Power of Relational Capital: How to Unlock Hidden Profits with Jay Abraham

Jay Abraham [00:00:00]

When I was about your age, I was in the seminar business, and we did $250,000,000, which again, is a quarter billion dollars, and I did 98% through relational capital.

Yong-Soo Chung [00:00:14]

That's Jay Abraham. 

Yeah, THE Jay Abraham, the world’s highest-paid marketing consultant. He has worked with some of the world’s most iconic brands and large public figures including Tony Robbins.

Jay graciously agreed to come on this show to teach me the secret of using relational capital to blow up profits in my business for little to no money

Jay Abraham [00:00:36]

I've always had a belief if somebody is trying to make a meaningful difference in their industry and their market with their product service company, they deserve to reach as many people as they can and be as successful, not even for them, but because they are superior in what they do. And that's been the whole drive of my whole career.

Yong-Soo Chung [00:00:55]

But, you know, this interview with Jay Abraham? It almost DIDN’T happen…

YS: Hey, Jay. I think we might have to refresh Jay's browser here.

Because the device he was using for our recording just died.

Jay Abraham [00:01:08]

I wasn't paying attention and the power cord came off the computer and I didn't even notice it.

Yong-Soo Chung [00:01:15]

But, this was JAY ABRAHAM I told myself!

I wasn't gonna let a failed device stop me! So, my producer and I did everything we could to wrangle a copy of the backup recording from Riverside - shout out to them, by the way - their prompt support was amazing! 

My totally amazing producer then cleaned up the audio, patched the whole thing, and voila - here we are!

Jay Abraham [00:01:35]

Hi, this is Jay Abraham. I grow businesses for a living. I've been privileged to do it around the world in over a thousand industries, not just businesses. And I've learned a lot of lessons and I've pioneered a lot of strategies. And today on First Class Founders, I'm going to share with you what I hope will be the most key drivers of great profit increases, sales growth, and preemptive success. And I'll tell you a lot of stories that I learned in my journey and I hope they will help you.

Yong-Soo Chung [00:02:09]

Yeah, the audio might be a bit wonky, but - guys - Jay Abraham is my COPILOT on today's episode of First Class Founders!

Jay Abraham [00:02:16]

Thank you so much. Uh, what a pleasure to, uh, contribute. So I'm here to serve.

Yong-Soo Chung [00:02:22]

And, in the next thirty minutes or so, you will hear Jay share a TON of incredible stories and examples. And through these stories and examples, you will learn HOW to blow up your business profits PURELY by leveraging relationships and strategic partnerships.

Jay Abraham [00:02:36]

I'm, uh, a great, great champion and a fan of quality entrepreneurs who are committed to make a difference, to create value for others and to be better and add than all the other people they compete against in far as what they do, how they do, who they do it for. So this is part of my mission. I'm on a crusade and you gave me, uh, uh, a mechanism to reach more people and share my perspectives. Thank you.

Yong-Soo Chung [00:03:03]

You ready, jet-setters? Then, buckle up your seatbelts and put your phones on airplane mode!

Yong-Soo Chung [00:02:36]

The next generation of successful founders in this digital age of entrepreneurship will leverage their audience to launch, build, and scale their brands. First Class Founders explores this golden intersection of audience-building & company-building with proven strategies to grow both your audience, which is your distribution, and your brand, which is your product.

Because those who can master both will create a category of one.

Hi, my name is Yong-Soo Chung and I'm a serial entrepreneur who bootstrapped 3 successful businesses from $0 to $20 million over 8 years.

On this podcast, you'll learn timeless lessons from world-class content creators, startup founders, and CEOs. You'll also hear tactical tips & strategies from ME, Yong-Soo Chung!

Are you ready? Then, let’s begin!

As always, a quick reminder here that we teamed up with HyperPods to bring to you a quick 3-min hyper-visual summary of this episode with Jay Abraham on how you can use relational capital to blow up your profits.

This hyper-visual summary is completely free at firstclassfounders.com/hypervisuals. Look for the link in the show notes!

Yong-Soo Chung [00:04:41]

I recently read the book Jay co-authored with Roland Fraser, "Business Wealth Without Risk" and I LOVED it so much! So I reached out to Jay and asked if he'd be willing to come on the show. And he graciously agreed!!

So, today Jay and I are gonna talk about the power of Relational Capital, which, in Jay's words, is the secret to BLOWING up your profit!

Jay Abraham [00:05:00]

That's what I do. Roland, the coauthor, is masterful at finding funding, acquiring businesses, and exiting. But there's a middle point, which is how do you blow it up? And this is where I come into this book. I know how to blow up profit.

Yong-Soo Chung [00:05:17]

Man, if I had the opportunity, I would spend my entire lifetime with Jay and learn everything he had to teach!

But I only had an hour, so I launched right into it.

YS: So today I wanna start off with something that has really impressed me about you a lot is this concept of relational capital.
YS: And I just want to dive into like, you know, what is relational capital and how does one, you know, kind of take advantage of it.

And, here's the thing you need to know about Jay - he loves telling anecdotes. Just LOVES them.

But, these anecdotes, they are actually lessons. They encapsulate important knowledge but are presented in the easy-to-learn wrapper of a delightful anecdote. Like this one about the Rothschilds, for example.

Jay Abraham [00:06:02]

He said, somebody once wanted to borrow 100,000 pounds from one of the Rothschilds, and he declined. He said, I will not loan you a penny. However, I'll do something infinitely more valuable. I will walk back and forth twice with my arm around you, your shoulder across the stock exchange, and when we've completed the second round, everybody will loan you all the money you want.

Yong-Soo Chung [00:06:30]

Because, by throwing his arm around the guy and walking up and down across the stock exchange, this member of the super-influential Rothschild family had created relational capital for the guy who had approached him.

Jay Abraham [00:06:43]

because of the implicit endorsement that the Rothschild was giving that man, everybody thought, okay, he's golden. And trust was immediate, and buy in was immediate, and commit was already, um, predisposed.

Yong-Soo Chung [00:06:59]

In other words...

Jay Abraham [00:07:00]

When somebody has a hard-won credibility or trust with a target audience that you also want to reach, rather than going to the outside market and speculating money on advertising, if you can first find out who already has the relationship with that audience, who's already gone through all the credibility building. You can get the benefit of all of that accrued to you instantaneously for nothing and only pay for results.

Yong-Soo Chung [00:07:32]

Yeah, instead of investing financial capital to achieve a reputation among consumers in the market, you can simply leverage your relationship with an entity who has, to put it in simple terms, "been there, done that."

And Jay has tons of examples of this from his own experiences. For example, take the case of Carnival Cruise, who only had a half-painted ship when they started and even that ship would go out half-empty!

Jay Abraham [00:07:57]

400 unsold rooms, on average, every week. My friend got there, and he was in charge of marketing, and he did the calculations, and what it meant was every week, $400,000 worth of value literally was going down the drain.

Yong-Soo Chung [00:08:13]

So, this friend, he leveraged relational capital with the local media channels and traded unsold advertising for... cruise credits!

Jay Abraham [00:08:21]

But there was a problem if they traded and that cruise credit got used right away, it was a neutral effect. They aren't bringing any money in. So my friends said, let's give them almost unlimited time to use their credit, which means they won't use it right now, but let's use ours right now to get cash.

Yong-Soo Chung [00:08:39]

This little caveat gave them three advantages.

Jay Abraham [00:08:42]

One, they were able to use their rooms for cash payers. Number two, when the people that got the trade credit finally used it, it's called the time value of money. Uh, $1,000 today is going to be worth a lot less than $1,000 in five years. So they reduce what's going to cost them. Third, because they wanted to make sure they didn't lose money. Anytime anyone who got the trade redeemed it and used it for cruise credit, they would charge them $100 surcharge, which literally covered all the housekeeper and the buffets. Plus, they made all the money on the gambling and all the excursions. Plus, even though the barter part was used in trade, every time the average person would use it, they would bring a paying couple or their children and buy another room. And that's really what generated the cash flow for carnival.

Yong-Soo Chung [00:09:36]

Incredible, isn't it?

NO money was exchanged in this deal. It was all barter. Carnival offered cruise credit. The local channels offered unsold inventory and still, BOTH of them were able to generate AMPLE monetary value out of the deal at their respective ends!

Here's another example of a product called "Icy Hot" - a topical, over-the-counter pain reliever that sold for $3.

Jay Abraham [00:09:58]

I got into it 35, 40 years ago when it was a mail order product. It wasn't in stores, and we had no money. This is another side of relational capital. It gives you an unlimited business checkbook.

Yong-Soo Chung [00:10:13]

I'll explain the bit about "an unlimited business checkbook in a bit" but, let's look at Icy Hot's incredible story first. Did you know Icy Hot ended up being sold to a pharmaceutical company for $60 million dollars?

Here's what happened.

Jay Abraham [00:10:27]

we went to all the radio stations, television stations, publications, and offered to let them sell the product when they had unsold advertising, which they almost all did. And what we did in exchange was let them keep all the money, and we actually paid them extra. Beyond keeping all the money, we paid them $3.50 every time they sold a $3 jar.

Yong-Soo Chung [00:10:50]

Wait, what? They were letting the station SELL the product AND paying them on top of the retail price? How does THAT make any sense?

Jay Abraham [00:10:59]

It turns out that every time ten new buyers bought their 1st $3 jar or bottle of icy hot, eight of them would repurchase each and every month, literally forever, until they died. But that wasn't, uh, the big aha. Of the eight that would buy something every month, almost half four would buy at least one other product in the line. And that wasn't the big aha huh. Of the four, almost half again would buy bulk, a big supply twice a year for themselves to stock up, to give away. And the bottom line, which was really fascinating, was that every time we got ten new buyers, even though two never bought a second time, each one of those buyers, including the two that didn't buy, were worth to us $50 in profit a year.

Yong-Soo Chung [00:11:53]

Did you catch that? The first jar cost them $3.50 but the customer that it brought in was worth $50 of profit, PER YEAR FOR THE REST OF THEIR LIFE!

Jay Abraham [00:12:04]

In two years, we sold it for $60 million to a pharmaceutical company from a standing start.

Yong-Soo Chung [00:12:11]

Here’s a fun fact. I was a baseball pitcher growing up and used Icy Hot all the time after ballgames. Little did I know that 20 years later, I would be interviewing the guy whose genius strategy blew up Icy Hot in the first place.

Now, I know what you are thinking.

But, Yong-Soo, these are just anecdotes! Where are the facts? I want to see real data. Okay, listen to this:

Jay Abraham [00:12:33]

Partners exceed paid search as a growth channel. 82% of the B2B leaders plan on adding partnerships to their business. In the tech industry. 75% of ceos rate partnerships as the most mission-critical addition they're trying to get for their business. Microsoft gets something like uh, 90% of one of their billion dollar divisions just from partners.

Yong-Soo Chung [00:12:57]

There are ONE HUNDRED AND TWELVE such data-points that can attest to the validity of relational capital as a powerful growth-lever for your business. I'll link to a document Jay shared with me with all these data-points and you can check it yourself.

Now, coming back to the Unlimited Business Checkbook, this concept is very similar to Daren Smith's theory of abundance.

    "Someone somewhere woke up with an abundance of resources."

Jay explains that leveraging relational capital gives you an unlimited business checkbook.

Jay Abraham [00:13:31]

And our whole premise was, you don't have any kind of resource impairment. Whatever you think you don't have, somebody else has it either in talent, in assets, in skill and expertise, in audience, in salespeople, um, in technology. All you have to do is find the right way to make it worth their while, to make that available to you on a speculative basis where you don't write a check, you just pay them, either for sales or results or savings.

Yong-Soo Chung [00:14:03]

And Jay knows exactly WHERE to find these resources and HOW to leverage them for your own business, without having to spend a single penny of your own. Because once you successfully leverage relational capital...

Jay Abraham [00:14:15]

..you can run rings around everyone else because they've got limited resources and they're running ads in the open market, which is the outer periphery of trust. You're using everybody else's, uh, relationships with their audience, their distribution channels, their databases, their brand association, their sales forces, their retailers, their distributors, their assets. And you can get access to millions, tens of millions, hundreds of millions of dollars for no investment or risk.

Yong-Soo Chung [00:14:46]

I'm guessing that, right now, you are probably wondering WHERE to start looking for relational capital for YOUR business? Because, that's what I was thinking at this point in my conversation with Jay.

All of the examples that he pointed out either featured pretty big businesses or businesses with a huge customer.

So I asked him, "Where do I start looking for these partnerships?"

Jay Abraham [00:15:06]

you start wherever you are.

Yong-Soo Chung [00:15:08]

That's pretty straightforward, right? But there's more. Lots more. And I'll reveal all of it in a little bit. But first, I want to take a moment here and share a quick message.

Growing a podcast show is notoriously difficult. I put my blood, sweat, and tears into each episode every single week. If you’re enjoying this episode right now, please share it with just one friend. That’s it.

I know this might not seem like a lot but if each of you shared it with one friend, we’d double the number of listeners! Crazy, I know.

Sharing this episode with a friend allows me to keep doing what I’m doing, which is… sharing tactical, insightful lessons from yours truly and from other amazing founders & creators, which will help you grow your own business exponentially.

So if you’ve gotten ANY value out of this episode so far, please, share it with your friends, family, or business colleagues who might also enjoy this episode. It would truly mean the world to me!

Thank you so much for being a loyal listener and spreading the love!

Yong-Soo Chung [00:16:25]

Alright, let's get back to discussing how you can use relational capital to blow up your profits with Jay Abraham.

Before the break, Jay gave several examples of how you can leverage relational capital to grow your business rapidly. And the obvious next question was: "Where do I look to start building my relationships?"

Jay Abraham [00:16:48]

you start wherever you are. If you're small, you're not going to get a major player to work with you. So you start localized.

Yong-Soo Chung [00:16:56]

To explain how this could be done, Jay shared the example of a restaurant-chain out of the midwest...

Jay Abraham [00:17:02]

But they wanted to grow with big cities. And they opened one restaurant in one part of Boston, Massachusetts. And they had a marketing budget.

Yong-Soo Chung [00:17:11]

The marketing budget was $500,000.

Jay Abraham [00:17:14]

which sounds like a lot, but it isn't in Boston. It would have been pissed away very quickly.

Yong-Soo Chung [00:17:20]

So, instead they decided to focus on growing locally.

Jay Abraham [00:17:23]

We hired two very good looking one man, one woman. We made them assistant managers. They went all over the quadrant, went to every influencer.

Yong-Soo Chung [00:17:33]

By influencer, Jay means people who influence opinion in the local community. You know, people like...

Jay Abraham [00:17:40]

the banker, it might be the big kahuna, but it could easily be the nail salon, the, uh, hair salon.

Yong-Soo Chung [00:17:49]

Jay took a portion of the marketing budget and spent it treating these quote-unquote 'influencers' to dinner at the restaurant.

Jay Abraham [00:17:55]

...with the pre, um, frame that if this is wonderful, would you tell as many people in your business and that ended up creating a $5 million business, and we only spent 100,000 on the two people instead of the 500,000 we would have wasted because we used the value of the relationships those local people have.

Yong-Soo Chung [00:18:17]

So, yeah, start local.

Jay Abraham [00:18:19]

doesn't matter where you are. There's always going to be somebody of, uh, a similar size and scope that has what you want. And what you want might be access to a market that you already know.

Yong-Soo Chung [00:18:32]

According to Jay, one of the easiest ways to look for partners to build relational capital is to look at people's buying habits.

Jay Abraham [00:18:40]

..what else do people buy before, during, after, even instead.

Yong-Soo Chung [00:18:46]

BEFORE. AFTER. DURING. INSTEAD.

That is, what do people buy BEFORE they buy your product? What do they buy AFTER? Do they buy anything DURING or ALONGSIDE your product? And finally, what do people buy INSTEAD of your product?

Jay Abraham [00:19:04]

Why instead? The, uh, example would be, if I was selling a supplement for weight loss. Two things happen, people who buy subscription-based products usually stay about four months. Then they leave.

Yong-Soo Chung [00:19:18]

And when they leave is when the 'instead' part of before-after-during-instead comes into play.

Jay Abraham [00:19:24]

When they give up, they go to something else and something else and something else. Maybe it's portion control food, like a Jenny Craig or Weight watcher. Maybe it's equipment, maybe it's a gym, maybe it's a personal trainer, maybe it's a digital trainer. But you go to all those kind of people and they have the same audience you want.

Yong-Soo Chung [00:19:42]

Yup. The "instead" customer is unlikely to return to the business they left behind. So, if you can convince the business to refer them to you, you now have a new customer!

Jay Abraham [00:19:52]

And if they lend their names, the buyer names, prospect names, even people that didn't buy to you and endorse you, you can make a relative huge amount of profit.

Yong-Soo Chung [00:20:05]

The best part is since both of you are "instead" businesses for each other, there isn't any need for money to be involved in this transaction! As an example, Jay shared another anecdote about a really strange partnership between a local trust & estate lawyer...

Jay Abraham [00:20:20]

These people work with people in their sixties and seventies, figuring out what they need to do to protect when they die for their loved ones.

Yong-Soo Chung [00:20:30]

...and an ophthalmologic surgeon!

Jay Abraham [00:20:31]

...somebody that does cataracts and Lasik exchange endorsements.

Yong-Soo Chung [00:20:34]

What a brilliant partnership!

Both cater to the exact same group of customers and neither of them is an "instead" for the other.

Jay Abraham [00:20:41]

No money changed hands. The doctor endorsed the trust attorney to all his patients. The trust attorney recommended this doctor to all of his patients that needed or wanted LasiK or cataract. And they both made an extra couple of hundred thousand dollars. And they're local.

Yong-Soo Chung [00:21:00]

So yeah, you can absolutely build and leverage relational capital to blow up your profits!

Of course, at some point you will have probably exhausted all the local relational capital. You will feel like the market is saturated and there are no more avenues left to explore.

Jay Abraham [00:21:15]

I used to do seminars all around the world. I used to do them in Asia, everywhere, in Europe, everywhere. When I started doing China, one man about your age came to the mic, and through translation, he said, jay, what do I do if the bank won't lend me money to grow my business? And I said, well, tell me a lot more. And he did. He said, I am a small, local motorcycle manufacturer.

Yong-Soo Chung [00:21:40]

A small 'local' motorcycle manufacturer in China would still probably be serving a market of a hundred million people, just saying.

Anyway...

Jay Abraham [00:21:48]

And he said, if I could get the money, I'd go all over Asia. I'd find a location, an open manufacturing. I'd put offices in every country. I'd hire salespeople, I'd recruit dealers, and I'd be selling my motorcycles everywhere. And I said, ok, well, what's the problem? And he got really frustrated and thought I was being disrespectful. And he said, I told you the bank won't lend me money to grow.

Yong-Soo Chung [00:22:11]

What Jay was trying to tell the man was that the man already had his solution figured out. And all he needed to do was find someone who had a problem that this solution would be applicable to...

Jay Abraham [00:22:21]

You have to realize, and this is a very important point, your problem or your opportunity is always going to be the solution to somebody else's bigger problem or opportunity. All you have to figure out is who they are, where they are, and make sure that you make that point.

Yong-Soo Chung [00:22:39]

So, Jay advised him to take a field trip all over Asia looking for a large company that is complementary, but NOT competitive.

Jay Abraham [00:22:47]

They're in a related but not a competitive field that has a large manufacturing facility that's not being fully used, that already has offices in countries, that already has salespeople and dealers and partner with them.

Yong-Soo Chung [00:22:59]

And, sure enough, 15 months later...

Jay Abraham [00:23:01]

This young man is there again. This time, he's not complaining. He said, I went all over Asia. When I got to KL Kuala Lumpur in Malaysia. There I found Asia's largest lawn mower manufacturer. He said, they had a massive, massive factory. They had offices in ten countries. They were underutilizing their second shift in the factory. They had thousands of dealers. And we made a deal where all I, the young man, had to do was bring what's called the tools and the dies. The guy had huge factory, lots of equipment, lots of people. All he had to do was train the people on how to make the parts and assemble them into motorcycle. He had to train the salespeople on how to recruit in all the countries and recruit the dealers, and he had to train the dealers on how to display and sell his motorcycles. He said within the first 15 months, Jay, we both made $20 million of profit.

Yong-Soo Chung [00:24:03]

But, here's what you may not have actually realized yet. It was actually a simple question from Jay that unlocked the way forward for the Chinese motorcycle manufacturer. Wouldn't it be awesome if you could have Jay pose similar questions to YOU to help you unlock the way forward in YOUR business?

What if I told you there was a way to do exactly that?

Because, Jay has actually condensed all the steps into a neat little 'game-planning' document. The document basically contains tons of questions, such as:

Jay Abraham [00:24:32]

What are the resources you need? What are the resources other people have? What does it take to get them to make those resources available to you? What kind of consideration compensation, exchange do you have to get them?

Yong-Soo Chung [00:24:44]

If you want a link to this document,
- just send me a DM @ YongSooChung on X or LinkedIn.

...and I'll share a link to the document with you. Believe me, this is an amazing document and it will help you spot some really amazing relational capital opportunities for your business!

And that brings us to the PENULTIMATE question: "Once you have found a suitable partner to leverage relational capital, what kind of a deal do you strike with them?"

Jay Abraham [00:25:13]

So you make the deal that works best for both sides.

Yong-Soo Chung [00:25:17]

Of course, you know by now that there's a LOT more to it than this simple proclamation.

And you would be right. Because Jay went into EXTENSIVE detail on the different kinds of deals you could structure with potential partners, with some bombshell ideas such as...

Jay Abraham [00:25:30]

I might give you almost all of the first year's worth of revenue

Yong-Soo Chung [00:25:35]

..and some head-scratchers, such as:

Jay Abraham [00:25:38]

You can give somebody an ownership in a buyer group, but not your business.

Yong-Soo Chung [00:25:44]

There are about EIGHT different types of deals I counted and I'll share them with you in a short while but first, while I have your undivided attention, I wanna give a shoutout to my adorable sponsor Humphrey!

Hey! Where can I buy that? So what did my wife and I do? We decided to launch a dog boutique named after him called Spotted By Humphrey.

Spotted by Humphrey is a destination for all your furbabies needs. Treats, Leashes, dog toys, and even an award winning dog poop bag holder called Poopsie Daisy, which my wife designed all on her own. 

Oh. So Check out Humphrey's shop at spottedbyhumphrey.com and use code FIRSTCLASS15 for 15% off your next order. That's spottedbyhumphrey.com. I'll leave a link in the show notes.

Okay, let's get back to our episode with Jay Abraham on leveraging relational capital to BLOW UP profits for your business.

Just before we went into the break, we asked the question, "What kind of a deal can you strike with a potential partner to leverage relational capital."

And Jay answered...

Jay Abraham [00:27:52]

So you make the deal that works best for both sides.

Yong-Soo Chung [00:27:28]

If you notice, in all the anecdotes and examples that Jay shared so far, BOTH parties benefited. The hotel-chain from the midwest got to grow their business and the local influencers got a free meal and probably some clout out of it. The trust & estate lawyer and the ophthalmologic surgeon both got clients from each other. The Chinese motorcycle manufacturer and the lawnmower manufacturer both grew their respective businesses by $20 million.

Because the fundamental principle in any partnership forged through the leverage of relational capital is the same. Each party in the relationship forms a mutually beneficial agreement with the other party.

Or, in Jay's words...

Jay Abraham [00:28:09]

So you make the deal that works best for both sides.

Yong-Soo Chung [00:28:12]

To explain what he meant, Jay constructed a fictional business.

Jay Abraham [00:28:15]

Let's say that I had a subscription based SaaS business, and to the best of my knowledge, 85% of the people that came in stayed forever. Okay, and let's say that incrementally, meaning you add more people, the cost to fulfill is very low.

Yong-Soo Chung [00:28:32]

If 85% of your customers stay with you forever, that means the Lifetime Value per customer is quite high and you can actually use that as leverage in your deals and negotiations.

Jay explained that there were several different deals he could pitch to potential partners.

Jay Abraham [00:28:47]

If I went to you and you had an audience and relationship, and the trust with an audience, and I thought you could generate for me two, three, 4000 new users that would stay forever, and that would make me 85 or 90% profit, I might give you almost all of the first year's worth of revenue because I'm going to make all the rest of it. Plus you're creating wealth for me if I ever sold the business.

Yong-Soo Chung [00:29:16]

TYPE 1. AFFILIATE COMMISSION

In episode 55, Joe Casabona gave the example of web hosting providers who typically pay a year's worth of hosting costs as affiliate fees. I'm guessing they probably used this EXACT model that Jay just outlined!

Jay Abraham [00:29:30]

Conversely, sometimes you would do, uh, a collaboration with somebody who's going to save you money. Maybe they can buy media better, maybe they can, uh, use AI or technology to make you more efficient and reduce, uh, employees, you would give them a share of that. Maybe somebody can penetrate a market you never had. You can give them a percentage of that forever.

Yong-Soo Chung [00:29:56]

TYPE 2. SHARE THE SAVINGS
This one's a no-brainer. If you find a partner who can reduce your bottomline while maintaining your topline - you still end up net-positive even AFTER splitting some of these savings with said partner!

Jay Abraham [00:30:09]

You can give somebody an ownership in a buyer group, but not your business.

Yong-Soo Chung [00:30:15]

This one's a bit tricky and works better in the context of a different business...

Jay Abraham [00:30:19]

Let's say that I have a product or service that would be very desirable by bicycle enthusiasts, guys who do long bicycle rides. But I'm not in that market, and you are. I can give you a permanent participation on all the sales that come forever from that. And if I ever sold my business, I could even make it sweeter. I could say, I'll give you a percentage of that sale that your revenue, uh, is worth.

Yong-Soo Chung [00:30:44]

TYPE 3. AFTER-MARKET DEALS

As in, the products that are bought and used AFTER the partner's product WITHOUT affecting the sales of the partner's product. In this example, think aftermarket bicycle accessories, or energy bars, energy drinks, and so on.

Jay explained that there are only two constraints limiting you from devising a deal that works best for both sides.

The first, of course, is your creativity, your imagination.

Jay Abraham [00:31:10]

I can do anything I want. It just has to be legal, ethical, and equitable.

Yong-Soo Chung [00:31:14]

And the second is... flexibility

Jay Abraham [00:31:17]

the key to this is flexibility.

Yong-Soo Chung [00:31:19]

Jay actually gave FIVE additional examples of deals you could strike with a strategic partner to leverage their relational capital.

TYPE 4. DEFERRED COMPENSATION

Jay Abraham [00:31:30]

I might go to you and say, let's just buy everybody the first product or program for nothing. 

Yong-Soo Chung [00:31:37]

TYPE 5. COMMISSIONS & BONUSES

Jay Abraham [00:31:40]

I might pay you so much a percentage of the sale from X to 100 percent.

Yong-Soo Chung [00:31:46]

TYPE 6. THE FIRST CLASS FOUNDERS SPECIAL

Jay Abraham [00:31:50]

I might give you 100% of the profit on three or four levels.

Yong-Soo Chung [00:31:59]

TYPE 7. TRANCHE RISK REVERSAL

Jay Abraham [00:32:03]

​​Let's agree that we'll do a test.

Yong-Soo Chung [00:32:05]

...and the last one:

TYPE 8. EXPOSURE

Jay Abraham [00:32:09]

if it only produces X, you can have all the profit.

Yong-Soo Chung [00:32:12]

He also explained, in great detail, when to leverage relational capital with your strategic partner versus when to actually bring money into the equation and, perhaps, BUY them as an asset.

Jay Abraham [00:32:23]

Well, that's a great question.

Yong-Soo Chung [00:32:24]

BUT, and you know what I'm about to say here, you'll need to sign up to the First Class Founders membership, if you want to hear all his thoughts in detail.

The First Class Founders membership comes with a ton of perks. You get  access to a private feed, the episodes are all ad-free AND released a week early. Plus, each episode in this private feed contains an additional, specially-crafted segment that provides specific and highly-tactical knowledge that you can apply in your own business!

And yes, this week's premium segment features FIVE additional examples and Jay's thoughts on when to leverage relational capital vs when to buy an asset.

So, join the First-Class Founders membership today by going to firstclassfounders.com/join. Look for a link in the show notes!

One thing I want to point out is that all of Jay's anecdotes, examples, and hypotheses heavily rely on viewing a customer through the lens of LTV, that is, Lifetime Value.

But, once you know your LTV per customer, you can simply plug that number directly into any one of the several examples Jay outlined in this episode! And you'll then know exactly how much you can offer your strategic partners in exchange for leveraging their relational capital!

Neat, isn't it?

We're almost at the end of the episode but before we wrap up, I asked Jay what advice he'd give if he could meet his younger self.

Jay Abraham [00:33:46]

I dedicated a worldwide career in four plus decades, growing other people's businesses and charging very large fees and taking profit shares for a period of time. Without being arrogant, I think there's close to $100 billion of profit increases that the press has estimated my work, my methodologies my direct or indirect help has produced. And I've been very, very heavily compensated, but I never was motivated to own businesses and participate in the exit. I would have done that because wealth creation doesn't come from ordinary income. It comes from creating an asset, building it up, making it very desirable, either for its pure profit or for its strategic value to somebody larger who needs it and will pay you four, five, 10, 20 times what you make in a year.

Yong-Soo Chung [00:34:54]

In fact, he went one step further and described SPECIFICALLY what kind of asset he would create…

Jay Abraham [00:35:01]

So I think you want something that's highly recurring because that has two things. It has far more security if you don't sell it, but it also has far more value when you do sell it.

Yong-Soo Chung [00:35:15]

He advises against having, what he calls, "one-shot companies".

Jay Abraham [00:35:19]

If I have a product or service company, excuse me, that's one shot and it's dependent on marketing. If the marketing stops, then the sales diminish. It's a very volatile, it's a very uncertain type of a business. But if you have a service that locks people in over and over and over and over again, so you, you spend money once to find them, but you get, you get profit over and over and over again. And that profit stream is either very long or permanent.

Yong-Soo Chung [00:35:54]

And, Jay wrapped the whole thing neatly, with one of the MOST insightful comments I have heard on this podcast since its inception.

Jay Abraham [00:36:01]

even if you don't want a lot of wealth, there is a really remarkable difference between necessity entrepreneurs and liberated entrepreneurs. A liberated entrepreneur to me is somebody that doesn't have to work. They're doing it because they love the challenge. They have a vision. They want to create more value.

Yong-Soo Chung [00:36:21]

If you want to learn how to be a liberated entrepreneur, you should definitely read Jay's book, "Business Wealth Without Risk". He also has a website...

Jay Abraham [00:36:29]

Abraham.com. If they're really interested in something that more personal working with me, they could go to jay at abraham.com. That was my assistant would take it. And if they're big enough, I'm always looking at businesses that I might be able to get involved with. And I'm very open because I like sharing revenue. I like creating assets now at this age. And I like teaching people, mentoring them, guiding them.

Yong-Soo Chung [00:36:54]

And if you liked this episode with Jay about leveraging relational capital, I believe you would LOVE episode 57 with guest Tibo Louis-Lucas, Founder of TweetHunter and Taplio. Tibo went from bankruptcy to millionaire in just 2 years when he sold his company. This story is wild!

And when you are done listening, drop me a message @YongSooChung on X and tell me what you thought of it, yeah? Or, better still, review it on Apple Podcasts or on Spotify!

And, that's it for this episode!

I'll see you next time on First Class Founders!