Kevin O’Leary

Kevin O’Leary (@KevinOLearyTV) joined James Altucher (@JAltucher) to talk about money, relationships, and bass/base rates . O’Leary is one of the sharks on Shark Tank and author of The Cold Hard Truth and more recently, The Cold Hard Truth on Family, Kids, and Money. While the audio is not great, the ideas are.

Here are 6 business and life lessons from Mr. Wonderful.

Questions asked = problems people have.

O’Leary tells Altucher that this book, The Cold Hard Truth on Family, Kids, and Money came about because of the questions people asked him. “I’m going to take these hundred questions,” O’Leary says, “and put them in a book.”

A frequent piece of business advice is to find a problem which people will pay you to solve.  O’Leary was lucky, the problems came to him. Both Austin Kleon and Steven Kotler mentioned the same phenomenom. When they were on their respective book tours people in different places asked the same questions. Their next books answered those questions.

Part of the reason is money.

“Money is often a piece of that pie, but it’s not the entire pie,” said Altucher paraphrasing a section of O’Leary’s book. This single idea gets at two big pieces of life advice; the value of money and “part of the reason” thinking.

Money, Tim Ferriss reminded us, is something we exchange for something else. It’s not money we want, it’s the something else. Which means we don’t always need money. Sometime we can bypass it and go right to the thing. Look at podcasts. Both Ferriss and Altucher admit that part of the reason they podcast is as an excuse to talk to people they admire.

Stephen Dubner wanted to live in NYC more than he wanted more money. Mark Zuckerberg liked Facebook more than a billion dollars, an offer he got early in his career. Money is something, but not everything.

Part of the reason thinking was introduce by Sanjay Bakshi, and it’s a powerful idea. Bakshi noted that many things don’t have single explanations. Part of the reason O’Leary is happy is because he has a lot of money, but it’s not the only reason. O’Leary (I assume) is also happy because he’s on television, has a long-term marriage, has kids, has a boat, and gets attention. Those are all components of his life.

When we use part of the reason thinking we can get all the right answers. It also simplifies our work. In his book, Think like a Freak, Stephen Dubner explained why big problems are difficult to solve. Little problems are easier.

Anchors away.

Altucher includes a few questions from his daughters. One of which was how O’Leary anchors the negotiations by making early – hail mary – style of offers. While his response in the interview was brief, beneath it is a deep understanding of psychology.

Anchoring establishes a starting point that influences a person’s thoughts. A timely example – the holiday season 2015 – is Black Friday and Cyber Monday. Both of these days are full of deals, with huge markdowns. But markdowns from what? Why does 50% off seem like a great deal?

These steep discounts seem like a great deal because we don’t know the the intrinsic value. We don’t know what a thing is worth, so we answer a different question. How much did it originally cost?

As Ramit Sethi notes, “we are cognitive misers.” That means we like taking the mental shortcut. Rather than figure out how much we value a TV, or what a TV normally costs, we look at the original price and that’s our anchor.

Now half off seems like a great deal, but we don’t really know. What we’ve done is replaced one question with another. In Thinking Fast and Slow Daniel Kahneman explains this mental bait and switch.*

“In one of our studies, we asked participants to answer a simple question about work in a typical English text:

“Consider the letter K.

“Is K more likely to appear as the first letter in a word OR as the third letter?

“As any Scrabble player knows, it is much easier to come up with words that begin with a particular letter than to find words that have the same letter in the third position.”

K is not more common as the first letter. We answered the question, “can I think of words that begin with K more easily than words with K as the third letter?” When that answer was “yes” we switched the question at hand.

Anchoring has a similar effect. Entrepreneurs enter the Shark Tank and get an offer of X from O’Leary. If that’s not a great deal then each subsequent deal seems better than it might intrinsically be.

One meta point is to understand that we have biases in our understanding. Tren Griffin pointed out that at least knowing our biases can be helpful. One of which is how we view work.

Anchoring and jobs.

“Our economy,” O’Leary says, “provides all kinds of opportunities to make a basic living.” “There’s no shame in working hard at things and trying different ideas.”

His point was that if you want to work hard, you can find a job that pays you well.  Wayne Dyer also spoke to this in his conversation with Altucher. “I’ve never been unemployed a day in my life,” Dyer recalled. He was able and willing to work.

For them it was a matter of just working. Entrepreneurship looks great on TV whether it’s Shark Tank or The Profit with Marcus Lemonis. A lot of jobs aren’t like this.

O’Leary’s book has some ideas for this. Mr. Money Mustache does too. Taylor Pearson wrote The End of Jobs and the future he sees.

Anchor the idea of work that David Levien explained. Your early work will be “confused garbage,” and “it will be brutal toiling away in obscurity.” That’s what it takes.

3 things O’Leary looks for.

If you want to prepare for your Shark Tank meeting with O’Leary here are three things he’s looking for.

Articulate the pitch in 90 seconds or less. This shows you know your idea and inside and out. If you want to practice, make it funny.

From Judd Apatow to Phil Rosenthal to Judah Friedlander, comedians say that if you can make fun of something, you deeply understand it. You could also live it like Dick Yuengling or read about it like crazy like Mark Cuban.

What they all share is a deep knowledge which leads to clear understanding and concise articulation.

The right team. O’Leary also looks to see if the right team is in place. Brian Koppelman compliments his writing partner David Levien. Nicholas Megalis and Austin Kleon also suggest getting with other good people.

Know your numbers. Nothing crushes a Shark Tank pitch like not knowing your numbers. You need to know them cold. Jason Calacanis told James Altucher the same thing about his investment philosophy. And not only yours. You need to know the industry, everything.**

“Because you know I’m all about that bass (rate), ‘Bout that bass (rate), no treble.”

(Where else do you get Maghan Trainor and Michael Mauboussin in the same blog post?)

Altucher asks O’Leary about what multiple he looks to invest at and the magic number is 7 times earnings. That’s the going rate in the private markets O’Leary says. O’Leary expects to succeed in 4/10 investments from the show. The numbers here are key.

If initial numbers anchor our thoughts, base rates can bring us back.

O’Leary knows the private market base rate is 7X. He starts there. If he knows 4/10 Shark Tank deals succeed, he knows how to evaluate his winners and losers.

Michael Mauboussin ‘s post and writings are a good place to start if you want more about base rates.

I thought a lot about base rates during our 12 hour drive home after Thanksgiving. Our GPS said the trip would take 11 hours 30 minutes. It took more like 13 hours. At first I wondered why it took so long. Then I started thinking about accurate base rates.

I realized there’s almost no chance that two adults and two kids can make the drive in less than twelve hours. Someone always needs to pee or eat or we need to stop for gas or switch drivers. There’s too much that can go wrong.

Making it in less time is like shorting a stock. There’s a slim chance for little benefit.

What’s more likely is the drive takes longer than projected. In addition to any breaks there’s the chance of an accident, construction, or bad weather. Many things can go wrong.

The real base rate for a family of four to drive to Connecticut is 13 hours. When I realized that I felt happier, even though I was still in the car. This was the power of accurate base rates. When I switched my estimate to a more accurate one, I had a positive emotional reaction. The same is true for business.

In business we should expect turbulence. O’Leary sees this looking back. “Any business has huge volatility,” he says. “We were on the brink of bankruptcy multiple times. But that’s just the nature of what entrepreneurial business is.”

Chris Dixon said the same thing, “I’ve almost never been involved with a company that didn’t have moments of almost failure.”

If we know this going in, we’ll be more prepared emotionally. It’s Marcus Aurelius who explains this best; “How ridiculous and how strange to be surprised at anything which happens in life.”

Serendipity and luck.

“Life is very serendipitous,” O’Leary says. If we knew what worked, we would just do that. We don’t know though.

Add O’Leary’s name to the list of people who admit that luck played a roll; Jason Zweig, Kevin Kelly, Scott Adams, and Chris Dixon among others.

Thanks for reading, I’m @mikedariano on Twitter.


* “bait and switch” was termed by Philip Tetlock in his book, Superforecasting. I like it a lot more than Kahneman’s terminology.

** the second mistake after not knowing your numbers is to make what Altucher calls, “the refrigerators in China” mistake. It’s saying that with a market as big as X and if you capture %, then the result is Y. It’s never like this. Altucher comments that with a market that big you’ll be knocked off so fast. Just like hoverboards.


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