Posted on: January 10, 2012

The Merchant of Truth: In Conversation with Kevin O’Leary

The Merchant of Truth: In Conversation with Kevin O’Leary

Whether you hate him, despise him or loathe him, one thing is for certain… business tycoon Kevin O’Leary knows how’ make a memorable impression. Known as the cruel one on the hit CBC shows Dragons’ Den and Lang O’Leary Exchange and on ABC’s Shark Tank, the self-styled Merchant of Truth pulls no punches, more often than not delivering the knockout blow that keeps viewers coming back for more.

Antagonistic personalities in the media are often more interesting than those that tow more progressive lines, and O’Leary, no stranger to marketing, is thriving in the role. It should come then as no surprise that he’s emerged as one of the leading lights of the CBC showcase, standing out in stark contrast from others within the nation’s most liberal broadcaster. Between his new book, Cold Hard Truth, at the top of the best seller’s list, his business O’Leary Funds managing over a billion and a half dollars in assets, and a variety of TV projects well-ensconced in the popular culture, there is seemingly little O’Leary can’t succeed at. He’s even a pretty decent bluesman with a collection of vintage guitars. COLLECTIONS’ Jeremy Finkelstein sat down with the multi-millionaire at a recent press junket for a candid conversation on entrepreneurship, investing and family.

COLLECTIONS: What makes a great entrepreneur?

Kevin O’Leary: A great entrepreneur is someone who realizes that there is no balance in life when you’re on the journey of building your business. You basically sacrifice everything to get that business up and running. And I don’t mean you shouldn’t have balance In your life for your lifetime. I mean during the period that you’re an entrepreneur and you’re focusing your energies into making that business work, you need to dedicate 110 percent of your effort. The entrepreneurs that are successful, the ones that I invest in, get that. If you look historically at terrific businesses, they’re founded by people like that. Myopic focus on success during that initial period is required.

C: You’re outspoken about your refusal to work for anyone. What’s wrong with being the employee?

KO: Nothing, it’s just not for me .. and it’s not for many entrepreneurs. In my book, I talk about what makes a great employee and what makes a great entrepreneur. There are differences, and sometimes you have to ask yourself what matters most to you in your life, and that will determine which path you take. I like to control my destiny. I have a very simple mantra: Every day, I want to go to bed richer than when I woke up. That requires being an investor, and that is the freedom I’ve earned for myself.

C: What makes a great pitch?

KO: Well, I’ve done a little work on this. I’ve been on Dragons’ Den for six years and on Shark Tank for three, and I’ve seen thousands of pitches. I find there are three attributes every single successful pitch has. First, the entrepreneur was able to articulate their vision and the opportunity in 90 seconds or less. In every case, in the space of a minute and a half, they’re able to say “Here is my idea and here is how it’s going to make you rich if you Invest in it.” When an idea is so pure and so ingenious and so easy to understand, half the battle is done. The second attribute is that they are able to articulate why they should be the person or the team to execute the business plan. That takes a little longer, about five minutes. So now we’re at about six minutes, when all of a sudden something happens. When those two fall into place, the individuals or the team start to sizzle like an isotope and they emerge as leaders. You start to believe, even though there is risk inherent, that they can actually pull it off and you want to write them a cheque.

C: You are always asking for the numbers to determine value, yet even from your own experience selling your Learning Company to Mattel, It is not uncommon for an acquisition to underperform. In that light, how do you find the truth in the numbers, and what indicators should investors be looking for?

KO: I invest in businesses that have shown some level of success; in other words they have sales. But the most important decision in making an investment is to not overpay. If you want to make a return, you have to pay a fair price for it. I am not trying to steal businesses from people, but I don’t want to overpay because I will have no chance of getting a return on my capital. I also often go for control because if these people can’t execute their business plan, I want to be able to fire them and hire someone who can. It doesn’t mean they’ll lose their money … they are still an owner, they are just not good managers. I think valuation IS absolutely crucial. I’ve got pretty good experience at determining value, and I don’t worry about a deal that doesn’t happen. If we can’t get there, I’ll forget about that deal in two seconds. There are a thousand more coming.

C: How many have you invested in through your shows?

KO: It’s not just those, I have many other venture investments. At any time, I’ve got about 20 positions open. On Dragons’ Den, when you see a deal with a handshake, one in three of those close. So two thirds don’t survive due diligence. Of the ones that we invest in, one in 17 makes money.

C: Do you find that the opportunities are different on the American show versus the Canadian show7

KO: No, they are just larger reflecting that the market is ten times the size. The deals tend to be in the millions in the US and in the hundreds of thousands in Canada, but there are great opportunities on both sides.

C: O’Leary Funds has the tagline “Get Paid While You Wait! ” referring to a policy of only purchasing securities that pay yields. Why is this good business?

KO: When I was young and my mother was working at Kiddies Togs, she used to come home and invest a third of her pay cheque. She used to say to my brother and I, “Never buy a stock or bond that doesn’t pay interest or a dividend. You always have to get paid for everything you buy.” That is how I live my life. I realized that it is such a simple investment philosophy. While you are sitting around waiting for the markets to go up, at least you are getting your dividend which is equivalent to six percent. So she was absolutely right, and when I founded O’Leary Funds just to put my own money into, I realized there would be tens of thousands of Canadians who agreed. We now have over a billion and a half dollars being invested and every security we own has a yield.

C: You advocate conservative investment values, yet equities are inherently risky. How do you reconcile that?

KO: Well, I have 20 different funds and there are all kinds of mandates, but essentially I put securities into two baskets. There are companies that are growing free cash flow every quarter and paying a dividend, and there are companies that are not. I never own the ones that are not. I only own companies that are growing free cash flow, paying their dividends, and increasing their dividends. So what I end up with is the thesis that a company that is profitable. even though its price may be volatile, doesn’t go out of business, and continues to pay. I tend to own things like Telcos and diaper companies and pipelines and railways and storage facilities … things that are not correlated with recessions. They are not exciting, they are very boring, but they pay a lot of cash. The older I get, the more conservative I am. I don’t want to take risks. So when people say buy gold or get this hot new mining stock, I don’t even hear them.

C: Like Donald Trump, the boundaries between your TV persona and your business dealings have become obscured. How do you prevent becoming more brand than substance?

KO: I look at it this way .. there is no grey in making money. You make money for your shareholders or you lose it. So what I want to be measured on above everything is not my performance on TV, but rather the performance of O’Leary Funds. Currently we’re the top performing Canadian equity fund in the country in Canadian dollars, and we have one of the best global bond funds in the country, always in the top quartile. These are things that are measurable, there is no brand to that, it’s just performance. I love what I do on television. I meet amazing people and it keeps me hopping, but I keep my feet grounded in O’Leary Funds.

C: Since you wrote your book, you have separated from your wife. With that new development, do you think it’s possible to achieve the business success to which you are accustomed, as well as success in your personal life?

KO: I think you can, and I did so for 21 years. I was an entrepreneur for over two decades, was successfully married, and raised kids that I am very proud of. Our separation is very amicable, so it’s not a bad situation by any means, but the pressures of being an entrepreneur and the time constraints probably were a factor. However, my wife was at the book launch with my kids. We are still a family unit, that’s how we look at it. It is unfortunate, and I try to deal with it the best I can, like any adult would. But there is pressure. Certainly television is very time consuming and is probably a factor in what happened.

C: In a recent interview, you spoke about raising kids, saying that you would give them an education as long as needed, and then set them free with no money so they can earn it on their own. Was that true?

KO: Yeah, it is. I will tell you an anecdotal story that I think is important. My dad is 81. He lives in Geneva and just celebrated his birthday. I go over there a lot to see him and I take whatever child is available so he can see his grandkids. My daughter is currently in New York but my son is in Toronto. So my son and I get on the flight, and he says to me, “Why is it I always have to go left and sit in the back and you get to sit in the front with the good food and movies?” And I answered , “Because you have no money.” I think that is a very important lesson. He’ll have to go and get that on his own. I think it would be a huge disservice to just give him money. What motivation would he have to go out and make it on his own? I see lots of really messed up rich kids and I don’t want mine to become like that. I may give my money to a cat. I haven’t decided yet.

C: What advice do you have for the next generation of wealth builders?

KO: You have to be very disciplined about money and not be emotional about it. I look at situations where I’m looking at an investment opportunity and it is clear to me that it is not a good idea. Maybe somebody used their family’s wealth or mortgaged their homes to pursue it, and yet they have never tested the market. They have never gone to an arm’s length investor and asked “Would you invest in this at this value?” I see them getting very emotional about it, but I don’t see where emotion fits in. Money has no emotion, it has no soul, and it doesn’t care. It just takes the path of least resistance, trying to get a return.

This interview first appeared in Collections magazine. Visit its website here.

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