411mania Interviews: Shark Tank's Daymond John & Kevin O'Leary
Posted by Al Norton on 01.08.2010
411's Al Norton sits down for an exclusive interview with Daymond John and Kevin O'Leary, two of the sharks from ABC's Shark Tank.
Daymond John is the founder, President, and CEO of the $100+ million dollar per year fashion company FUBU.
Kevin O'Leary first rose to prominence in 1999 when he sold his SoftKey Software Products company to Mattel for $3.7 billion dollars. He is the founder and chairman of O'Leary Funds.
John, O'Leary, and their three fellow sharks return to ABC Friday night with the season two premiere of Shark Tank.
Al Norton: How did both of you get involved in Shark Tank? Did the come to you?
Kevin O'Leary: I was involved in the format in another country for a while and was invited to try out for Mark Burnett's version of it, and we clicked. I'm an investor, it's what I do for a living; I'm the chairman of O'Leary funds and it's what I do all day. I put about 10% of my portfolio into venture investments and this was perfect; instead of me going to find them, now they come to me. And in addition I get the platform of Shark Tank which millions of people watch. It's a form of promoting a product or service that I could never do as a traditional VC (venture capitalist).
Daymond John: The producers saw me on Donnie Docuhe and CNBC. I was getting the traditional elevator pitch from people where I had to break down their ideas in about 90 seconds. They asked to have a teleconference with me, they were in LA and I was in NY, and they said, "well, we want you on the show. It's a great show and you are going to have to put up your own money." Once I told them "screw that" they knew they really wanted me to be a shark (laughing).
Al Norton: Assuming you aren't going to give me actual numbers are any of the investments from season one providing a return yet?
Kevin O'Leary: It's a little early. The traditional vc investment takes at least 36 months to gel. We can start to see sales pick up because of the platform that these things are on. In other words, we buy a product or service, 7 or 8 million people see it, that helps. In terms of seeing an actual return, it's too early.
Daymond John: The due diligence process can take anywhere from two to six months to get everything right and get everyone situated to do clean business. As Kevin says, you will see the gage moving in that time because of the exposure on ABC but after that it does take anywhere from 24 to 36 months to start seeing any substantial revenue coming in.
Al Norton: Is the biggest mistake that people make when they pitch the sharks that they overvalue their product?
Daymond John: Yes, 100%, to me. What do you think, Kev?
Kevin O'Leary: You know, no, that's not the biggest mistake but it's one of them. If you look at the strengths or the attributes of those that are successful there are three things; one is that they are able to articulate their vision in a very short period of time. Within two minutes they've explained to you what the market opportunity is, what the product or service is, and why it's going to work.
Secondly, it's clear in how they described their business plan that they are the right people to execute their plan. Thirdly, and I think Daymond can speak to this as well, there is a certain aura that winners have, a certain something that's in the room as you are listening to them and you just feel it. It's a visceral thing and you want to give them your dollars.
Daymond John: Yes, you want to give them your dollars because they're a brand themselves. Remember, this person is going to be a partner, someone you may be dealing with for the rest of your life. If this deal doesn't work out hopefully they'll be a partner in another deal.
I still believe it's the valuation they put on their companies that is the biggest problem a lot of the time. Someone may have put a million dollars into a product but they may have made $950,000 worth of mistakes and they believe we should give them a million, 2 million for it.
Al Norton: Kevin I know you in particular don't like to dwell on things but if you could go back now and invest on someone you passed on in the first season is there anyone that jumps to mind?
Kevin O'Leary: Here is the way I look at life and investing: there are a million deals in the naked city. I don't lose one second of sleep over a deal I didn't do two years ago. They are dead to me. It doesn't matter. I am looking for the next opportunity. The only deals I am interested in are the ones I am invested in. I never look backward; it's pointless.
Al Norton: Daymond, what about you?
Daymond John: I generally have the same outlook except for there were these two women who had something called Cover Play and I wish I would have gotten a piece of that one.
Kevin O'Leary: That was way to expensive, Daymond. Way too expensive.
Daymond John: You know what? After Barbara (fellow shark Barbara Corcoran) loses her shirt not understanding retail, I'll get it at one third of what they were asking.
Kevin O'Leary: That's what makes me crazy; Barbara is always overpaying for this stuff. It's an outrage.
Al Norton: What do you think is the worst decision someone pitching the show has made? To me the one that comes to mind is the Lifebelt guy.
Kevin O'Leary: That was a huge mistake on his part. I offered him $500,000. I am not going to forget that one. Robert offered him a million and he still said no. HE could have countered and said, "I'll take your money as an advance and become your partner and we'll license it and both get additional long term cash flow." I would have done that deal.
What he's doing makes no sense. He's going to car dealerships one at a time trying to get them to install it when he can just license the technology to every single car manufacturer in the world; even if he got three cents per car he'd become a multi-millionaire. I think it's criminal what he did.
Daymond John: I totally agree and he turned down a really big pot but I thought I heard a report that he signed a $30 million dollar deal.
Kevin O'Leary: I'd like to see his income statement. To me it's simple; why go small when you can go huge?!? What he did to me was un-American.
Daymond John: Well, I enjoyed it (laughing).
Al Norton: How much editing goes on? How much longer are the pitches than what we actually see on screen?
Kevin O'Leary: They can be much longer. I think what's important is to capture the essence of the deal in the editing suite. Because it's real money that we are putting up, and sometimes it's significant amounts, we tend to do a lot of digging in the process. What you see is the essence of the most powerful moments.
One of the cameramen told me during the second show, "wow, I caught myself watching television. I never do, I'm a camera man. "It really struck me when he said that, how much he got engrossed in the process.
Daymond John: Some of the pitches actually take about two hours and the majority of them are no less than a half an hour. The audience sees these people before we do with the intro packages but we first see them when they are walking down that Shark Tank aisle.
Al Norton: How many can you get done in a day?
Kevin O'Leary: You're lucky to get 11 done in a day.
Daymond John: Kevin was the numbers guy; he was telling us how many we had done.
Kevin O'Leary: I watch that like a hawk. Usually you get 8 to 11 done. There is a lot of work to be done in a show like this because you have to do your due diligence. These is real business with real dollars.
Daymond John: Think about it; we've seen about 130, 150 people and the public will only see 55 or 60.
Al Norton: Do you think ABC could put together a "Worst Of" with stuff we've never seen?
Kevin O'Leary: That will happen as the season progress. There will always be those magic moments where crazy stuff happens. There is some very funky stuff that happens in the Shark Tank. Very funky.
Al Norton: Is the hardest part of the job…Well, do you two look at it like it's a job?
Daymond John: Yes, I do.
Kevin O'Leary: It's money, it really matters.
Daymond John: The hardest part of the job, if that's what you are going to ask, is the next months and years that follows.
Al Norton: What I was going to ask is if the hardest part of the job is when very earnest, well meaning people come before you with ideas that they have spent thousands of dollars and years of their lives on and you have to tell them it's simply not any good?
Kevin O'Leary: You have to be honest about money. There is no grey, there is black and white. You make it or you lose it and you have to tell the truth. You're articulating one of the most difficult situations. These people have never tested this with independent sources. They've gone to their mothers and brothers and they've been given money because they are family. They've never looked at it from arm's length and then they come in to the Shark Tank and get blown away because the idea had no merit.
I think you have to be honest with them and stop them from spending their family's assets in a stupid way. It's heartbreaking but so what. If you can't stand the heat, get out of the kitchen.
Daymond John: I only know one harder job than hurting the feelings of a person with really, really good intent and that is telling my daughter that she can't go to college anymore because I spend my money on some bobble heads that won't sell.
Al Norton: What advice would you give to new entrepreneurs?
Kevin O'Leary: Know your numbers. Understand your numbers. Understand what it is about your business that can get you into a break even scenario. So many times people come in to Shark Tank and say "here's my idea" and when you ask them how much they are going to make on every unit sold, what there cost of goods is, they have no idea. If you don't know your numbers you are going to fail 100% of the time. We see it over and over again. If you don't know them, get somebody who does.
Daymond John: I totally agree. I think you have to know your numbers as well as know your business. Don't look at me and say that since I did a clothing line it must be easy so you are going to do a clothing line as well. You need to have some kind of education in the field you are trying to work. There is a reason some businesses are so hard to get into, because there are certain standards that exist in that business. You need to do your research. You have to know the numbers and the business.
Al Norton: Kevin in the finale of season one you were in on the deal for the website that scouted high school athletes. How is that going?
Kevin O'Leary: It's called Jump Forward and it's going great. It was my favorite deal and also the most expensive; it was a $600,000 deal and that's why we're still in the due diligence process but so far it's going well. These guys are actually pretty good at executing their business plan. My guess is that that deal is going to proceed. It may not be under the same metrics you saw on the show but because it's a real business it's likely to go forward.
I love compliant software businesses because they are basically renewable revenue streams. It's a subscription model.
Al Norton: Will we see more updates on previous deals this season?
Kevin O'Leary: I think you will, and not just the good; you're going to see the good, the bad, and the ugly. This is the real world, not everything works and people sometimes fail and that's part of what makes Shark Tank so powerful. It's visceral, it's life and death, it's financial success and failure and it's part of what makes businesses work. I think entrepreneurs that have failed are far better investments than ones that have never failed before. I'd rather give money to a guy that has failed three times and trying on his fourth because he understands how close he has been to the abyss and he's scared of it. There is fear and I like that.
Al Norton: Can you give me a preview of the season premiere?
Daymond John: One of the people coming into the Shark Tank is a biker with a great idea for a helmet. They are asking for a lot and he gets really nervous, which is always fun.
Kevin O'Leary: There's also one with the interesting packing story about food goods. You can see entrepreneurs coming in asking for money because they went down one path, had success, and then had things blow up because of something they could never foresee. We have a situation like that where someone had a product that was working but had to pull it off the shelf because they encroached on someone else's brand. Fascinating stuff, I love that.
Don't miss the season premiere of Shark Tank, Friday at 9 pm on ABC
