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Where do you find these people? And do you like MBAs?

Social media, mostly. When I post a call for incubation associates, I get 200-plus applicants. That's the compounding return on years of putting out content — when I need something, I have a real audience to ask.

For the current batch, I went a different direction: I worked with Near to recruit specifically from Latin America. One guy in Colombia, a team in Mexico. The economics are different — around $3K a month is generous at that experience level there — and the talent is genuinely strong.

On MBAs: I don't tend to seek them out. An MBA trains you to run someone else's big company really well. It doesn't train you to be an entrepreneur. There's a gap between book smarts and street smarts, and a lot of MBA grads overestimate how much the former substitutes for the latter. That's not a knock on them — it's just a mismatch for what I'm doing.

The sweet spot I look for is mid-to-late 20s, a few years out of school, second or third job. They've seen the other side of the fence. They know what a W-2 life looks like. That makes them more clear-eyed about why they want something different.

Do you hire solo founders or pairs?

I've done both. These days I hire in pairs, almost always.

The Near co-founders changed my mind on this. I hired them individually — they came to me separately — and at some point they said they wanted to work on the same idea together. I said sure, fine. Later, after the business was off the ground, one of them told me: "I don't know that we would have gotten through this if we were doing it alone."

That stuck with me. Starting a business is emotionally brutal. The lows are real. Having a peer who's on the same journey, who gets it, who you can debrief with at the end of a hard day — that's not a soft benefit, it's structural.

The model I like is what Y Combinator and Andreessen Horowitz talk about: one entrepreneur (sales-focused, externally oriented) and one inventor (builder, operations, focused inward). It doesn't have to be exactly that, but the tension between those two orientations tends to produce better outcomes than two of the same type.

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How do you compensate associates?

Compensation is a filter. Use it like one.

When we took over HoldCo Conference, the first thing we did was make it much smaller, much nicer, and we doubled the price. Immediately, the caliber of person walking in the door changed. The price became a signal: are you actually serious about this?

Same principle applies here. I pay at or slightly below market. Not dramatically below, but enough that they're making a real choice. Building a business is a 5-7 year commitment minimum. I want to know early whether someone is thinking in that timeframe.

The red flags are obvious once you know what you're looking for. 

If someone comes in demanding top dollar, equity upfront, control, and a big title (before there's anything to control) they're not ready to think like an owner. They're thinking like an employee. That's fine, it's just not this.

At the same time, don't pay so little they're worried about feeding themselves. You want their mental energy on the business, not on whether they can make rent. So: at or slightly below market, with meaningful equity that vests over time. They take a small sacrifice now for a real upside later. 

If they won't do that, you've learned something important about them early.

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Do you insist on retaining majority equity?

No. And I'd argue you shouldn't want to.

If you go into one of these with 60% or more, you're setting a time bomb. At some point, the co-founders do the math and realize the arrangement isn't equitable. That's when things get messy. Resentment builds, the relationship breaks down, and the business suffers.

The model I use for the current batch is a straight three-way split: a third each. I put in the capital and the coaching; they put in the time and the execution. That feels right.

What I do insist on are basic protections as a minority holder. For example: I have to approve any changes to the founders' compensation. That way two co-founders can't quietly vote themselves a big raise and drain the business without my knowledge. You can protect your interests without controlling everything.

And honestly, these businesses need to be run by the people who are in them every day, not by me, a tourist who helped them get started and now shows up for board meetings. 

Eventually they'll be running it better than I ever could. You have to be okay with that.

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I also got a bunch of questions on finding & testing ideas — I wrote those up here. (Or you can watch the whole Q&A right here.

Thanks for reading!

Michael

P.S. I almost never talk about courses, but I highly recommend Dave Kline’s MGMT Accelerator. Invest in your leaders, and you’ll make your money back in no time. Runs May 5-28, four weeks of sessions. My readers get 10% off.