Shark Tank’s most loyal fans can be found in the Entrepreneurs Exchange Facebook group. The group’s more than 19,000 members include entrepreneurs who’ve appeared on Shark Tank and those aspiring to plunge into the tank. The group lets entrepreneurs pick each other’s brains about finding manufacturers, website providers, and all other business needs. And of course, there’s plenty of discussion about last night’s pitches.
When I scored an interview with Kevin O’Leary, the educational software mogul, I asked the group to send me their most burning questions to ask on their behalf. Mr. Wonderful was happy as always to share his opinions and give entrepreneurs advice.
Ky Trang Ho: When is a licensing model a bad idea? And has there ever been a time when a licensing was a bad idea?
Kevin O’Leary: It’s never a bad idea. A licensing model is a method by which to mitigate risk, to put someone else’s distribution power in place and to keep upside in perpetuity because. If you license something to somebody and they run with it, and you have a minimum in place, it’s a fantastic return. They’re putting their capital in harm’s way. You’re getting the benefit of any upside there is. Licensing models are very, very good. There’s no question about.
Ho: Does anybody else do licensing models on Shark Tank? It seems like only you do it.
O’Leary: I do it because I provide a lot more creativity to my deals. These poor sharks, they have to listen and learn. You’d think they’d get it by now. But every year they learn more from me.
Ho: Indeed. How do you judge people’s character in such a short amount of time on Shark Tank?
O’Leary: It’s very challenging. But over the year’s we’ve become very good at it. I can tell before they even say their first words. I can feel the aura in the room with them just standing looking at me. I can, by now, sense it. And I’m very proud of it. It’s a gut sense. So far it’s served me very well.
Biggest Regrets and Achievements
Ho: If you had to do anything over, what would it be?
O’Leary: Nothing. I wouldn’t change a thing.
Ho: What do you think has been your greatest achievement so far?
O’Leary: Helping entrepreneurs. I think it’s passing and paying forward. I believe that. I am still active, reinvesting my money and helping young companies to grow. There’s nothing more wonderful than that.
I am spending a lot more time teaching as well. I teach graduating cohorts and engineers about entrepreneurship, trying to convince at least a third of the class to become entrepreneurs, start companies and create jobs. It’s just wonderful. We need more engineering graduates in America. The Chinese are graduating 250,000 a year. And we’re only doing 49,000. We got to catch up.
Ho: Somebody asked about Surprise Ride. You came back to invest for 2.5% stake in Surprise Ride. (The deal was $50,000 for 2.5%. O’Leary get a 6% royalty on every product sold until he made $150,000. Then the royalty goes away) They had turned down an offer on Shark Tank. Do you keep track of these potentials yourself or does your team follow up on them?
O’Leary: We follow all of them. There are a lot of deals on the table. We’re going to start shooting Shark Tank again. We’ll be going right back to work. So you might come out of a shoot with 10, 12 or 15 potential deals. And then you’ve got to go to work. It’s a lot of work. But it’s worth it.
Things change. New opportunities come up. You find out stuff in due diligence. We’ve been doing this for seven years. This is a really interesting platform now. You’ve got all of these great entrepreneurs. We all work together. There are all kinds of new opportunities coming all of the time.
Plated, one of my deals from a few years ago, is looking at something new right now. Every day, there’s something fantastic happening at one of my companies and something disastrous happening. Every single day across the portfolio. It never gets boring.
Ho: Do you ever make an offer for superficial reasons and how does that turn out? One group member noted that you a lot of companies based in Boston like Wicked Good Cupcakes, Lovepop, and Buggy Beds.
O’Leary: I do that because it’s easy to drive to them from him home. I also like the community in Boston. I don’t do it intentionally. When I make an offer, I make the assumption; I am going to be writing a check. That’s the way I work. I don’t do it superficially. I take it seriously. This is real money at stake.
Advice for Wannabe Entrepreneurs
Ho: Sometimes the entrepreneurs come on, and they have an idea or just a side business or a hobby. How long should they wait to determine whether they should pursue the business, expand and leave the day job?
O’Leary: You’re not in it until you’re 100% in it. So I don’t invest in people who are still working in one place and working in the business on the side. That’s not a real entrepreneur. The definition of an entrepreneur is someone who is willing to take the risk. You leave your job, go 110% into something, and you make it happen. I don’t invest in people who work somewhere else. That’s not a real entrepreneur. That’s a wannabe.
Ho: How long should they wait before taking a salary and paying themselves?
O’Leary: It’s very difficult. If they start taking money out of business and they bankrupt it, it’s a very bad outcome. It’s determined by how well sales ramp is.
You have to be ready to eat a lot of noodles. That’s what’s going to happen. You’re going to be starving to death for a couple of years. It’s not easy. A startup is tough.
Ho: When running a startup, how long should businesses wait before expanding operations or is it something you should do from the get-go?
O’Leary: You should expand according to revenue. If you expand too fast, you’re going to go bankrupt. You run out of cash. It’s very, very intuitive. You’ve got to get the feeling of what’s going on as when you should expand capacity.
If you’re too successful, you can bankrupt yourself. You have to be very careful about how much inventory you build, how much capital you tie up. You’ve got to stay liquid. You have to have cash. Controlled growth is a good thing sometimes.
Ho: All these startups have innovative ideas. I am wondering why the big blue-chip players in the same space were not innovating that way. For instance, Lovepop. It’s something that Hallmark could have come up with but why didn’t they?
O’Leary: Because they’re big and slow. That’s basically what happens. That’s why there’s innovation. That’s why there’s disruption. That’s why you want to back entrepreneurs. They’re able to move nimbly and can pivot and can deliver new value.
Lovepop is revolutionizing the greeting card industry. It’s amazing art. People who receive Lovepop cards never throw them out. It’s an incredible experience. It’s a piece of art you are receiving. I think this business is going to be successful. No question about it.
Ho: Yeah. I think Hallmark would be dumb not to buy it out.
O’Leary: Maybe they will one day. But it’s way too early now. There is so much growth ahead of us.