Transcript

00:00 So let's talk about your mother okay. Then we'll talk about how your mr. Wonderful I've tried to get my wife to call me. Mr. wonderful. I'm not having much luck with that. But do you really literally mean that if you are in business you have to be willing to fire your mom.You know it's true you do because in the end when you create a business and you start one many entrepreneurs in this audience will understand this comment. Your allegiance has to be to the business first because without that all the good things that you want to do are going to fail and so as your business grows and you make decisions about individual people. You can't let your emotion get in the way of what you really need to do which is to drive success of the business and so the minute you get your first customer. You now become number two. The minute you get your first investor. Now you're number three. The minute you hire your second employer you're number four. It's still your business but now you know who you have to serve and I think a lot of entrepreneurs that fail don't understand that you're always serving someone a shareholder a customer the business and if you lose sight of that by letting your emotions get in the way and this often happens certainly happen to me in early days.Many people hire their friends. They start a company with their friend or with their brother good way to end a friendship or your. It's a family business and very often nepotism is what kills the Golden Goose because very often the better manager is not your sister brother uncle cousin whatever and I lived through this all the time in the companies that I'm an investor and I have 32 portfolio companies. Now I watch this happen every day and I don't let emotion get in the way of the true pursuit of what matters the success of the business whether it's your mother or not. Let's take it away from the idea of firing your mother but just because it's sort of as a conversational thread that I could pick up on you've had to fire people. How do you do it. I'm sure people here. It is the thing they probably dread doing the most yes and how do you do it fairly without inflicting undue hurt. The key to ending a relationship is to explain to the person that you're doing it to why it's happening because they won't learn anything from it unless you do that and in my companies particularly ones where I have a control position I do that myself. It's the hardest thing to do. I'll make two comments about it and I see this happen with weak managers all the time the moment you realize that that person isn't right for the job is the time to take them out of it it because it's not fair to them. It's not about you. It's not fair to them and the people they're working with and the team that they're part of that.The biggest challenge and I generally find this at sort of the 10 million dollar sales role. Many people have to change in going from ten to twenty five million in sales. It's the natural Darwinian forces of business and if you don't have the balls to make those cuts and you can't deal with it. You're the wrong leader. In other words. The skills that it takes to go from zero to ten million yeah are very different from the skills. It takes to go from ten million to 25 25 stupid I've after decades of investing in companies that go through those transitions. It's extremely difficult and it takes different skill sets and you have to be able to you know work with people. The key is you don't want bad karma in business when I terminate somebody I make sure they get a fantastic package. I make sure they get counseling. I make sure that we do everything we can to find them another job just not with us because they're the wrong person how what are take me back to someone you've fired that that comes to mind how did you know they weren't the right person for the job. What was the tell-tale or what are some of the Telltale's that you have seen over your years that tell you this person isn't right. I have to let her or him go. That's a good question and I'll answer it with an analogy of fact I carry two phones with me.
04:34 This small one is only known by my family and very very close friends and when it rings I'll always answer it because it has to do with something going on with my kids or my family or my brother or whatever this phone. This larger one. Probably 10,000 people have this number I'm a believer that if you are an entrepreneur or a major shareholder of a company every single customer should know if they have a problem who they can call and when I say this this concept of access. In other words many managers think well you know if I give my number out to my employees they may call me and and the truth is you want to hear from them. You want to hear the bad news first and what I found is the more people I give this number to the less it rings. I tell them simply look. I want you to have this access because I respect you and I want you to know that you can come to me. And in that trust I find that most people never use it. This thing does not ring as much as my family phone does but when it rings it's a big deal and the reason I know it's time to terminate. Somebody in one of my companies is when my customers and my shareholders call me three times about that person. It's always the same mm-hmm. It's always the same when a customer's complaining about a CEO or a head of sales or the head of R&D or employees are not happy and I keep getting that phone call I get on the plane and I get my whack and stick out because there's something wrong and you can and no matter how you try and fix it.The markets talking to you you are you have to make that decision. It never gets easy but and you do it personally. I do it. Let's do it faced in the companies I have 51% equity into it personally. I don't do it when I'm at 3% shareholder because that's not my job in in the law. Oh shares on the 50% shareholder in if I have a problem with somebody. In there I take care of it. Myself. I care a lot about that company because I don't have to as you look at all of the businesses that come across the the palette of Shark Tank and their what a hundred thousand applicants this time around yeah. A hundred thousand who does the initial winnowing people at at the production company or you know I I have to give credit to the producers now because if you think about the first thirty six months of Shark Tank the first three seasons nobody watched it. I mean maybe a cat or dog somewhere but and and then in season four a fundamental change occurred. Many people don't know this previous to that the producers took a five percent equity stake or two and a half percent of free cash flow in perpetuity from any company that came on the air and got airtime. It was a product integration idea and the Sharks.Most of us said this isn't working because we can't get real companies to come on the show because they have shareholder agreements and they can't just issue equity to anybody mm-hm and so when the decision was made and I'll give credit so that rule was an impediment. It was a huge impediment and it occurred we used to get what we called turbo basters. In other words. A woman came on once in season three maybe. It was two and she had a piece of paper with a turkey baster on it and a battery taped to it and she said this is a million dollars. This is a million dollar turbo baster and I looked at it and said this is I mean this isn't working. We're never gonna get anything going here and that is known as the turbo based a problem and we went and fixed that in in year four and took away all the covenants on equity and all that stuff and all of a sudden. That's the year the show went geometric. We got incredible entrepreneurs amazing deals venture backed angel backed you name it and the show went geometric but the key there is the producers over those first three years became very hip to figuring out how to work with me saison which deals to bring what were to bring to the set does what entrepreneurs what was their history.How did they work on television and so the most valuable asset inside Shark Tank are those hundred and twenty plus producers and pas and assistants and showrunners that actually look at that that those hundred thousand videos and say that one and that person and that one and somehow when we get there which we will on June 13th this year. It'll just sizzle like an isotope when we show us so how long I think the audience might be interested to hear. Obviously each one of the pitches is is heavily edited down to the to the best parts yes and and for it's it's edited down for narrative. It's edited down for conflict and collision of ideas how much time so it's how long is an average segment and how much time do you actually spend interrogating the pitcher that's a good question and I'll tell you and this is probably one of the most important lessons.I teach I teach graduating cohorts now in engineering schools to try and convince a third of them to start their own business place like Notre Dame MIT getting those entrepreneurs out of those engineering classes is important just to be globally competitive. But I always tell them about my shark tank experience after seeing thousands of pitches for all these years and I whenever I talk about shark tank. These are the three attributes you find in every successful pitch by the minute. Let me give you the time mm-hmm. The ones that work the ones that get a check does not determine the outcome of the business. These are the ones that get a check that actually start their journey funded on Shark Tank that go into the ecosphere shark tank that get followed every year by all the networks that get all the daytime television and all that stuff because they got an investor in every case.They're able to articulate the idea in 90 seconds or less. Every single time they were able to send. Most of them are 60 seconds. They say look I'm from Cohasset Massachusetts. I put cupcakes in a jar and a FedEx them to people. I get it the ones that ramble on and can't get the idea out and it's still ten minutes later and we're still wondering what are they talking about. They never get funded.
11:12 So that's number one that only isn't it's 90 seconds. The next segment is the part of discovery where they explain to you and I generally only invest in teams. Now. I like the yin and yang of two partners that bring different skill sets. But they explained over. Let's say a ten minute period. Why they're the right people to execute the business plan and this ends up being very important because when those two come together you can start to see. I could see Cuban over on my right starting to make noise and Barbara's started to get excited over here because wait a minute. These guys know what they're doing. I love the idea they know what they're doing. They have a high probability of success but here's the killer and this is where you can spend an hour two hours and sometimes you do. We do. There are some legendary cases that have gone past two hours by now.There's a competition going on there's going to be an investment. It's just who's going to do is going to do it and what do we get what are the terms but then the discovery and the one where they fall. I've seen so many presentations crash and burn. Here the numbers they don't know their numbers and if you show up in front of me and shark take and you get past phase one and two and we spent an hour and you don't know what the gross margins are. You don't know what the break-even else is. You don't know how many competitors you have you don't know how fast the growing market is growing. If you don't have the answer to all those questions I should put you in hell in perpetuity.You should burn in hell because you got there. You're on the carpet. You're there about to start your journey and you don't know your numbers immediate execution. I mean that's unbelievably stupid but that's the one and that's the many who get that far did. It falls there or often than you would believe because the confidence of the investor you can see it just like like the soul of a body drifting out that's exactly what's happening. I thought I can't believe this these morons don't know their numbers and I just I feel it's my moral obligation to send them hell. Yeah I really did yeah I mean it's just. It's so that is very important and that discovery can take a long time. When you're a confident. They know their business model and they're the right people to execute the plan and you get the opportunity.That's two hours now. The editors have to cut that down to eight minutes and they've got to find those moments that define what that deals all about and they become masters. At that too. I mean I watch shark tank just to see how they edited it because I was there and I went that deal was two and a half hours and I just the they're amazing editors. They're really good. How do you get it down to that to that level that is really their their skill. You talked.We talked last night about the success rates that you have found in your portfolio companies and the fact that in terms of return of capital who does best yeah so this happened to me and it's got quite a bit of press lately. But it's a fact 2014. What happens is when you most sharks now have their own VC firms. So you set up a company mines called alare ventures you staff at you bring in interns during the shoot so you can have a bunch of people doing due diligence. Mines run by a guy named Alex Kenji who is an IP lawyer from Boston MBA Russian poet very strange dude but but he he is a master at this and so at the end of 14 we said let's do a going concern on it. We had about twenty seven portfolio positions then in private businesses because the auditor said look some of the stuffs. Gonna have to be written off I mean you don't get a hundred percent successor but he knows that so they said let us do a study. We'll determine which ones you're either. Gonna have to fund or take to zero on a mark-to-market basis but we'll also try and find for you because you're doing so many I mean 27 positions is more than most VC companies have today I have 32 on the books and they said let's try and figure out.What the common attributes are of the ones that are successful in returning capital and lo and behold about two months later and I'd never noticed this because I wasn't looking but not some of my returns. 100% came from companies either owned a run by women now what and I'm not I'm not. I'm not you know trying to be star gender warfare. Here. I don't care about that I would give money to a turtle if I could get it doesn't matter to me. But the point is what is it about because the after the companies are generally at the small end five million in sales to the high end. Maybe 350 Serralunga lasat honey funds doing the 380 of origination of 380 million and that's another company run by women that's been a monster success for me. So the point is what do they what attributes do. They have that are different than their that then they're you know compatriot men managers and I'd argue that that old adage if you want something done give it to a busy woman time management. Skills and small cap companies remarkable number to setting goals that are achievable on a quarterly basis because when what companies achieve their goals the morale lifts up the propensity to succeed again is higher and so they set more realistic goals yeah they do because the guys are swinging for the fences all the time it's setting ridiculous goals that they don't achieve and then saying well. We did okay we we did 50 percent of our goal that is not the same as achieving a goal and succeeding it. So I'd argue that's better. But I think the real key is risk mitigation. I find that the use of capital which is always scarce in a growing company is better managed by women who diversify the risk. But the only thing that matters is the return of capital and you know I'm now gathering these companies together.
17:05 We did last year's it at in then takut. I brought all the companies into one place because somebody was kind of a funny story. Somebody came on Shark Tank and said you know will you marry me. Mr. wonderful and I thought that's different and then there did somebody in. Boston figured out that you could get for 12 hours from the governor of Massachusetts the right to marry somebody and they got me that and I married somebody on. Nantucket was very cool but we also got on our companies there at the wedding and I had the guys talking to the to the women saying why are they returning me so much money and you guys aren't like because we're agnostic geography. Here we're agnostic to sector or agnostic the product. What did the guy say I said they said well. You know me you have to think long term. Kevin I said look at this look at the returns here what are you doing and so. I'm very. I'm an activist now to try and and translate.These success features from these companies and I'm going on the road in a couple of months starting to bring some of them around. I recently shot something Arianna Huffington and brought Sarah from honey funds there because I want to celebrate their success because I think they're getting a bad rap. We need more women in management positions all over America. They're doing a great job and this is not about this is about making money my favorite thing yeah so so so with that in mind. Do you either on Shark Tank or in other parts of your your far-flung far-flung ventures why don't you only invest with women run companies or do you well. I obviously if I had two options and I had a women management team and a men in the same product. How do you would I would see me because just the success I've had. I talked to Alex about this. All the time I said look at these returns. Why are we just giving it to you and I you'll see a bunch of deals. This year. I've done with with women teams but every once in a while something comes along like love pop which which is a 3d card to Engineers marine engineers that made attack boats.I mean if you're smuggling drugs and they're chasing you. It's in a boat that these two guys designed with ordinates on it. They can blow you up and all this stuff and then they go to Harvard. Then they go to MIT. They're engineers and then one day they say let's make love pop cards so these are 3d cards that's a left turn. It is a left turn and I saw their pitch on Shark Tank last year and I thought I must be dreaming like why would two guys from MIT and Harvard make greeting cards and I listened to their story and how their they believe that everything is going to come back to the old ways when you write a card and they were designing these beautiful cards that when you open them up they're 3d and they're all laser-cut by their designs because their designers and then they're they're cut in Vietnam and fit in FedEx. Back anyways. The business is on fire two guys so they're I invested in two because I didn't see any women making 3d cards like this mm-hmm. So it's it's um you know.Shark Tank is a consumer goods and services platform. That's what it is and so if you have a product that's already in distribution you get on Shark Tank. Your sales are going up thirty thousand percent. I want to turn to to the to the the whole topic of fusing social purpose with business purpose because I know you have some thoughts about that. But I also want. We were at dinner last night and and and you sell your wine through QVC yeah. How important a selling tool is QVC. It feels to me like I'm not sure whether it is necessarily applicable to the entrepreneurs in this audience but it is a truly powerful tool. Yeah I was introduced to QVC from Lori who came on the show. A few seasons ago is the queen of QVC and I never believed in it until I realized and I tried it. Once I went on there to sell O'Leary wines which was a shark tank deal and in 3 minutes and 40 seconds sold a million dollars of wine and I went whoa because you're sitting there with a little thing in your ear.An IFB and the producer is saying to you okay. We've got a hundred thousand to two hundred thousand. I'm thinking to myself what is he talking about. But they've got millions of people watching this and making decisions live and so it's completely changed my mind. Their model is incredibly. Interested and they're very sophisticated about how the product is presented how you present and so I've taken this whole thing to a new level. Laura used to be the queen of QVC now. She remains the queen but I am the king and so the rules of the monarchy are very strict. She must walk three steps behind me and not speak unless I speak to her first so you can imagine how tough next season shark tanks. It's gonna be brutal all right. So let's let's get to the question which I which I know we talked about at at iconic in Washington.
22:23 At the end of last year there is a growing sense I think maybe partly driven by the business interests or the consumer interests of the Millennials that it is part of a business's calling to either give something back to do something good to have a bigger social purpose or impact then merely to make money for the founders and the shareholders. It's a huge debate in America. It's a huge debate in this room. It's a huge debate in every graduating cohort of engineers in America. It's a it's a global debate going on now. I think there are some issues here and I'll explain what they are the backbone of success of of our country and capitalism and the most noble thing you can do in your life. In my opinion is to start a business and create a job.There is nothing more noble than that but when you take on that journey you also after you hire your first employee and have your first customer and your first shareholder is you have a responsibility of sustainable of the business because you're now servicing customers you have employees that were that actually that you're responsible to maintain their jobs. Their standard of living their ability to have a family comes from you now when you introduce a new mission because the primary mission of a business is to take care of its customers its employees and its shareholders that is the DNA of business when all of a sudden you introduce a new cause. Now. Let's just make it generic. We're gonna save the world whatever that means to somebody you cause a mutation in the DNA of the business. Now you could say going to the Darwinian theory that mutations creates success that you morph into something. That's very successful and there are analogies in business across multiple sectors.Shoe companies other companies that bring a cause into the model and it's very successful because it's a connection to the customer in a way. That's unique if you can sustain that you have brought it into the marketing aspect of what you are to your customer and you've built it into your income statement and it allows you to remain competitive and raise capital against your competitors and you found a way to do something that they didn't do that model. I appreciate understand and believe is a wonderful idea because it's clearly the Ben & Jerry model they cared a lot about their community. But when Ben and Jerry wanted to grow and become a behemoth in the ice cream business they ran into the ultimate problem of scale scalability of this and they don't own it anymore because it was bought by someone who said well there's a cost of capital to making ice cream that cost the protein the cost of distribution. My question to everybody that pursues this is is it sustainable enough that you can create a competitive entity that goes beyond your vision it to be something that creates a service or good in perpetuity for all of your customers and what I find very often is people BS themselves.They say to themselves. I'm gonna game the system. I'm gonna tell everybody that if they buy a pair of socks from me I'll give a pair to charity. I'll get lots of free press. The buyers at Walmart will want to see me because I'm doing something good and I'll actually stay in business even though my costs are twice as high as my competitors and you know what you've got a problem with that. You've got a you know why I have a problem with your whoever is doing that as part of their business I have a problem with it cause it's. It's not sustainable it doesn't work. Those companies are still calling me up saying I need to raise more money but don't worry.Profitability is right around the corner. No it isn't. It isn't the thing to understand. About business in society is this last year and part of it comes from right here in Seattle was the largest amount of capital given back by entrepreneurs in the history of the planet Earth from the profits of their successes of their companies. After the company had paid it back to the shareholders they turned around and gave it all back. They didn't break the DNA of their business to do that they created massive successes in Amazon in Microsoft in Google in Facebook and then they took the profits and paid it forward and that's where they did it. They didn't make it a party evaluation. They didn't try and check say in the world. Why is it. Why does it matter. Why does it matter whether you are a Tom's shoe company very successful. Very successful.They made an example of a company that actually incorporated into their business model and was able to raise capital and build it in a way that kept them competitive and scaled. But what I find is and this is why I give a big warning sign is to take the social mission and say it's the primary mission of the business and its DNA has now been more modified and has morphed into something else and make that secondary to the shareholder the customer and the employee that is not a successful model. So it's really it's a question am I hearing you say it's a question of the magnitude of the social mission so that it it's in its place versus the real mission of the business which is to take care of the customer. The shareholder the employee or is it is it something different and that you've seen. I'm saying you know I get it but but you what you're gonna define and flip it. And I say my business's mission is to do good in the community and and give you that that is a very important mission. It's called charity and there is a very important aspect of what every entrepreneur I give the same use integer every year. But I don't confuse that with the mission of my businesses this is the challenge and I'm not scared to say this business is war. There are competitors winners and losers. It's binary you either make money or you lose it. You need to understand that as an entrepreneur you have to embrace what that means to you and understand what it means to society. Your job is to make that business successful. It's the steel market share from your competitors. It's to salt the earth things to walk on. It's to make sure you put them out of business and you achieve success then and only then after you have got. All of those profits is being a successful business model. You give it back and you pay it forward. That is the model that's how it works and it's never going to change.
29:39 I want to bring up the house lights because I can well imagine that some of you in the audience might like it to take a whack at a shark right. So we have mic runners. I don't I haven't been in the car been on TV. So I haven't seen some of the earlier sessions. We've got about 10 minutes before. We're going to break for lunch. I would merely ask as you ask. Questions would you mind introducing yourself very briefly and just say what you do for a living or what company you're starting or work for very quick. Introduction and please keep your question a question and keep it taut go ahead hi. My name is that Kramer I run a company called IT assurance in Portland Oregon. We do outsource to IT support that doesn't suck Kevin my question for you is how do you make difficult decisions. You always seem very certain of yourself and very certain of the decisions you've made can you take us through the process you use to make the hard choices I listen to my gut. It's not scientific.I've learned over time and I think every entrepreneur should trust their feelings because I've learned every time I don't listen to my gut. I lose money. Every time. I say to myself knowing you're wrong with that I second-guess myself. I lose money you have to listen successful entrepreneurs have a spider sense. I really believe that they know what's right. They know what's wrong. They have to listen to themselves and it doesn't always work out. But the minute you second-guess yourself. You're screwed you really are you. You were no longer a leader. People that follow you into dark places have to trust you and you have to trust yourself. We we had on one of the prior ikonics in Chicago. Your fellow shark Mark Cuban was it was very interesting that he said and he said it a couple of times I visit basically. I've made lots of mistakes in. In my career.I said well what do you do with those music are you trying to learn from you carry your mistakes with you and he said no I cut them off and I try and learn from them. But I don't let them weigh me down. Yeah. I agree with them and then we talk about that a lot gotta. Let it go well because it's the same as investing I spend a lot of time investing a lot of capital in in the public markets and debt markets. Globally. You make mistakes it's impossible to make a hundred percent success in every stock. You buy. It's the minute you start losing you've got to take it behind the barn and shoot it. You have to sell it and you have to realize I hope I learned from that mistake. But you don't always. I rather invest in entrepreneurs that have had multiple failures before I meet them. I love the sting of failure as a motivational tool for somebody that wants to succeed versus somebody that says to me well. I've never run a business isn't like my first turbo baster I'm showing you and that's to me that person isn't ready for prime time I love I love what failure does to your way of thinking. It brings fear into it and it's great do. We have a question down. Here there one a turbo baster actually hi.Kevin my name is Andrea and I own and operate outpatient therapy clinics for children and my question is about with making money I'm all for making money. It's why I'm doing it. My entire staff are all people that are in health services and so the idea of making profit in healthcare. To them is a dirty word and I'd be interested to know how you would talk to people that that have that belief that they should be there just to do good not to make money how you would address that interesting question. This interesting question you find that also in education in an area that I was very involved in for a long time. There these two things can be in parallel.The reason is if you provide great goods and services by hiring people that are very good at what they do and the reason you can do. That is you're growing a successful business and you're basically reinvesting back in people. What I say is to them look people that are concerned because we were very focused in my case in math and reading scores and many many teachers very good ones in phonetic reading or whatever they're there. They're tools are I would try and hire and they've said to me one a little uncomfortable about doing this for profit cuz. You're making millions off read a rabbit and they say yeah yeah. The rabbit is a very rich rabbit and the reason you should do. This is you're going to help hundreds of thousands of kids around the world and you're gonna help me hire more people like you to do this good work and we are going to give back because we were doing a lot of that as shareholders into education after we paid our dividends out and you're doing it because you're gonna help the next dyslexic child because I was dyslexic and the people that helped me they also were they had to make money doing it and I'm so glad that I met them. So the point is you can put both a moral social educational mission right.Beside profit. We have made a big mistake in the last ten years vilifying capitalism. I'm one of the people that want to take that back with in I would just say and I want to get into politics here. But the last two administrations were about redistribution of wealth and solving for health care and we've done a masterful job with that. It's now time to focus on what makes America work which is business to make it easier to start a business sustain. A business we get you have to fix our corporate tax rates the next president. He or she this will be the primary mandate. It has to happen because we're not competitive anymore and these things can always work together. You can do great things and make money and the two of them can work hand-in-hand. Let's go back here to the aisle there. My name is at UM co-founder of yoga Panda which is a startup that helps people find yoga clothes in Seattle and my question is to mr.
35:28 Wonderful chasing opportunity versus chasing compassion which one do you think is more important well. You know every entrepreneur I meet is very passionate. That's just part of the equation. I actually argue that what matters most is executional skills every entrepreneur is passionate. Everybody. That's an entrepreneur is ready to to take that journey and go down that road and that's great but the ones that are still doing it. Three years later have executional skills so that's what I think matters above everything else. I meet lots of teams. I fund lots of companies. I see lots of failure and lots of successes. The difference is men and women primarily women. These days that can really execute that set goals tell you what they are talk to every three months saying I achieve this goal or I didn't and why and to me that's the building block of a business. There's nothing worse than vision all day long vision is easy execution is hard. Let's go back there on that side. How many MS John Stefano and the CEO of Garmin Tori were a start-up in Seattle were the Etsy for young luxury. So we're a marketplace for young Audrey contemporary fashion hundred to six hundred dollar items.Our business is growing really well when we talk to venture capitalist and I talked to a lot of venture capitalists. My question specifically for you is how did how do excellent entrepreneurs. Break preconceived notions that you have and then give you what they think is actually the reality. So for example we're in a forty billion dollar market. People here boutiques or contemporary fashion and they think ah that's a small market. But it's not a small market so how do you what have you seen from entrepreneurs. That's been really if you want to successfully raise money because I've heard pitches from your space a hundred times now and the where they make a mistake. Every time is what we've all learned about building that I love that space by the way because what I find so remarkable about men and women that are passionate about fashion.They throw caution to the wind on price and larger they don't give a damn if they see something. They want they'll kill for it and I think that's fantastic. You find that also in the marriage business and you find it in the burial business all three of which I invest in and so yeah you don't care about price when you're dead or when you're getting married that's great but what you never answer. When you're pitching is the first question you should answer before you're even asked. It is you've figured out customer acquisition costs because in fashion acquiring the customer and making them loyal has in most cases. Ninety-nine percent of the time is actually more expensive than the lifetime value of the customer and so I immediately go to that and say what are your customer acquisition costs and what is the lifetime value even though your business has only been around for eight months or something and that's where I find the models broken because unless you can find a way to acquire a customer and the ones that have been successful have you think of those in the bridal business.For example that sell dresses rent dresses and in groomed you know gowns and everything else. They have found a way to get that that equation nailed down and anybody in here. That's pitching an online business answer that question first the first in your deck after you've explained what the business does let. The second slide say customer acquisition cost lifetime value. That's how you're gonna get an investor interested that you've somehow solve for that. Everything else is secondary so if my cacked LTV is 40% how do I change your mind about market size or some other thing. You don't have to change my mind about market size. That's not my number one question. My question is sustainability of your business model. I don't care if your markets 10 billion 1 billion. 500 million am I gonna get you know sustainability to get 10% 15% share of the market.I'm a quick study. On this stuff I can figure it out in a couple of minutes. Whether it's gonna work or not based on your customer acquisition cost what do you know that I don't know about getting a customer because I've done it in multiple sectors. Now I know it works and what doesn't the reason companies like you know bottle breacher which makes they take ordnance bullets and turn them into wedding gifts. I mean how crazy is that but they know how to acquire customers and they're wildly profitable same with cupcakes same with wedding gifts. The question is if you talked to Sara who were on this honey fund. All she talks about is customer acquisition cost that's it that's 99.9999% of her business challenge. After that she knows what to sell them work on that last question goes to that one that I hi my name is Ahmad from University of Washington and we're starting a business in virtual reality education.
40:14 So my question is you highlighted that team is the most thing your interests. You know you will be investing in what kind of characteristic or dynamic you look into the team's before you invests in a company oh that's a great question. A good way to end it. So what I look for is teams that augment or solve for the leaders weakness because if you come and tell me you're the CEO you're the founder you're the largest shareholder that you know and you're perfect at everything. I know you're full of crap that that is so not true. Great entrepreneurs know their weaknesses and surround themselves with solutions. The logistics person the marketing person the accounting person the saleswoman the salesman and I'll tell you guys a little secret here when I look at new deals existing companies that I'm being asked to either fund with debt or equity. The first thing I do is. I don't take the meeting with the CEO. I asked to go and drink good wine with the man or woman sails and I say look you know I'm not available in that city. So I'll pay to fly her or him out to New York and I'd like to just have dinner with them and often the CFO was trying to broker. The deals is not an all come with him. I said no no no you know I like to meet with the head of sales and I so it's just kind of a ritual. That's how I work and good wine. I'm talking good wine and the head of sales and three hours and I can tell you everything about that company because the head of sales knows where this where things are buried.They know where the problems are with the customer base to know where the opportunities are and my point is the CEO. The next meeting is with the CEO and the CFO and if they know less than I do about their company from the salesperson I know who to fire when I get control of that company and it's not the head of sales. In my companies. There's no cap on the compensation for the man or woman that runs sales ever. They're always the highest paid person always and so talk about a team you want to interview from the sales down without sales. Another company get to know the sales team then meet the logistics. People then meet you know I tell you the truth CEOs are fungible. You can get a new one any time. They are the captain and if they can't lead the ship you got to swap them out and I know that sounds terrible. But I help CEOs that are large shareholders get out of the way of success. Sometimes I've done it multiple times now because they're not the right person teams. Team leaders like great quarterbacks understand what they're not good at there's nothing worse than arrogant CEO that thinks they're good.At everything. I just can't wait to shoot them and on that cheerful note I just want to say on a personal note. Kevin and I have gotten to spend a little bit of time together and he's the nicest shark I've ever met. I mean there's just no doubt about it and I know he has a directness which you can sense in this in this room today and you see on Shark Tank but what are your best friends do. They tell you like it is. They tell you about yourself. Maybe things that you don't want to know about yourself and that's what Kevin does with respect to entrepreneurs. He tells them what he sees in an honest and direct way and in that sense he is the entrepreneurs best friend. Kevin O'Leary ladies and gentlemen.