Kevin O'Leary Keynote at Notre Dame

I tell you how I want to spend our time today together today I'd like to talk a little bit about television because obviously one of the reasons I'm here at Shark Tank it's it's a remarkable success that we're all amazed at we're thrilled with what it's become it's a platform to launch businesses it's the number one show in America watched on Fridays the number one show watched by families the fastest-growing demographic is 9 to 18 year old women who knows they must mature faster than guys I guess but it continues to grow it's it's phenomenal and we talked a little bit about that because people ask me why do you do so much television or you're a narcissist you love to see yourself talk do you want to turn every channel and see your face and I'm going to argue today and we're going to do an experiment together that the discipline of business the science of business is very binary either you make money or you lose it it's black and white television is sheer chaos and yet I'm going to show you a marvelous synergy between the two now obviously Shark Tank is a platform there's no question about that and what's occurred on this show is many people realize that if you can get on it and you have a product in the market you can grow your sales by 10,000 percent in 24 hours but the true test of its power would be to take a commodity something that is ubiquitous in America that we can buy anywhere and see if it went on Shark Tank would it differentiate the outcome of that company how powerful is Shark Tank how powerful has it become so my theory was why not finance a commodity something you can get anywhere and see if somehow we could build a national brand on something that has no proprietary value whatsoever that would be the true test of what Shark Tank was now what could that be well let me give you an example what is more common that a cupcake sugar water flower anybody can make it along came a company from Kohath Massachusetts called wicked good cupcakes on to the shark tank none of the other sharks were interested but I had this theory in my mind let's test it so I'm going to show you a couple of minutes of video from this particular deal we're going to see the actual deal itself see how it was structured and then I'm going to show you the numbers what happened in the first 24 36 week months since then what has happened to wicked good cupcakes so watch this first okay so what happens this company it airs at 9 o'clock on a Friday night sales the first month before Shark Tank or the month prior to airing the 24000 look what happens to it afterwards run rate is 450 thousand a month it's going to make 800,000 free cash flow Danny the young girl 27 just got married I helped it with a prenup she has $800,000 going this company is actually owned by her is to her and her mother so this is the fastest-growing cupcake company in America right now it recently got a 10% purchase acquisition from the Fisher family in Chicago who took the crumbs retail chain out of bankruptcy as of next week this will be in retail across America we've moved into pies and we're charging 20% more for gluten-free I love that and just absolutely love that and so the shark tank factor is very much alive and I think in studying what this is is it truly is a launch platform this is clearly a commodity and it's growing very quickly and I think America's figure that out we have 110,000 applications for the current year we're starting to shoot everybody understands how this works but what's really going on here with wicked cupcakes is they figured out their customer acquisition costs by being on Shark Tank are zero they don't spend any money on advertising what they try and do is stay on television and because they're a husband or sorry I've got a daughter mother team which is a very on trend in America now for getting on daytime television they're ubiquitous they're everywhere they've hired lots of new people we're creating jobs here actually 42 new ones this is a little outdated this slide you see them on every week on one show another Good Morning America next week plotting their success this mother and daughter have figured out how to stay on television and continue to grow now let me give you some stats about venture capital over 50 years it's a highly risky proposition if you look at 10 deals over the last 50 years including the internet bubble only 2 out of 10 ever returned capital that means you lose 80% of the time nothing changes that so if you look at a typical venture capital firm give it a big one 80% of the time they lose their money after six years Shark Tank is now achieving return on capital on 40 percent of its deals four out of ten why here's my speculation for a marginal company that would be spending twelve to fifteen percent on advertising to break through those costs are removed they get that for free so even a cupcake company can enjoy tremendous growth at no costs of acquiring customers and so this platform is a giant infomercial worth about twelve million dollars a year to a company to get on it how do I know that let me give you a case study that is 48 hours old how many of you remember groovebook remember this one 11 months ago Brian and Julie a young couple from Chatsworth California brought this deal to shark tank very simple takes a hundred images off your phone each month and ships you this catalog cataloging your life your kids your family for $2.99 how is it possible they can do that because this groove allows the book to bend 34 degrees so that it's considered a magazine not a book it ships for 85 cents as opposed to 250 the value is in the groove they had 14,000 subscribers when they aired today they have half-a-million Shutterfly called me up public company said we must buy this you're stealing our share and they offered seven million dollars for 11 months later and I said are you kidding never they bought it on Thursday for 14.5 million dollars cash Julie and Brian are multimillionaires 11 months later the American Dream is alive in a very big way and we watch it happen on Shark Tank why is Shark Tank so successful why would anybody be watching this why would a nine-year-old girl be interested in watching something about business the network's want to know the advertisers do the competitors want to know there's seven different shows trying to knock it off right now I have a thesis I'll tell you what it is what are you watching when you watch Shark Tank you're watching the pursuit of freedom is there anything more noble than creating your own wealth and setting yourself free no that's what shark takes about it's the essence of personal freedom it's not about getting rich it's about achieving something for yourself that is unique to our society and capitalism personal freedom and that's why I'm here today I want to talk to you about that that's what matters that's what's creates everything that's great in America is the ability to start a business from scratch in your basement whether it's a cupcake or a group or court thousands of other ideas create a business worth millions of dollars employ hundreds of people provide for your family yourself their families and all the good things we enjoy from capitalism which is freedom now there's a lot of sacrifice involvement speaking to those of you in this room that want to become entrepreneurs so let's try and learn something from the shark tank experience I want to share with you other than funny pictures like this three common attributes to all of the deals that got funded on Shark Tank versus all the ones that didn't this does not speak to the outcome of the businesses it speaks to those entrepreneurs that are able to sit in front of investors or stand there and actually get their money and I want you to realize that there's a huge opportunity to understand something unique here because in each of these three cases they were present in 100% of the deals that got funded over thousands of presentations but in every case these three attributes were there and why I'm bringing it up now is I know some people are going to be up in front of me in just a few minutes and I want them to hear what I'm saying here because maybe they want to modify their presentations a little bit all right number one in 100 percent of the cases the deals got funded the entrepreneur was able to articulate the vision in 90 seconds or less the idea was so blindingly simple that you could understand it in a minute this is a cupcake we put it in a jar we ship it to people for six ninety five I get it this is a groovebook I carved a groove in it so I could ship it at the price of a magazine I get it see what I'm saying all right 100 percent of the cases 90 seconds or less number two in every case the entrepreneur usually a team over 80% of the time we're able to articulate why they were the right people to execute the business plan what credentials what confidence what experience why were they able to take an idea and turn it into a business very important present in 100% of the deals that got financed now this is far more sinister this last point because in front of me multiple times I have seen deals that are now like an isotope sizzling the first two are present sharks are fighting everybody wants in and then happens in 100% of the time the people but find it's they were able to answer every single question about their business model and their numbers with perfection when you're sitting listening to an entrepreneur you start to ask them how much market share do you need to break even what's your margins how large is the market how fast is it growing who's your number one competition how much free cash flow do you think you'll make in the first three years if you can't answer those questions or you make a mistake or you seem lost you're screwed this is really important this last one's a killer and I want you to remember that because I tell entrepreneurs today if you're not good with numbers bring someone who is it's incredibly important I want to talk about the economic environment we're in for a moment because you're going to be going into the workforce I run about a billion dollars in one of my companies in a mutual fund company so I have lots of data with me and I don't want to make it complicated or long but I want to talk to you about the environment you're going into and what's changed over the last 10 years first of all we're very lucky in North America even if you can't read this chart explain what it says our company's the sp500 have record earnings as of yesterday record cashflow record profits record stock buybacks record free cash to distribute and dividend increases never in our lives as the sp500 made more money that it's making right now ever so that's the good news you're going into a really interesting economy even though we have lots of bad things to worry about pandemics Isis Russia our companies have never made more money than there may right now that's good a lot of people say to me gee the bull market is long in the tooth it's going to correct it's going to come crashing down just when you're graduating take the emotion of it let's go look at the data I love to look at data this is a chart of how many days between 15% Corrections in the stock market a 15% correction is painful we are 714 days since the last 15% correction there are many periods in history where thousands of days have gone by before the market corrects I think we're in the third inning of a roaring bull market that's how I'm investing not only in small companies been in large ones I like to take the emotion out of data the challenge everybody has in America today particularly those that are retiring is this record low interest rates most of us have been retired would buy muni bonds or a ten-year government bond and make 5 to 6 percent for a hundred years we could do that and in the last few the rates have dropped to below three but I want to show you something I spend a lot of my time studying what economists are thinking is going to happen in the next 24 months and what I see coming a rate hikes about the 30 basis points one-third of a percent in the next 24 months that's the general consensus globally of what's going to happen so should we worry about that if rates go up with a market crash let's look at that what happened way back in 1999 when rate swap or more recently in 2004 basically nothing rate heights mean enhanced economic activity market goes down 67% and within ten months comes roaring back also good news for all of you because you want to be graduating into a growing economy there are some changes obviously to this economy and I'll tell you what they are the demand and I'll explain what this chart says institutional investors today have changed their minds about a lot of things and one of them is the concept of dividends because of all the volatility from 2007 2008 2009 what's actually happened in the market is you can buy two kinds of companies ones that do pay dividends and ones that don't so I've taken the data and said if you invested in the sp500 and bought all the companies half of which my dividends have don't you made about 10 percent if you only bought the companies that were growing dividends you made the same 10 percent but here's the difference you had 40 percent less volatility in the price of those company stocks so now all of a sudden institutional investors have put a huge premium on dividend paying stocks because they don't want stops to go up and down in our volatile which is why Apple Computer after Steve's job died declared a dividend they couldn't attract institutional investors because everybody wants to reduce the volatility and that matters to you as well because you're going to be asked to make more money than ever before when you get a job your managers whether you start a company or whether you work within one the pressure for you globally to provide returns that are based on cash flow are going to be unprecedented because people want safety now that's what they care about let's talk about what it takes to be a great entrepreneur I want to talk about balance in life first this is not good news for some of you if you're going to take the path of entrepreneurship there will be no balance in your life not during the period you're growing your business ever and I'll tell you why you have to fall in love with your business it's going to consume you it will eat your hours alive and if you don't have the passion to do that your competitor will and they will kick your ass because they're so in love with what they do I'm going to tell you a little story it's difficult to hear but it's the truth I was teaching a class very much like this in an evening at a college recently when a young man up at the top at the end of the class at 9 o'clock at night put up his hand and said can I ask a question mr. O'Leary I'm struggling with a problem a personal problem and I said well I'm not dr. Phil but let's hear it he told me that his fiancee in the morning was a Friday had told him that he/she couldn't spend or he couldn't spend more time with her family she was going to leave him I said what consumes your time he said well I'm still in love my last year here but I've started a software company that provides compliance software to hedge funds in the Boston region there's tons of hedge fund companies my subscription run rate is 5 million dollars a year and I'm running out of my door I said wow are you kidding what's the problem he said well I have to work all day all night I got to go to school and I got to work on my coding I've got 16 people working with me globally coding with me I'm busy and then building this thing and it's working we're providing compliance reporting the SEC and we're making five million dollars a year but my fiancee is going to leave me and I said we'll wait let's be pragmatic which one is easier to replace my point here is that if you choose to become an entrepreneur you have to have a partner that understands the journey and the reason you're doing it you're doing it to set yourself free one day that's why you do it and if you're ready to make that sacrifice you may be on your way I don't know what happened to that couple but I'm guessing it didn't work out and I'm sure he's still making money great entrepreneurs have a tremendous amount of knowledge of what they're selling they know a lot of it everything but they better know a lot about what they're selling you never want to be caught explaining yourself and not knowing your product that's because you're so passionate you're spending all your time doing it that's exactly what matters they put shareholders first the minute you take someone else's money you are definitely number two for the rest of your life the reason you can raise capital is your shareholders understand that this is incredibly important in your life if you're going to be an entrepreneurial taking other people's money and that goes way ahead of you the great thing about entrepreneurship is if you're passionate and you're successful you'll wake them you'll wake up one day rich you won't really be going for the cash it will just happen to you everybody I talked to this has success doesn't remember the day they became a millionaire no idea not important to them they remember winning they remember building a business of being successful again the pursuit of freedom manifests itself in passion that's really what it's about you have to love what you sell if you don't don't bother you have to love it more than them fiance you just gave up I know that's cruel but it's true it's the idea that you spend so much time at the beginning of the journey to get the freedom you want at the I've also noticed great entrepreneurs have used all the technology that's available today to make themselves more and more efficient if you're working on your own business you work about 14 to 15 to 16 hours a day it'll just happen that way and there's so much great technology to enhance what you do and it's inexpensive which is why our productivity keeps going up in America that's really what's going on here is people are using this stuff the barrier to entry to start a new business is practically zero you can do it online doesn't mean it's any easier than was 10 years ago but it's pretty interesting that you can do it for practically nothing I want to talk to you about something else here that's unique to your generation you're not just competing with America anymore you're competing with everybody all around the world somebody in China right now wants to kick your ass 250,000 engineers a year graduating there they're not copying us anymore they're creating brand new technologies even if you have a product or service you're selling right here in this town somebody somewhere else wants your market share you can't think domestically none of you you have to think globally let me show you a picture and it's a snapshot of market capitalization for the first time in your life's in mind there are more billion dollar market cap companies outside of America than in it while we've been growing at two to three percent the rest of the world's been growing to four to seven percent so in every industry that we compete in there is a giant competitor in everything it's a vicious game out there now you don't even know the name of some of these companies and they're bigger of many domestic offerings here the first time ever so when you graduate think global because your competitor certainly is and they want your market share look at this image of Shanghai as a dump 11 years ago probably had no fish alive in that River look at it today you have any idea how much capital it takes to do that billions of dollars I looked at this image and said to myself I bet you I could call the CEO of Otis Elevator and ask him a very simple question largest provider of elevators and escalators in the world there must be a lot of elevators there one of the great things about being a shark is everybody returns your call so I asked them how many elevators are selling in America this year he told me around the world there's five hundred and forty thousand elevators installed annually this year in America 12800 will be installed in China four hundred twenty thousand Wow that's competition and I want you all to be very cognizant of it I want to close with a few thoughts that may be controversial for you but I have observed over a long career as an investor successful investments and failures both of them so I believe these you may not I hope what they'll leave you with is to think about them they stimulate thought for you that's what I'm here to do today all right let's start with some of the basic premises of what makes a great entrepreneur and a great manager first of all employees are the core of a company whether there's two or two hundred thousand and they are linked together by something called the culture which you the CEO create guide nurture and move forward that's the good news if everybody is on board linked in the culture you get tremendous productivity beyond their salaries but here's the downside when you recognize somebody is going off course and no longer believes in the mission and are not on site anymore with your vision of the future you have to fire them you have to take them behind the barn and shoot them you know why because they do tremendous damage inside the organism and it's very hard to do that but make no mistake about it even if it's your mother she's gone the business has to survive that's what matters this sounds cruel and heartless it's true and the way you're going to find out is you're going to be weak and you're not going to do it it's going to cause major havoc for you and you can remember my speech today and you're going to thank me when you have to make that tough decision unfortunately in my life I fired thousands of people it's hard every time and I do it myself and I explain to them why I give them the best package I can and I move on because I have to make money for my shareholders that's what's important this seems so obvious and people don't get it the customer always comes first above everything and I'll tell you why I'm saying this to you because there's a really interesting change going on in the way people invest today it turns out I'm going to give you some good examples that service Trump's price I'm going to get example everyone in this room understands if you can create great customer service in your product or your service or whatever you're selling somebody and that everything they need from your organization is provided and your time the pack in customer service you can charge an outrageous price over your competitors what's a great example of that Apple Computer you pay thirty five percent more for a Mac laptop than a Windows one why it does exactly the same thing you love the brand you love the customer service you like the way the store looks you're comfortable knowing they're backing your back every time you need them there's a theory today in venture capital and in private equity you buy businesses with really weak customer service do nothing except fix that and raise prices 15% get a 33 percent IRR it turns out around the world customers want the path of least resistance it's a little bit of secret sauce I want you to know if you create an organization spend third of your time worrying about your customer service listen to what they say if they're not happy you're going to be unsuccessful there is no question about that now something a little controversial most recently I spoke at another Business School we had quite a debate about this when I want to buy a company and take a control position in at 51% I don't ask to me with the CEO I want to meet with the man or woman that is running sales and I want to drink some good Burgundy with them take them out for dinner get to know them a little bit and ask them all about their challenges in any organization in America the person that knows most about the business about the challenges about the competitors about the product about the market is the head of sales they know everything and what I'd like to do is spend a couple of days with them and then I go meet the CEO and if they know less than I do the first person I fire when I own the company is the CEO who don't want to pay the most at a sales I believe in an organization the number one person in terms of compensation should be the head of sales should make the most money always who has the hardest job the head of sales who knows the most the head of sales who determines the destiny of the company the head of sales that's how I run my organizations I take the caps off and I let who's ever running sales have unlimited upside I want to be stinking rich why because that's the fuel that makes any business successful and it's also a hardest job I've also learned over a long career that everybody is replaceable I love it when somebody says to me oh we can't get rid of that person they're irreplaceable I fire them right there everybody has to understand that whatever you do somebody can do it better you have to bring your a-game in every single day there's nothing unique about any one individual what's unique is their passion their ability to execute to meet targets and exceed them the minute you lose that ability in capitalism you're gone it's a fair trade the engine that makes you rich can take it all away from you there are no guarantees I think that's incredibly important now the one that always gets me in trouble in today's world and perhaps even here your professors are telling you that your responsibilities go beyond just making money for your shareholders that you have a responsibility to society that you're not just leading a business that you're an organism that should solve many problems beyond just profit I think that's crap I think the DNA of a business is to make money for its shareholders it is the job of the shareholders to take their profits and redistribute to any cause they wish after they receive their dividends or their profits your job is to go out into the world and understand who you serve it is not your responsibility to solve all the society's problems and pay taxes to a government to do that your job is to go to war everyday and win to win market share to salt the earth your competitors walk on to steal their customers and to take their profits and win that's your job and to make profits for your shareholders so they give you more capital to create more jobs to be more successful to pay more taxes to provide the standard of living that we have in America today your job is not to solve everybody's problem is to solve your customers problems your shareholders problems your employees problems I'm very distressed when people tell me a business should give a third of its profits to charity that's outrageous it should give all of it to its shareholders who then give to charity think of all the great things that are done today by the Bill Gates of the world the warren buffett's of the world the only reason they can do that is they make money for their shareholders don't get lost in this debate stay focused and true to the mission business is war you have to win and you take the spoils with your profits and you help your fellow man but first you make money for the simplest case on Shark Tank we had a sock company come out and say every sock we sell and give a dollar to charity to the homeless who need socks do you know why they're going to fail it turns out that the price of socks are incredibly price sensitive that if you're a doll or more expensive than everybody else on the Shelf you're going out of business it would have been much better to sell a better sock at a lower price make profits and then give it to the homeless that's my point now not everybody agrees that's okay try it my way first get out there and win create businesses create jobs create profits and don't let somebody take you off course that's the essence of business we're going to leave it with a story I have an 18 year old son my dad lives in Switzerland he's 84 my mother died six years ago he's alone so I often will fly over there from Boston or wherever I am and take one of my daughter my son my wife whoever wants to come we leave on Friday night have dinner with him Saturday get back on the plane on Sunday and fly back so my son likes to do that recently he got on the flight with me and as he was getting on the galleys about a six-hour flight to Geneva he said to me the first time ever dad why is it when we get on this plane I have to take a left and sit in the back and you get to sit in the front with the good food the big screens and all the movies I said Trevor you don't have any money thank you very much your time today yeah I went over about 11 minutes so I've got a couple of minutes for for questions but I want to keep us on schedule because we're going to look at three deals today I will say one thing about the deals I'm going to look at quickly I intentionally did not look at the business plans because I want you to know something about Shark Tank we are not allowed to see the businesses first-ever we have no knowledge of what they do and that puts the pressure on the entrepreneur and the ones that haven't presented me today to be very concise on what they're doing remember we looked at the three things that mattered so if you thought I looked at your deals I didn't it better be really good at presenting them that's what matters and by the way if somebody does contact you on Shark Tank or you don't admit that they did or they don't they're kicked off the show and so are you so anybody comes running up the street says I want to talk to about something on a pond at Shark Tank I immediately say please don't say anything to me because I'll have to disclose you did and you'll never make it on the show but that's why it works we do the discovery together does anybody have a question yes sir that's a great question sir in fact in this cohort the stats say that about 25% will start their own business of those 20% will be very successful so it's a hard road but for those of you that decide to go and work for somebody else understand you get a better balance of life but every day you're in there you have to help your boss or whoever you are make money otherwise you're worthless your cost you'll get fired today in America we're trying to cut costs every day in the first place we look is which heads do we not need the most expensive part an organization after its input costs are people if you're going to be an employee be a good one make sure that you set your goals and you achieve them it can be a great life there's nothing wrong with it and there's no dishonor in it I was working once in an ice-cream parlor when I was about 15 years old my first real job and on the second day I was asked to scrape the gum off between the Mexican tiles on the floor and I said to the woman who owned the store was called Magoo's ice cream parlor you didn't hire me to scrape gum you hired me to scoop ice cream and this this girl the shoe store across the way that's looking at me I don't want to see her me scraping the gum and she said what are you talking about I own this store I'll do anything I want with you get down on your knees and scrape that gum when I said I'm not doing it she said you're fired last job I ever had I owe that woman everything I don't like to work for people many of you in here I hope inherit that there's nothing wrong with it if you want to control your own destiny you work for yourself that's how it works I'm trying to inspire those of you are on the tipping point take the chance you're young go for it there's nothing better than being able to wake up in the morning 10 years or 20 years from now and do what ever you like it's about freedom that's what matters I'm not saying being employees bad but believe me being an entrepreneur is better I'm a little bias any other questions yes sir what I'll repeat the question what happens the deals that don't make it on TV 300 300 deals are taped about 230 air sometimes we get in front of the lights you lose it we have a psychiatrist there at the set bad things happen sometimes some people can't take rejection it's it's real life they're so convinced they're right they don't get a deal or they collapse and they blow it or they don't know their numbers and I have to shoot them all these things happen can you imagine getting that chance on Shark Tank and you don't know your numbers you should be thrown in jail one more yes sir I love that thing so one of the main things he said was that you have to love what you do a lot of people that come on Shark Tank you've told them that your love for your product is blinding you so how do you determine that a business is failing that you're not just giving up too soon or you're not passionate enough the difference between that's it I couldn't get to the last part not passionate or not what not giving up or giving up too soon because you tell a lot of people just give up on it this idea is oh I see yeah yeah you know you know I get a lot of flack for you know telling the truth I'm the only shark that tells the truth because think about your tenures and as an entrepreneur you have X number of years it breaks my heart to see someone spend months and then years and then all of their families money on a really stupid idea it's better to face the truth and give up that pursuit and start another one the great about entrepreneurship is if you fail you try again but after three years if you have if you're not making any money it's a hobby it's not a business some people can't take it I couldn't care less you know what's going to happen reality is going to bite you in the hiney anyways you're lucky you met me I've saved you a year that's why they call me mr. wonderful

Channel: BigSpeak Speakers Bureau

Views: 447,197

Rating: 4.8618927 out of 5

Keywords: Kevin O'Leary, Shark Tank (TV Program), Personal Finance, Entrepreneur (Profession), Business Plan, BigSpeak Motivational Speakers Bureau, Men Women & Money

Id: XBUQNYczj4A

Length: 43min 51sec (2631 seconds)

Published: Wed Jan 14 2015

Reddit Comments

[u/xoctor]

Did you watch the rest of that vid? He claims, over and over, that the most important person in any company is the head of sales. That's immediately after he just mentioned how people are happy to pay so much more for Apple products... which he puts down to branding (because he thinks they are identical to PCs apart from clever marketing). What a schmuck.

[u/xoctor]

Oh, and I forgot: you should sack your own mother because the investors are the most important thing. Pure idiocy.