When forming G5 Enterprises, Inc., Chet created a unique form of profit sharing by segmenting company projects into separate LLC’s and then allocating profits among the partners based on their participation in each LLC. In the creative marketplace, the concept became known as the G5 Method.
Some of you may know about the G5 form of creating partnership profit-sharing arrangements based on responsibilities, rather than based on fixed “share and share alike” percentages of profits. It was Chet’s creative genius that conceived the arrangement that became known as the “G5 method.”
The classic “share and share alike” profit-sharing agreement may work well for a single project or a short-term business venture. However, for multiple projects and/or multi-year relationships, people’s circumstances change, and those changes often lead to discord. Often in a long-term partnership the type of work or project will change and thereby call on different skill sets from the partners. These unavoidable conditions, and other life changes mean that, more often than not, a disproportionate share of the work, talent, and/or intellectual effort will fall more heavily on one or more of the partners. That means that the idealistic concept of all partners equally sharing the load that was envisioned at the beginning of the relationship no longer exists. The unfair workload being shifted to some partners causes disagreements and, eventually, the partners go their separate ways.
Chet’s brainstorm was to change long-term partnership commitments to short-term, project-by-project agreements. Chet accomplished this fundamental change by dividing the timeline into smaller, short term, elements called projects. By design, each project is separate and distinct from the other projects. Further, and importantly, each project is a separate legal entity that may or may not include all of the same partners and may or may not include the same sources of capital. Because each new project is unique, the appropriate skill sets can be made available, with or without the partners in a previous project. Even with the same set of partners, the experience from earlier projects can be applied to adjusting and setting the profit-sharing ratios for the new project.
In 2003, S.E.C. Real Estate Observer published the G5 concept. In the sixteen years since that first publication, the concept has matured, and additional details are available that were not included in the 2003 publication. An effort to amplify the original article is included as Addendum A to the article. Click on the link below to see “The G5 Concept of Profit Sharing” and the Addendum. You are invited to download the article and adapt it to your own ventures.