Mismatch of Risk Appetite When Hiring | Ep 792

Hey, what's going on everyone? Welcome back to the game. We're talking about making more money and fun stuff like that. Today, I want to talk about lifestyle limiting your growth as an entrepreneur or as an even an individual. And so I've had this, you know, recurring theme the last, I want to call it year where I've had a few, I'll call it high level entrepreneurs reach out and say, Hey, I'd love to work, you know, at acquisition.com. I'd love to leave it a department or a division.

It's been kind of interesting. And I was talking to a good friend of mine, Charon Zavatsa, who's president of real brokerage. It's a public trade company. We were talking about this really interesting topic, which is basically the entry point of talent. And so this will be a little bit more of probably, I guess, if you're an entrepreneur, this will be a higher level conversation. But if you're the person who's considering making one of these jumps, then it'll be a conversation that'll be relevant for you just on the other side.

I had a few entrepreneurs reach out to me and basically say, hey, I'm willing to give up my current business and income in order to join you at acquisition account, which I'm super flattered by. One of the things that came up when I was talking to Sean about this was one of the difficulties of figuring out compensation. I realized in both incidents that I failed to figure out some sort of deal that would work was.

There was an element of risk that was not being taken into consideration by the former entrepreneurs or the, you know, would be, would be employees, teammates, whatever you want to call it, the talent. The issue comes down to this and he was telling me advice that he got from his uncle, who, uh, so sure. I was telling me this about his uncle, who's had like three unicorn startups that he's like co-founded. The guy's just like a savage.

And so anyways he was giving sharon advice as talent because obviously he's down in a publicly traded company so he's an entrepreneur he sold his company for a gazillion dollars and then decided to just get back in the game right. You know came up as as super high level obviously president of real and so we were talking through this and obviously did really well or is doing really well there. And what makes these deals work versus not.

What his uncle told him is never take any kind of compensation, meaning never take any kind of salary, try to have zero, zero comp. Sean can obviously, you know, do something like that and then have obviously the second part of that, of that sentence is you want to have upside, you want to have potential to participate in growth. And you want that growth to be as closely linked to the activities that you perform or that you're responsible for, right? That makes sense.

The thing is, is that the amount that you have as base or guaranteed is going to disproportionately take away from your upside. And this is what I think people don't understand. The couple of entrepreneurs that I spoke with about, you know, coming in to acquisition.com, I think they lacked this fundamental piece and I struggled to have clarity to articulate it, which is why I'm making this podcast right now. There wasn't an appreciation for risk.

All right, so let me explain what I mean. If you want more upside, you take on more risk. This seems obvious. But what happens is a lot of entrepreneurs adjust their lifestyle to their income such that they want their risk-free baseline to be equivalent to their current lifestyle needs that they're able to achieve with a 100% risk as the entrepreneur.

And this is fundamentally the problem. And so it's basically a mismatch of risk appetite for the entrepreneur who then wants to translate and come in as talent. This is a little bit more like high level recruiting stuff to be clear for everybody. So if you're like, I'm trying to find my first five customers, then this is probably not going to be the best one for you in terms of podcast just to be clear.

That being said, the issue comes down to risk. And many entrepreneurs and non-entrepreneurs, whatever, limit their ability for upside because they are unwilling to take on risk. And they are unwilling to take on risk because they have increased risk in their personal lives.

And so it's like you've increased your personal life run rate, your burn rate, what you spend every month in order to live, your lifestyle, such that you can't actually take more risks in a business context, which limits your upside. And so the thing is, is that you cannot have your cake and eat it too. It just doesn't work. No competent person is going to be able to make that deal with you.

How can I articulate this in a way that makes sense? You have to be willing to come in and say, I will work for $0. So this is minimizing the risk to the organization. That's you taking on more risk in order to have upside. Now, this sounds really flipping. Say this is me trying to stay G-rated. Obvious. But people still don't do it.

This is where entrepreneurs get stuck. And this is where I'll speak specifically to marketers. A lot of marketers get stuck here. They have a really good skill set. They're very good at marketing. They're not very good at anything else. And marketing is a very valuable skill if you're good at it. But you're going to be very limited in your life and entrepreneurial career, if that's the only thing you know how to do. And so basically you have a couple options. One is learn the other stuff, right?

The other is going to an organization decrease your lifestyle such that you can then negotiate a percentage of upside that you can directly tie to the impact that you're going to have, right? And that's fundamentally how you get super rich within organizations. There's tons of deck of millionaires, sentiment millionaires who are and billionaires who are very good at what they do.

and works within an organization. They typically have compensation in, in form of stock or shares or profit share or profits interest or options, whatever tool or, you know, vehicle or instrument they use financially in order to capture that upside. That's, you know, something for a separate podcast.

But zeroing in on this has been something that like, I think I'm sharing it with you guys right now because it took me a while to be, but I'm like, why can't I articulate why these deals don't make sense? Because basically the people would come in and say, hey, I currently make this. I need you to match that. And then I also want upside.

But I'm like, well, you're currently with 100% risk doing that. And you want to come here and have 0% risk and then only have upside on top of that, which, hey, that's your prerogative to ask for. But it's not my prerogative to grant that. The pushback typically, again, comes from what is required for them to live. And this is why, in my opinion, living on the defensive in terms of how much you choose to live versus what you save is what allows you to go really aggressive on the big bets, those big swings when those opportunities come up.

And I mean, I think Charlie Munger talks about this. Well, RIP, he's passed away now, but he talks about this a lot, which was like, you don't get that many once in a lifetime opportunities. You typically get like, call it six to eight. And I think what most most time happens is that people in those moments, they get greedy and they get afraid, which is weird because those are kind of like contradictory emotions, right? They get greedy on the upside, but they get afraid on the downside.

They want to have their cake you needed to. They want to, they want to get all the upside, but none of the risk. Hey, again, you can ask for that. I don't think it's going to serve you over the long haul. I've lived on so little.

for a very long time, especially in the beginning of my career, even disproportionately to what I made. And to put this in context, I'm pretty sure Layla and I, at the beginning of our career in our mid and late 20s, we were taking home over $10 plus million a year in income, and we lived on less than $200,000.

The reason for that was because I wanted to make sure that we were set up, obviously financially, but also so that if we needed to make a big bet, we could. I always saw personal lifestyle as basically exclusively risk. It's almost all liability. Now, again, I only talk about this within the context of business. If you're like, well, I want to live my life, then that's fine. But I also know that I was just about as happy when I was poor, right?

as I am now, now I'm a little bit, you know, I'm a little bit better off. I've got, but most of that's happened between my years and not outside of my world in terms of how much money I've spent. I bring this up because

Risk is not understood and risk on a personal level with lifestyle is what people incur and that limits the risk that they can take financially with business. And this is why like the first rule of finance is spend less than you earn. The less you spend relative to what you earn, the less your personal risk is so that you can take more risk in other places where you get outsized returns.

Think about this one. You've got this big riskometer. You've got this big bucket of risk that you can take in your life. Where do you want to take that risk? You want to take that risk where you have the highest potential for upside, right? Or at least for me, if you're optimizing for financial outcomes.

If that's the thesis that we're working off of, it would follow that you want to limit all risk that has almost no upside, aka consumption, and maximize the risk that you take in the areas where you do have the best returns, potential. And so this is where I think most people screw up.

This is a shorter pod just because it's something that I was just struggling to articulate and I feel like I can now, which is if you're talented and you were an entrepreneur and let's say you're a million dollar entrepreneur, $3 million, you're, you know, $5 million, you're an entrepreneur and you're like, man, I want to do something bigger.

You can either learn all the skills, which is fine. It'll just take time or you can go to a product that you already love. You can go to a company that you already love and then say, Hey, I think that your constraint is what I am uniquely, uniquely positioned to solve. And I am willing to forgo.

Compensation, which means you lower the risk of the company to take on more personal risk so that you can have more upside because of the risk that you choose to take on there where you maximize it. I think for me personally, I've been really willing to take on risk, like lots and lots of risk. And I think that honestly, that's why I've been disproportionately rewarded in my career is just being willing to take on tons and tons of risk.

The nature of that risk is, ideally, is what feels risky to other people but does not feel risky to me. But objectively risky things for a neutral party that for me aren't risky because I understand it well. Anyways, I wanted to share this little mini framework for those of you who are

We're going into a new negotiation, especially if you're a higher level individual contributor or you're an entrepreneur who wants to maybe sell your business or shut down kind of a service thing that you've got going on because you want to do that thing at a higher level inside of an organization. I hope this may apply to you and maybe something that finally allows you to capitalize on the upside that you think you could earn but aren't. Keeping amazing, lots of love, and I'll see you guys in the next pod.