Throwback: Avoiding Bad Partners and Finding Your Own Path | Ep 739

In this throwback episode, Alex (@AlexHormozi) shares the story of how he lost years of work and his entire nest egg to a deceitful business partner, and the lessons he took away from it. He explains the difference between bad structures and bad people, how to spot red flags before it’s too late, and why believing what people show you the first time is critical. Welcome to The Game w/Alex Hormozi, hosted by entrepreneur, founder, investor, author, public speaker, and content creator Alex Hormozi. On this podcast, you’ll hear how to get more customers, make more profit per customer, how to keep them longer, and the many failures and lessons Alex has learned and will learn on his path from $100M to $1B in net worth. Wanna scale your business? Click here. Follow Alex Hormozi’s Socials: LinkedIn | Instagram | Facebook | YouTube | Twitter | Acquisition Mentioned in this episode: Get access to the free $100M Scaling Roadmap at www.acquisition.com/roadmap

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Alex Hormozi?

  So I lost a lot of money, a lot of money, a lot of money, and a lot of brain power when I got in bed with a very bad partner. So I'm going to tell you what I did and what I did wrong. So, bad partners. Now, I had partners before and they were good partners. We had bad partnerships. This is bad partners. So I want to be really clear about the difference. All the partners I had before, at the goal, find people, nothing wrong with it. We had a bad structure. And so you have the person and you also have the structure of the relationship that both have to be aligned. And as a side note, if you are dealing with somebody that you like, but you can't agree on a structure, it means don't do it. And the hard part is a lot of people get to that point where like, well, let's just make it work or you try and concede. That will be a problem later, I promise you. And so like, if you're going to be making decisions together as co-owners of a business

• 0:45Alex Hormozi?

  and you can't agree on the structure, that's a great sign. And the thing is, is like, it's okay to not agree. The amount of deals that I've negotiated and got to the end of like, oh, we just value things differently. That's fine. You only want to get into bed with somebody who values your contribution the same way you do and you value their contribution the same way they do. Like, you have to have alignment there. If you don't, you're going to be at the offset misaligned and it's just going to be trouble. Now, this is bad partners, alright? So, bad partners, I'll define as people who have nefarious intentions who actually want to hurt you. There's a difference there between somebody who wants to win and it's just about how much of the pie they want to get, which is completely self-serving and fine. Like, there's nothing wrong with that. It's America, it's capitalism, everybody wants to have more of the pie. Bad partners want to take your pie and do so in a way that's deceitful. So, some of yous have heard my story.

• 1:30Alex Hormozi?

  This was actually the last partner that I took on. So this was punishing enough that it was traumatizing. It permanently changed my behavior, alright? And so, I had just sold, so I had six locations at this time with my gyms. I had bought out some of my past partners, which cost me a lot of money. Cost me more money than it cost me to sell to have them buy in. Alright, so I had to pay that money to those guys over time so I could buy them out. And so I had six locations. Now, I shut down one because it was too new and I decided to switch gears because I wanted to start the licensing business. And then I sold five. Now, for a separate story, I sold each of the five different people. I sold to employees, I sold to customers, I sold to a competitor. And so I sold all these different locations to different people. And I did cash deals, seller finance deals, I did debt deals. So I actually got a ton of M&A experience really early on

• 2:14Alex Hormozi?

  from selling to different types of buyers and doing different types of deal structures, which will be a conversation at another time. But now, I had a big pile of money. Big being relative, I had some money that I got from the years of me growing the gyms. And so at this point, this is now like, basically my egg, what I have to show for it. For all this work and all the sacrifice they've done at this point, I've got this egg. Now, I was doing gym launches at the time. So this is why I made the transition. I started flying out to gyms, I started making money. And I could do like a hundred thousand dollars in sales in about three weeks. And I would keep that cash for myself because I had almost no cost besides my airfare, my hotel, and the ad spend, which usually for me was like one to three grand. So not a lot. Mind you, remember that like big crazy return on capital? Like I'd spend two grand and I make a hundred. Good returns. Now, I had this little system and it worked.

• 2:59Alex Hormozi?

  I didn't have any employees. It was a great life. I'd just fly out, make a hundred grand, fly somewhere else. And I didn't have to worry about any fulfillment. I just sell all day long. I would make calls and I'd sell. That was it. That was my entire life. 12 hours a day, nine to nine, I'd sell. And one gym owner was like, hey, you're leaving so much money on the table. Red flag number one. You always leave money on the table because you can't pursue every opportunity. So it's the definition of entrepreneurship that you have to say no, which means there's always money you could make, but you choose to leave small amounts of money on the table so that you can have the one pile of money that is on the table that you're choosing to play at get bigger. All right? Big lesson that took me way too fucking long to learn. So he's like, hey, man, you're leaving all this money on the table.

• 3:42Alex Hormozi?

  And me being the greedy new entrepreneur that I was, I was like, well, shoot, I should get that money too, right? He's like, you're opening these gyms and you're filling them up to full capacity. He's like, you should own them. Like you shouldn't just be flying out and filling them up. Now, meanwhile, side note, average gym owner makes thirty six thousand dollars a year for a full year of work, working 80 hours a week. I was making a hundred grand in 21 days and walking away. Way better business. But me being a moron, I was like, sure, this is what a moron would do. So I should do it. And so. He says, how about this? I used to run this gym that we were doing $4.2 million a year out of. I know how to run a gym. I don't know the marketing and sales stuff. You go to the marketing and sales, I'll come behind you and I'll run the gym after you. So he's like, every month you open a gym, you fill it up, I'll come behind you, I'll staff it.

• 4:28Alex Hormozi?

  He's like, every month you can open a new gym. And I was like, man, that means at the end of the year, I'll have 12 gyms. That means that my ego will go up and I can tell people I have 12 gyms. And so I said, sure, deal. So I launched this gym, crushed that. And so he's like, hey, so now let's do this next gym. And I got this perfect place picked out. It's super nice, whatever. So he said, okay, as we're about to sign the lease, he says, small detail. You know, I had a little bit of a bad credit situation, big misunderstanding, but you're going to have to personally guarantee the lease. And I was like, sure, makes sense. We're partners. I'll personally guarantee it. He's like, also, I mean, you just made all this money on my gym. You should front the cost for the new location. And I said, of course, how could I expect to do that? He's like, also, you should run the whole thing and then I'll come after you.

• 5:11Alex Hormozi?

  I was like, okay, so I'll take the risk, do all the money and do all the work and then you'll have half. And he was like, yeah. I was like, oh, steal. What a great partner. And so that's what I did. And so I crushed this launch, did 370 sales in like six weeks, like new members. But mind you, the way that I was launching this gym, I put all the cash into the account. And like all this cash, my big Easter egg, because I didn't understand how money worked. So I was just like, because I lived out of my business account, which many small business owners do. It was like, it's my money, whatever. And we were partners and I had never had a partner steal from me before. And so I just had no idea that you shouldn't trust people. And so I put all the money into the new bank account for the new NC, because I was going all in on this new idea. And start selling and more and more cash comes in.

• 5:56Alex Hormozi?

  And then I wake up one morning, because I would always check the bank account every morning, because it was a habit. And all of a sudden, it was at zero or close to zero. And I panicked. I thought there was like a fraud issue. I didn't even know what happened. So I called him up and I was like, dude, bank account's empty. He was like, oh yeah. And I looked at where the withdrawal, it was actually just one withdrawal and it was to him. And I was like, huh, what? And he was like, oh yeah, I was just taking my half. And I was like, of what? He was like, of the money. He's like, I know you're taking your half off the top. He's like, I'm just taking my half. He's like, I did the math. He's like, this is how much my half should be. And I was like, first off, you're accusing me of stealing. Second off, what?

• 6:40Alex Hormozi?

  And so I was so distraught by this, I had a coach at the time. And I was like, dude, what should I do? And he was like, confront the facts. Honestly, a wonderful coach at the time. He said, print out the financials, go line by line and show them where all the costs were. And I was like, okay. So I printed all the, all the expenses. Took me like three hours. Itemized everything. And I was like, let's go have lunch and like, let's go over this. And so I was gonna meet up with him, very tense. And I sit the papers down. I was like, let's, I was like, I want to go over this. Like, like that profit wasn't yours. Like, that's not yours to take. And I put the papers down and he pushed them off the table. He's, I don't need to see that shit. And I was like, oh, I just got robbed. And so at that point, I was like, well, shit.

• 7:22Alex Hormozi?

  And so then he ended up sending the money to his girlfriend in Sweden and filing bankruptcy so I can sell. Now, here's the little wrinkle in the story. So remember when I said, like, he said, oh, there's this big misunderstanding early on with the whole lease thing? He had been indicted for fraud before that. I knew about it. And he was like, a big misunderstanding. And I was like, of course, we've all had misunderstandings. And honestly, it was because I had a desire, because like, I have my own demons of like, I fucked up in the past too. And I'm trying to, you know, do good now. And so I want to always give people that benefit of the doubt. And I'm going to say something that probably won't be popular. I don't do that much anymore. And it's because there's just plenty of people I can partner with that I don't have to deal with that for.

• 8:05Alex Hormozi?

  And there's somebody else who will get robbed by that guy who's been indicted and who will give him that chance and it'll work out. I'm just not willing to take that chance anymore because I don't need to. And so. Here's my little TLDR lesson on this. If someone shows you who they are, believe them the first time. How many red flags did I tell you? Like, I have to sign the thing, I have to front the work, I have to front the capital. Oh, by the way, when he was supposed to come and take over the gym, he was like, oh, no, you keep having it. I was like, wait, what? This wasn't the deal. I'm gonna launch one of these every month. And he's like, no, no, I'm busy over here. And I was like, no, I'm not running a gym again. I just sold all my gyms. Like, I'm not doing this again. And that's the one that I shut down? That's the one I shut down. And so, yeah. Red flags are red flags for a reason. Stop.

• 8:51Alex Hormozi?

  Avoid bad partners. And with that one, I lost. I'm not even gonna tell you the amount of money that I lost, because I will tell you what's more important, is that I lost all my money. And what felt like years of work. And so, from a loss perspective, it was the amount of money was one of the smaller ones in terms of total dollar amount that I lost. But in terms of emotional significance of everything that I had built. Because remember, I'd spent all these years not making money. I had finally scaled the locations. I had something that was working. I got this nest egg from a sale. I had to hustle my ass off to sell all these five locations. Like, getting five deals done is not easy. I got five deals done, and I did it in like 90 days or 120 days to close these deals. I finally had something to show for it. So I actually felt like a little bit of a success story to myself.

• 9:33Alex Hormozi?

  Like, you think about the story you tell yourself, like, I went from a multi-location gym owner to successfully exiting my gyms to losing everything that I had spent years building in six months. A wild ride. I recommend watching someone else ride and not needing to ride for yourself. So, use that lesson so you don't have to have the scar. All right, so if you don't know what the push and pivot dichotomy is for most entrepreneurs and most people in general, is that there are some times where shit gets hard and you need to push through it. And there are other times where your fundamental assumptions were wrong and you need to pivot. You need to change directions, because the thing that you originally thought was true is no longer, or you found out that it isn't. And so, the hard part is, sometimes when you're in the thick of it, you're not sure if this is a push or this is a pivot. It's one of the hardest decisions in entrepreneurship.

• 10:16Alex Hormozi?

  And there's a lot of crazy stories of people who, you know, were digging for gold for four years and then quit, and the next guy buys the piece of land and two weeks later strikes gold and gets rich, right? That guy should have Pushed. On the flip side, there's the people who spend nine years on a losing idea and then just lose everything. And that's it. That's the end of the story, right? And they should have pivoted. And so there are dead bodies on either side of this road and it's hard because you've just got to use judgment to be able to make the best guess you can. And the thing is, you can never replay the game. All right, you just do the best you can. All right. Now, for me, I was an employee. So I graduated three years from Vanderbilt and I got a job at a management consulting firm that did space cyber, at least the projects I worked on, the space cyber intelligence for the military. So it's a BT firm, defense contracting, that's what I worked on. Sounded fancy. That's why I took

• 10:56Alex Hormozi?

  it. Now, when I was there, I had the desire to learn. And what was interesting is that I did learn a lot quickly in the beginning. But after that period of time, which maybe took six to nine months, I didn't feel like I had more to learn. And so I had two options and I took neither of them. And I think that was the real mistake. And so I could have gone up to my spirits and been like, hey, I'd like to be challenged more. I'd like to develop in these ways. Can you give me these things so that I can get better and learn these skills? Because that's what I'm here for. On the other hand, if I didn't want to do that, I could have had the balls to fucking quit because I had some money saved up and could have decided to go on my entrepreneurial career. Now, if I had gone on my entrepreneurial career, whatever I made this year, I would have made last year,

• 11:42Alex Hormozi?

  right? And so a lot of money is the cost of this mistake if we just took it on a one-year basis or one and a half year basis. So it'd be more than that suitcase worth. So a lot, right? But on the flip side, maybe if I had gone up a level and asked for more skills, maybe I'd be here also faster. But the real mistake was that I didn't push and I didn't pivot. I did nothing. I coasted. I just checked in. And it got to the point, actually, like, I actually only think I've ever talked about this, where at the end of my stay there, my boss is pretty much like, I don't kind of want you here. Because like, you don't really do anything. And so I think this might resonate for some of you, which is that like, I was actually, in that job, a fairly bad employee.

• 12:23Alex Hormozi?

  Now, you can look at work environment, you can look at people you work with, whatever. I was a bad employee. And I would actually agree with them. Because I didn't get challenged in that last period. And so I just read books all day. I just like, they had a big library of books and so I just read all day long. I would just sit at my desk, I'd grab a book and I would read. I'd read business strategy stuff and I'd read whatever because that was my attempt. Now, I could have learned so many more valuable, like, learning from a book is one thing and it's valuable. It's way more valuable to have somebody in real time giving you feedback on a skill. That's why jobs, I'm such a proponent of, like, if you don't know what to do, go work at a job in a business you want to learn from, in a small business, ten or so employees, so you can learn and taste all the different departments, you can learn how business works, and then you can go do something else and you can learn different skills that you can apply later.

• 13:07Alex Hormozi?

  And you get paid to learn, where otherwise you don't get paid to learn. But otherwise, I was basically just learning on their dollar. And I left because they kind of wanted me to leave too. And so, I was kind of forced to go. And so, at that point, it was either go to business school or start something else. And so, that's why I decided to start something else. But a lot of people don't know that story. I was actually, it's weird because I was an exceptional employee at every place I worked before that. But that place, I was honestly a horrible employee. And so, I will say this. If you are somewhere where you know deep down you are not living up to your potential and you are cutting corners and you're looking at the clock and you're trying to just like count minutes and you're like, holy shit, it's only been an hour, I have seven more hours of this shit. Like, if you were living like that, leave. I promise you, whatever the alternative is, is better. It's kind of like people get stuck in a relationship and they're like, well, I don't want to be alone.

• 13:52Alex Hormozi?

  But they don't play out the alternative of like, so rather than be alone, you'd rather be miserable in a relationship for the rest of your life? That's what you think is better than alone? And another word for alone is on your own, which sounds way better? So like, just reframing that. And so, for me, I was so afraid of being unemployed, same idea. Also, I was pursuing entrepreneurship. I wanted to do my own thing. And so, you could be unemployed or doing your own thing, which is what I ended up doing. And so, I think if you're in that spot, it was one of the most costly mistakes I made, also because of what I started feeling about me. You know what I mean? Because I was like, am I a slacker? Like, I am slacking, I'm not working hard, I know that. And they do that too. And so, they start treating you like you don't work hard and then you start believing them. And so, part of this is why I was so miserable during that period of time,

• 14:37Alex Hormozi?

  because I wasn't being me, like, I work all the time. And so, if you're in that zone, it is one of the biggest mistakes of your career. Do something, just don't do this. Push, pivot, push being, go up, let me learn more, give me a challenge. Pivot being, I'm going to change career paths. I did nothing until it was forced upon me. And so I told the story before, I think that there's a very high possibility that I would have stayed an employee if I had liked that job a little bit. Very likely, I would have stayed an employee. I only got in this game because I kind of was forced to. And some of you are in that position right now. So I feel you and there's nothing wrong with you. And if you were a good student, so was I. So like, you don't have to be like ADD and dyslexic and like all these entrepreneur stories of like, "School failed me. School didn't fail

• 15:20Alex Hormozi?

  me. I fucking did homework and I did a good job." So like, I just see that as anyone can win if you try hard.

• 15:27Alex Hormozi?

  Real quick, guys, I have a special, special gift for you for being loyal listeners of the podcast. Leila and I spent probably an entire quarter putting together our scaling roadmap. It's breaking scaling into 10 stages and across all eight functions of the business. So you've got marketing, you've got sales, you've got product, you've got customer success, you've got IT, you've got recruiting, HR, you've got finance. And we show the problems that emerge at every level of scale and how to graduate to the next level. It's all free and you can get it personalized to you. So it's about 30-ish pages for each of the stages. Once you answer the questions, it will tell you exactly where you're at and what you need to do to grow. It's about 14 hours of stuff, but it's narrowed down so that you only have

• 16:10Alex Hormozi?

  to watch the part that's relevant to you, which will probably be about 90 minutes. And so if that's at all interesting, you can go to acquisition.com/roadmap. R-O-A-D-M-A-P. Roadmap.