How I Made My First Million Dollars Part 2 | Ask Mr. Wonderful Shark Tank's Kevin O'Leary

hey mr wonderful here and welcome to another episode of ask mr wonderful now this week as always has been brought to you by questions from the audience which i think is the best way to do this there are two that i found absolutely fascinating kind of interrelated which i think kicks us off into a another but i hope to be very interesting session listen to this one this comes from johnny devica i'm a 15 year old student who aspires to be an engineer someday i've seen you appear on various tv shows along with one of my personal favorites shark tank one of mine too johnny i love shark tank you have been an inspiration for me for a long time and i would it would be very helpful if you would answer my question i would like to know what was the biggest factor that helped you achieve success any response would be greatly appreciated well thank you johnny but before we proceed i want to read one from melissa kind of along the same genre but a little more specific because she's been viewing some of the episodes recently melissa writes i watched your episode on how you made your first million and i also watched last week's show about the five common attributes of successful people and i still feel ripped off okay okay so you started a software company in your basement and sold it for 4.2 billion i get that but you never explained what made your company different from the tens of thousands of other software companies that started at the same time what did you do differently what made it so valuable i have started my own business now and i'm trying to learn everything i can to avoid failure if you really are mr wonderful you will give it up don't disappoint me okay melissa and johnny melissa that's a little tough love there i don't think you should feel ripped off it started you on your journey to question and i think that's fantastic but you raise a very valid point what differentiated the learning company from the thousands of other companies who are trying to do the same thing i wanted i want to talk about a concept in life and business and entrepreneurship called pivoting in other words you set a path for yourself you have to i don't care what you're doing in life you have a plan you have an educational plan maybe you've got a business plan you've got a life plan you've got a marriage plan you've got whatever it's a plan you see yourself three to five years out and you're thinking about who am i and what am i going to be and how am i going to get there and everybody should do that there's nothing wrong with that but sometimes you start down the road and you find out it's not exactly what you had planned and you have to do something called pivot let me tell you a story the reason i think this story is important it points out in life the concept of experience and as you go down the road and you have all these experiences they go into your collective database your memory and sometimes it's really really important to pull from that experience when it comes time to pivot and make a move and i'll give you this example you know i finished undergrad college my dad says to me environmental studies psychology you're gonna starve to death some of you've heard this story before he said why don't you while you're you have time and you've got decent marks go and get a business degree which i did so i went to do my mba post-grad that's a two-year program in those days and you get a few months off in the summer so i'm walking down the halls and there's all these recruiters and i'm a marketing guy and i love the idea of apprenticeship of learning something i mean it's you know you're only going to be working for 60 or 90 days but what can you learn from that what can you get you're not even working call it an internship or call it an apprenticeship i love this because it lets you immerse yourself into an environment where you can just be a sponge and suck up as much as you can then get back finish college and move on with your life towards your big goals i'm walking down the hall and i see this company called nabisco brands with a brand called miss mew cat food and they basically were looking for somebody to expand the product line over a 90-day period in other words in the pet food business you need as many facings on the shelf as you can get no different than any other business the more facings you have the more real estate you have on the shelf it's same online the more different flavors you've got the more presents you have when you're pitching your product to somebody who's going to buy it online but in those days it was all retail and so they're just saying look kid we're looking for somebody that has marketing grit and can take our line from 21 flavors to maybe 24 over a 90 day period i said sounds good i'm in let's go now what did i know about pet food nothing but listen it's a marketing problem and i think i can learn quickly and i think you can too so the first day on the job i meet this dutch guy who was my boss basically he was a product manager a portfolio manager or brand manager and he says listen kid i'm going to take you on a little journey today we're going to go to the rendering plant where we make this cat food we're driving in the car on the way there and he says to me look i want you to understand something about pet food it's basically made from two engines of protein i said what does that mean he said i'll tell you sea of japan tuna the underbelly is one engine of protein we buy millions of tons of that rendered tuna or that underbelly dark tuna that people don't want to eat and then we add bacon bits to it or maybe we add peas or maybe some carrots or maybe some wheat or whatever it is and we create a new flavor but the basic engine is and the protein is the underbelly of the tuna and i said i got it boss you make different flavors from tuna to expand the product line and he said your job is to dream up some flavors that cats are going to like you know your whole testing facility where we have all kinds of cats so you can dream up your concoctions work with the lab and see if the cats like your stuff and i said to him do the cats buy the cat food or does the pet owner buy the cat food he said now you're thinking we have to make it so the cats will eat it so they'll buy it a second time but basically you've got to make sure that when they open the tin it smells good and looks good for the person who's buying it for the cat you need both things to work the cat has to like it and the buyer has to buy it so you got to come up with a flavor that looks great on the label when you open it up it's got to smell good and look good and then when fluffy looks at it and says oh i really like this and fluffy eats it fluffy being the cat now side story the reason i say fluffy we received a letter from a woman in upstate new york who had a cat that was 23 years old now those of you who have cats for pets understand that's old for a cat and she was wondering if fluffy could be featured on the miss mew label as one of those you know cats with with this saying um you know this cat ate this food and it's 23 years old pretty good endorsement except that the cat hadn't been eating cat food it had actually been eating dog food a brand called dr ballard's dog food also made by us in the bisco brands so my boss said to me one of the things you're going to be doing right out of the gate is going to check out this fluffy story i get there i meet the owner i meet fluffy fluffy is 23 years old but also has no hair has no teeth is very very very old and is leaking out of every orifice a cat has i don't mean that in a bad way i mean it's just fact and i said to the owner um fluffy is is old and she said yeah isn't it wonderful i said well i really can't work with this image because this cat is and i'm trying to be delicate about this i'm trying to say to her i think the cat wants to move on to cat heaven it's really looking rough what i learned about that is it does matter what you feed your cat it does matter that they go at the right balance but anyways i was learning my way through the whole cat world at this point so back to the rendering plant sorry for that diversion but i just remembered that story and absolutely loved it and so here we're at now and he's saying to me for the protein from the tuna is a whole set of seafood-based flavors you can work with that or you go to the beef side where we mix chicken faces beef lips renderings from you know slaughterhouses this isn't pretty stuff and if i recall what they did is they put it in papaya juice and it would kind of break it down into into a pulp and they compress it and that became the other engine so you had two engines you had the seafood engine you had the chicken face beef engine and then you added your flavors your bacon bits or peas or carrots or you know whatever you could dream up so that that really hit me i thought to myself i'd always thought you made all these different things to make these 24 flavors or whatever it was but really it's only two different pastes and then you get the inexpensive flavorings and you dream up a new skew a new product facing i bring this story up because it ended up being probably the most important thing ever in my whole life to pivot at the learning company to take it from just being an ordinary software company of which there were tens of thousands of them to the one that was worth 4.2 billion dollars a few years after it was started and here's how that manifested here's the story we were making software and i'll give you an example you see this this is rita rabbit this cost at that time 129 dollars full of cd-rom discs because that's how things were sold in those days and would cost us about 850 to make now we would sell it to retailers for 50 off so if it's 130 you're talking about 65 bucks and we it made us nine to make it so the margins are very very good and that was really expensive because back in those days the first pcs coming out of boca raton were about three thousand dollars so you could get away with selling software for prices like that but that was all about to change because michael dell in his you know dorm room dreamt up a new vision for computers that would make them ubiquitous in every home in america he wanted to drop the price at that time below a thousand so knock two thirds off the price and that's what he did he was one of those great entrepreneurs obviously still around today has grown a huge empire but he built it around the idea of making computers inexpensive for every family because after all this product is designed to advance reading scores and when you're going through grade school you need reading and math scores we also had a math version to advance the child's ability to pass the test to go on into high school and then on to college reading and math are two engines remember engines sea of japan tuna beef renderings reading and math bing one of those moments it hit me like a ton of bricks i thought to myself we're competing like everybody else writing from scratch software in reading and math that's costing us millions and millions of dollars every time we come up with a new product why don't we just standardize on two separate engines that we only develop and then we add the flavors like maybe we take big bird we get a character we license it just like rita rabbit we owned the rabbit this is rita rabbit over here that's a character it sits in the engine why don't we license a whole bunch of characters and we'll just maintain two development teams and we'll have two engines reading and math sea of japan tuna beef rendering you get it now right and i went to see my partners and i said look i had this experience back you know 10 years earlier at a rendering plant where they made pet food and it was a multi-billion dollar business with just two flavors basically the two pace why don't we do the same thing and cut our development costs dramatically i think we could save 12 percent maybe 15 right to the bottom line that's exactly what we did and boy did it work so what happened was we started acquiring all of our and now i'm giving you know melissa you know and johnny basically how this company became different from all the others it was competing with it was from that pivot moment that change that i'd learned so many years earlier just randomly in a pet food rendering plant and and what i'm suggesting to you is in life keep these experiences because you never know when you're gonna take it out like an arrow out of your your quiver and you know and just use it as a tool that's the key you want to have those arrows ready to put into your crossbow or your bow and arrow when you need them as i did that day because as soon as we figured that out we said why don't we go acquire all of our competitors we can effectively almost overpay for them and then drastically cut everybody out of the business because the business was growing so fast they would just get new jobs right away so we weren't worried about that we made a very good point of giving them tremendous counseling and finding people so we would buy a company just keep the 10 developers and give them the two math and reading engines and come out with products at a fraction of what they were spending originally to develop it that means our cost of capital went way down as our stock price went up and we continued to use it as a currency to buy more and more and more and more companies in fact we went on a spree to consolidate the entire industry there were so many companies doing the same thing that it made sense that somebody would take the rendering strategy the two engines and put it all together and if you go back online you'll see all the controversy i remember the wall street journal did a an article one of our competitors called broderbund said we know the difference between cat food and children's software well no actually they didn't that was the whole point and we we bought them in a hostile acquisition actually and so they weren't able to stay independent because we had grown so big and controlled so much distribution that we're able to take them also do the same thing just keep their products and their developers and continue to expand and that is actually how the learning company ended up being worth 4.2 billion dollars because we figured out a pivot that we learned from another industry now there were some things that happened along the way that i think are really important too that are great lessons learned there was a big conference in those days each year called comdex and all of the world's industry around computers and software met in las vegas for the con comdex you know conference and every company had a booth we had a booth too and i'll never forget this it was around the time when the first dell computers were about to break a thousand dollar price point 999 dollars and i'm sitting in the booth with a woman named kathleen baum who is one of our marketing people and along comes a buyer from a network this is like 1995. a buyer from a network called qvc still exists i go on qvc all the time it's a fantastic marketing tool it reaches millions of people on live televisions that buy consumer goods and services a great way to test products and he said to me listen you're selling this software here for 129 bucks and the first 999 dollar pc is coming out do you would you consider bundling maybe a few products together like maybe your your key draw product with your form designer and maybe some of your educational software together into one offer let me stick in my head in the middle here for 29.95 i said what are you crazy together this is like 400 worth of software he said no you're crazy you don't get it the world's about to change if the price of a pc is dropping to 9.99 and maybe lower you got to get hip and the way to test it is you got to check it out on our network you can price it bundle together and see how it goes and if it doesn't work you stop doing it you're not going to destroy your retail multiple tier distribution because we're selling direct to consumer build a special version all bundled together of your products and let's let's test it out at one price point i looked at kathleen she looked at me i said what do we got to lose let's check it out now the reason i bring this story up is kathleen baum recently found that tape and sent it to me now you can see it here's the two of us marketing software on qvc hi welcome back to the computer shop i'm bob powers and i have two people that i met uh at comdex that's right while along too long ago we've been trying to get softkey onto qvc for a long time this is kevin o'leary president of softkey nice to meet you down here is kathleen paul hi kathleen hi nice to meet you kathleen's the wizard she has all of this under under control what we're going to show you is actually five of the finest programs you're going to see in a package and what is so nice about this is that you get them as an exclusive package one thing that you we can do here at qvc if you're not a qvc viewer you'll have no access to this soft key five pack it's only thirty nine dollars and sixty two cents it's an eleven four ninety nine it includes body works 4.0 key design center 3d time almanac 1995 the silver platter cookbook and the mpc internet wizard all in one package for under 40. this is all cd-rom as we weren't just successful it was a sellout we blew out the numbers like we couldn't even have dreamt in just minutes and back in those days you were on a rotating table or something it was absolutely incredible but that's not really what made it magic during that airing somebody in arkansas was watching it and that somebody was a buyer at walmart and shortly after that aired i got a phone call from bentonville headquarters of walmart and it was basically like this mr o'leary we want you to come down and talk to us about the software business we're huge in the music business but we haven't done much in software yet and we now are going to be selling a computer shortly for under 800 bucks now walmart when they get into a sector they get aggressive and we would like to have a whole suite of educational software and reference software so that our parents who are buying these for the family have plenty of offerings can you make it down and see me next week and i thought hmm let me think about that the largest retailer on earth wants to see me about putting my software in their stores no i'm going to push them off that's not what happened i got down there real fast and in in those days and it's probably still true today they videotaped the meeting between the buyer and the seller so you couldn't do anything that would breach any rules and they tell you they're going to do that i think it's fair and my buyer and that's the great thing about walmart they're really smart they don't leave buyers in place for years and years they move them through different product categories and my buyer had been i think it was in fish tackle and rubber boots for fishing fishing supplies which are huge at walmart i sit down with them we i think we have a 40-minute meeting teed up and i walk them through the whole world of software and all the different products and all the price points and you know at that time i was saying on special this would sell for 9 99 and that i could probably give him a great deal at 89 bucks suggested retail price if he bought a lot and i'll never forget that moment he looked at me and said no no no if we're selling computers for 8.99 and even 7.99 with speakers and a monitor we're thinking reader rabbit is 29.95 and i said i can't sell it to you for 29.95 he said no you're going to sell to me for 14 bucks i said sir with all due respect the whole industry doesn't work on margins like that there's nobody in the world selling a software package to you for 14.95 that you're going to sell at 29.95 he said i think i can sell 12 million packages now that was a moment in time where i had to make a decision because he had told me beforehand if we didn't leave with a deal there were plenty of other software companies waiting outside and maybe he was bluffing maybe he wasn't they were going to take up on this opportunity did i want to take a purchase order potentially worth 12 million dollars change the entire industry margins by class collapsing collapsing them 75 basically did i want to take the entire industry and collapse its gross margins by 75 in one walmart sale it would have caused chaos to take software that was on deal at you know normally sold at 129 and sometimes at 99 and all of a sudden put it out at 29 you'd have to be crazy to do that what do you think i did i shook his hand i said you're on now i knew when i called my partners back at headquarters that it was going to be a shitstorm because the risk was horrific imagine all the inventory we already had in the channel all around the world we were selling in 34 countries that all of a sudden we drop our prices that dramatically but think of the volume if that 12 million was real we went to see some of our biggest investors the following week and i said look i said yes to this i think it's the right thing to do all of us at you know the team is on board we want to make this happen we need massive manufacturing facilities to pull this off we're going to need every cd-rom stamper on earth to fill these orders it was one of those pivots one of those moments one of those crazy times of either going to make our company very very valuable or we're going to crash and burn those are the moments you have to experience in your life as an entrepreneur because they define who you are who the company is and what the value is for your shareholders you have to take risks but isn't the premise doesn't it make sense if the price of computers is collapsing wouldn't you want to have lower price commodity-based software and we thought 29 was a low price well we did that deal the reason that michael jackson's album bad was delayed two weeks is because the learning company sucked up all the capacity worldwide just to stamp out cd-roms for its orders at the new price point that's a true story i'm very proud of it i have a copy of that album from that original press loved it by the way but we basically tied up every single stamp we could get to fulfill all those orders and everybody else the price point in software did not stop at 29.95 by the time that year was over we were selling software at 12.99 to 19.95 and selling millions and millions and millions of copies that essentially is the story of what made the learning company so valuable and how it was sold for that price it had so much market share because it dropped prices and turned software into the commodity it was and because it had the expertise of developing around engines from the cat food days were able to drive a model that made sense we could put controls on our r d costs continue to launch products quickly by just licensing characters which we did and launched thousands of skus over two or three year period it was a remarkable pivot and it wasn't just me it was a team the thing about successful companies is the team everybody understanding the path the engine pivot that came from the cad food business but to implement and execute it took a team of people and we had tremendous talent doing it and we just looked at our competitors in the dust they didn't they never caught up we basically acquired most of them and the industry of course changed again when everything went online but my point in this week's episode was the concept of the pivot the risks the pivot and seeing the direction you need to go even though it's risky in the case of dropping the price of software and working with every retailer around the world to sell it at a commodity price that every family could afford that was a defining moment for the learning company and we had tremendous talent to pull it off but i'm glad melissa you asked that question because you're right i never explained that but that is essentially how it worked and i think when i look at great entrepreneurs today maybe you even and johnny what will make you successful is experience that you'll take and have those tools in your memory to use when you have to make your pivot great entrepreneurs do that all the time don't let a crisis ever be wasted you learn something from it and then you move forward because you might not use it that day but you're going to use it one day and it's going to be tremendously valuable for you that is the story of the learning company and it all started with fluffy that's why i love the fluffy the cat story it ends up fluffy helped us made us worth over four billion dollars thank you fluffy wherever you are in cat heaven i appreciate you unless you're still alive but i don't think that's the case everybody i really enjoyed it thank you for the questions and i will see you next week now speaking about pivoting imagine you're involved in the wedding industry there hasn't been a wedding in months nobody's renting halls nobody's buying flowers nobody's renting carpets nobody's having big dinner parties that's all shut down these are entrepreneurs that want to survive i've invested in many of them so they have to pivot now you know me i like to get involved with my entrepreneurs i like to help i like to bring in my social media platforms to see if we can reduce customer acquisition costs together and i like innovation i like ideas so sarah mongolis the ceo of honey fund said to me why don't we do a virtual wedding to promote the business why don't we actually marry people online now that's a crazy chicken idea and guess what there's all kinds of people that still want to get married they want to get on with their lives they want to start a family they can't wait for covet to set us free they've got to work within the confines of what this pandemic has done to large and small businesses alike and that's all about innovation and pivoting so check this out yup i got ordained and i married this wonderful couple that's innovation that's business and that my friends is a pivot okay everybody take your places we gathered here today surrounded by the beauty of creation and nurtured by the sights and sounds of nature to celebrate the wedding of ian and erica before we begin the vows erica would like to share something with you ian i guess i didn't really know what i was getting into when i signed up to date a police officer but what i've learned is although it's incredibly hard to watch you go through what you go through i will always be here for you through thick and thin i'm gonna love you babe do you ian matthew cochran take erica kathleen brower to be your wife i do do you erica kathleen brower take ian matthew cochran to be your husband i do and by the power vested in me i now pronounce you husband and wife congratulations guys

Channel: Kevin O'Leary

Views: 504,097

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Id: OPFXRHWANrI

Length: 30min 6sec (1806 seconds)

Published: Wed Jul 15 2020

Reddit Comments

[u/sherockradio]

What an awesome story!