Mark Cuban: What investors really look for

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We're about to start our episode with Mark Cuban. Quintessential entrepreneur and investor, made famous by his role on TV Shark Tank. And that's where we're gonna start the show by hearing from one of the entrepreneurs brave enough to put themselves at the mercy of Mark. And the other sharks. It's like you are about to go out. on the floor to play your first NBA game.

The lights are dark. You get your cue to come out. Light turn on. your heart starts to race.

You start to walk out. The big doors open. See the five sharks there. Your brain is telling you it's real. Your foot hits the pavement, hits the wood.

Sit there for about five to ten seconds. You can't say nothing. camera goes past you. And you know when your Q is you better bring it. It's time for you to like Yeah.

In that five to 10 seconds, you have this. energy that you are suppressing. and these thoughts that are going through your head. when they say action.

Just everything got blank. And you have to perform. That's Noel Durity, inventor of the twisted up hair comb. For Afrocentric hair. Noel is taking us back to his experience on the TV show Shark Tank, which sees founders attempt to win financing by pitching to the sharks.

you get into this zone. Up like the rim becomes so big. Mm.

Make every single shot. It's like Oh I I said a few words. Said a few more, it's been two minutes. All of a sudden I found my groove, I'm in a rhythm.

Ooh, the pitch was done, the Q<unk>A's my bread and butter, it's the fourth quarter, let's go. You should start running. Noel was in the zone. You know. The Zoom. where your sense of time goes a bit wonky.

But your mindset. is diamond sharp. I was in there a lot longer than I thought. Bye. I thought we will only be in there for about like 10 to 20 minutes, but we were in there for about an hour.

But it went by. Yeah. I was hoping that they would ask me a bunch of questions. as many questions as possible because I knew that my product was a niche. So the more they asked, the more that I knew I had their attention.

It was not just the shark's attention that Noah won. He walked out of there with a joint investment from Mark Cuban and Damon John of two hundred and twenty five thousand dollars for twenty five percent equity. But they weren't just investing in his product. They were investing in him. And that paid out in twenty twenty.

Mm. My manufacturer is shut down. Because of Covid. Shut down for two and a half weeks. It's completely shut down. Uh

I convinced them to give me the keys. and I go in there at night. And I run parts by myself. Because at the end of the day, it's my business. When I fall.

I have to make sure that it succeeds. Um That's the kind of work ethic or the hustle that Mark loves. Because he just knows I'm gonna find a way. In 2020, the company grew 40%.

During every session. Why? Because I'm gonna find a way. I don't know, I could just tell you maybe it's it's based on my parents how to raise me, based on just me being an immigrant and knowing that I have to work harder than everyone else. But nothing was ever given to me.

Even when you land investment, you've got to think like Noel. And you still need the same hunger. Speed. And humility. Because these qualities are the hallmarks of a successful entrepreneur.

And they are exactly the qualities investors look for. That's why I believe you need to act like a founder with hunger, speed, and humility, but also have the mindset of an investor. You gotta have incredible talent at every position. It's like this gets a huge push. There are fires burning when you're going out. Such an idiot. And then you go back to this is totally gonna be amazing. There are so many easy ways. I have no idea what to do. Sorry, we made a mistake. But you have to time it right. We haven't made just how you do it. This

is masters of scale. I'm Reed Hoffman. Co-founder of LinkedIn. Partner at Graylock. And your host.

And I believe you need to act like a founder. With hunger, speed, and humility, but also have the mindset. For many first time founders, there's a fascination surrounding investment. Investors seem like a different species.

Perhaps even like predators, who hold the power of life and death. Over startups. There's a mystique surrounding the process of winning investment, the financials, the term sheets, the equity you're prepared to give up. And of course, there's the dreaded pitch. Something many first time founders obsess over.

But all these things should be low down your list of concerns. Even if you have your first investor meeting. Tomorrow. Because they're very low down the list of what investors themselves really care about. So what do investors look for in their founders?

I can't generalize for all investors. But there are three things that I think are vital considerations for every investor. Hunger? Speed. and humility.

I wanted to talk to Mark Cuban about this because as an entrepreneur, he embodied all of these qualities. and when choosing which companies and which founders to invest in. These qualities Or at the top of his mind. Marked how pioneer many of the internet technologies we see as fundamental.

He helped make audio and video streaming a reality in the nineties with broadcast.com. which Yahoo acquired for five point seven billion dollars. And he has gone on to become one of the most successful investors in the world. Mark is, of course, also. One of the sharks on the hit tv show Shark Tank.

Which gives millions of viewers a window into the world of investing. By looking at his journey and the insights he's gathered along the way, we'll get a unique perspective of on the investor's mindset. one that should be helpful to every founder. even the vast majority who will never find themselves courting investment.

And we'll also hear from founders of some of the companies that Mark has invested in. how securing funding impacted them. And what they've learned from the experience. Mark started out with a prototypical founder's first job. Delivering newspapers.

However Rather than spending his entire summer tossing dog eared copies of the local paper onto the doorsteps of his neighborhood in Pittsburgh, Mark crammed his entire childhood paper delivery career into just twenty four hours. When I was twelve, I asked my dad for a pair of basketball shoes. He looked at me and he goes, Those shoes in your feet, they work really well. When you have a job, You can buy whatever you want. And so I had this orientation always to try and to find new hustles, if you will.

And so when I was about sixtien. The Pittsburgh Post Gazette. And the Pittsburgh press went on strike. And so there was no newspaper, and this is the mid seventies, newspapers were a vital part of how we consumed information back then. And With some of my friends, I was like, We need to drive to Cleveland.

And leave at six o'clock in the evening. Go up there, find out when all the new papers were being printed. Buy as many as we can, fill up the car, put'em on top of our laps. Fill up the trunk. And go back to Pittsburgh and make it back in time to sell'em in the morning for rush hour.

Pittsburg to Cleveland is already a 260 mile round trip. But it wasn't as simple as going there and back again. Mark and his pals had to track down the newspapers when they got there. And that's exactly what we did. We literally would find Cleveland plane dealer trucks and follow them wherever they were going and bought like a whole truck work to fill out the car. Drove back.

With our friends. I dropped them off at different street corners in downtown Pittsburgh, and our net effective cost was about ten cents a paper, and we sold him for about fifty cents a paper. And we made money and I learned a lesson. Yeah, indeed. And did you do that day after day while the strike was happening, or just once?

We were like rich at that point. We all made like twenty five dollars apiece. And it was just too exhausting. And my parents, when they realized, you know, that we had been up almost twenty four hours when it was all said and done, my parents shut it down. Yeah. In the mid-70s, twenty five bucks could get a kid a decent pair of basketball shoes with change to spare. And this is an early and clear example of Mark showing the hunger and speed that investors look for. There was nothing special about the product or the idea here.

It was all about the gusto of Mark's execution. This was an early instance of a pattern Mark would repeat again and again throughout his youth. With hustles that included selling garbage bags. Organizing Disco lessons. and holding huge college campus parties.

The common thread linking all of them was Mark's lack of money. When you're broken, you have to come up with something. You've got nothing to lose. And I think that's the other Thing to remember. You've gotta solve a financial problem. You reckon that.

If you don't solve the problem, you're stuck. And so if you try and you fail. You're back where you started, you haven't lost anything, so why not try it? Right. Yeah. I don't think people realize that sometimes the best time to start a business Is when you're broke.

Right? Yes. You got nothing to lose. And if you're looking to be an entrepreneur, you don't want to take on a lot of debt and you know the car and the house or the the expense of this or that. That living like a student is puts you in the best position to be an entrepreneur. To be very clear. I don't want to push the romanticized and flawed.

image of the financially struggling entrepreneur. There are millions of people in desperately tough economic situations who find themselves there for many complex reasons. Reasons that preclude them from risking everything on starting a company. And of course, entrepreneurship simply isn't for the vast majority of people. And that's fine too.

The key takeaway here is that investors are on the lookout for founders who are willing to embrace failure. Because that is often a signifier that they also embrace learning. that they can iterate on their idea. Or even pivot totally away from it. And founders who are prepared to put it all on the line are likely to embrace failure.

The most of all. Another thing that will light up an investor is a founder who has the humility to actively seek mentorship. Again. It is a sign that they have a learning mindset. But for Mark.

It wasn't a shining example of entrepreneurial excellence that served as his mentor. It was quite the opposite. The boss at a Dallas based software sales company where Mark worked in the early eighties. My job was to sell off the shelf software. and to learn the software and come up with business applications to help people do it.

And part of my responsibility was to sweep the floor. Wipe down the windows. and open up the store at nine thirty every morning. And one day I had a chance to close a deal that would give me a fifteen hundred dollar commission. So Mark went to his boss with a proposition.

He'd close the deal early the next morning. And arrive slightly late at work. A slam dunk fifteen K sale for the company the risk. A slightly dusty floor.

And I called him and I said, look, I have a chance to close this$15,000 sale. which would earn me a fifteen hundred dollar commission. And earn the store a lot of money too. And I'm like, so I've got somebody to cover to open up the store and do all that. He goes, no.

Asking for permission hadn't worked for Mark, so he decided to go ahead and instead ask for forgiveness. I made the executive decision thinking if I go pick up the check. When I come back All would be good, right? Cash. yours all.

Mark closed that sale. And bounded back to the office with the good news. Because asking for forgiveness is even easier when it comes with a check for fifteen K. Right. Fired me.

Fired me. And here's how that rigidly buy the book boss became Mark's most valued mentor. Or more accurately. anti mentor. Mark may have learned more by being fired.

than if he'd been promoted. Learn so much from that. Because as you start to think back through and things and you run them through the head, the conversations I would have with him weren't about software or this application or that application. And he would never go on sales calls. Ever.

Or even make sales calls for that matter. He wanted to be the CEO, right? He wanted to be the owner. Like that's the big deal. He was somewhat more worried about looking good than doing well. It was crazy. And if it's your business You're the CEO, you're the founder, or one of them.

If you don't love your product or service so much That you know that it's a good thing when you call somebody or email somebody or talk to somebody about it. You're in the wrong business and it's just not going to work. That boss clearly lacked hunger. Speed and humility.

That boss's ego and self involvement was hugely damaging in so many ways, and these traits in a founder. Send alarm bells ringing in any investor's head. It's a clear sign that the founder lacks humility. But that's not to say that ego in itself is a bad thing. Most founders believe they

are the ones to bring their vision into reality. And this can be Very healthy. The question a smart investor will ask themselves is Does that ego serve the mission?

Well the ego detract from achieving the goals of the company. Or help drive towards them. What blind spots does that ego create?

If the ego is focused on appearing successful, then that will probably mean the founder is risk averse. They won't want a failure to deprive them of their position or harm their reputation. Of course, this ego talk cuts both ways. An investor with the wrong kind of ego will make your company about themselves.

Once their money's in, it's their play. And that the founder works for them. They will in short. Lack humility. I have been known to tell founders to consider shutting their business down rather than take money from this kind of investor.

Better to fail now than to do so in three years in a cloud of acrimonious smoke. Of course. This is only in extreme cases. Investor ego can be managed. You just have to assess whether the capital you'll be getting is worth the time and stress.

This might involve. And I often advise founders to offset that investor's influence with a board member. Or another investor. But back to Mark. After his run in with his anti mentor,

Mark decided he needed a new boss. One that thrived on the excitement of the sale. The hustle of making a new business work and the elation of scaling a company through audacious leaps. That new boss was, of course, Named.

Mark Cuban. So in nineteen eighty three, Mark founded his own company, Microsolutions, that helped businesses buy and set up software systems. Mark had the hunger. Speed. And the right kind of humility.

But he had no capital. And no customers. I went to a company who was one of my prospects. And I said, look, I just got fired. And

I know you want this five hundred dollar piece of software. If you advance me the five hundred dollars, then I can pay two hundred fifty dollars to buy the software. And if it doesn't work for whatever reason, I'll walk your dog, I'll wash your car, I'll sweep your floor. I don't care. That software did work, avoiding a sharp career move. That could have turned into

Canine daycare. And Mark had found a way to launch micro solutions at speed. by convincing his early customers to pay up front. It was a gamble. But his success let him establish the credentials of micro solutions rapidly.

Setting it up to scale swiftly. It's exactly the kind of thinking that would pique the interest of any potential investor. Mark's client base grew, and so did his need for computer parts to build systems for his clients. So he was always on the lookout for deals on hardware. And willing to act quickly to secure them.

I noticed this company PCs Limited out of Austin and what they did that was brilliant. Up until then, the price performance curves of digital products were going down, but companies always just try to retain that margin. They didn't pass it on. But Mark noticed PCs Limited was taking out full page ads every week that passed the savings on to the consumers. Each week the prices PCs limited sold at were lower. bucking the trend of the market, and getting the jump on their competitors.

The deals were so good that he decided to drive down to Austin and buy direct from the company's founder. A young man. Named Michael. The first most memorable thing about it was I had this beat up car and part of the car fell out fell off while I was driving. Like part of the bumper fell off. It was crazy. And then I got to Michael and I got the stuff. He was in this little little tiny office.

Afterwards, I bought all my stuff, drove back with my messed up car, made some money off of that, and I sent him a letter as people did back then. I said, Dude, look, you've got this thing down on lockdown, you're going far. That supplier would soon decide his own family name had a better ring to it than PC's Limited. So he renamed his company. Dell. It was like twenty three and I was twenty five.

And I had that letter for the longest time and lost it. My letter to Michael Dell saying, You're gonna do pretty well at this thing. And so we stayed friends ever since. As well as building his skills as an entrepreneur, Mark was clearly developing a sense for good investment. Which is as much, if not more, about the person than the business idea. And this is important to remember.

Products and ideas come and go. Some fly. And some fall. But you The founder of the constant.

And you are the real selling point to investors. MicroSolutions was a success, reaching revenue of thirty million dollars. In nineteen ninety Mark sold it to copy serve. Netting two million dollars.

Mark spent the next four years growing his capital with a string of savvy investments in tech stocks. Then a conversation with an old college friend. Todd Wagner. Hold Mark back.

into entrepreneurship. And at one lunch, this was in late nineteen ninety four, he was like this new internet thing, right? There's gotta be a way that we can listen to Indiana basketball using all this new internet stuff. And this is when you had a 56K modem, you had to download TCP IP software. You know, Netscape wasn't out yet, if at all. It was still Mozilla, right? And so I'm like, let me work on that. Let me figure it out.

The way he figured it out was by using a piece of technology. whose days were numbered. I took a eight hour V CR. And went to a local radio station and we hooked up this V CR to their audio board. And we record on these eight hour V C R tapes.

Then I would take them back to my second bedroom and encode them. That was the start of audio on the internet. That's right. Video May have killed the radio star.

But it also gave rise to its own demise. Streaming. Mark was like some mad scientist, splicing together technologies from early internet to invent something people barely dream possible. But something we take for granted today. And Mark didn't wait for the technology to be ready. He just did it.

It was another example of Mark's insistence on immediate action that let him speed out ahead of everyone else. Their company became broadcast.com. In nineteen ninety nine, at the peak of the dot com boom, Yahoo acquired broadcast.com in a five point seven billion dollar deal. Mark spent some of his money from the deal on the Dallas Mavericks basketball team. And he founded another head of its time company.

HD net that focused on high definition video streaming. He also set up landmark theaters. Twenty nine twenty nine productions. And Magnolia pictures. He had made the move from serial entrepreneur.

The business person and investor. His next move would see him become a household name. When you've built substantial wealth through your business, it's often tied up in a single equity position. The upside is real, but so is the risk, and knowing when to act isn't always obvious. Creative planning works with business owners to build a strategy around concentrated equity.

When to diversify, how to manage tax risk, and how to protect what you've spent years. Building. Creative planning where wealth works together. Learn more at creative planning dot com slash masters of scale. Hey listeners, Bob here. If you listen to Rapid Response on Masters of Scale, you may be missing half the show.

Because every Friday we release a second rapid response exclusively in the Rapid Response feed. The guests and topics are just as compelling and timely from Ford CEO to NASA's administrator to the lessons from The Devil Wears Prada. It takes about 10 seconds to find, just search rapid response wherever you listen to podcasts and hit follow to make sure you never miss an episode. I hope to see you there. Humans will never be more intelligent than AI. There's gonna be two types of companies. Those are great at AI and those that went out of business because they weren't. How do we build a future?

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We're back. It's 2011, and Mark Cuban has just received a call asking him to appear on a new show called Shark Tank. The show was in its second season and ratings were mediocre. The producers thought Mark would be just the kind of superstor who would draw more viewers. Mark said yes.

But at first. Didn't take it too seriously. And I thought I'm gonna do my three episodes. But I'm just gonna raise hell.

Right. I'm just gonna go on there and buy Everything. I don't care what it is, but I'm just gonna just buy everything. And so that's what I did. And I bought some of the worst companies I've ever invested in, but it didn't matter, right? Because it was fun. But then two things happened.

The ratings started to take off. And Mark realized the show had depth, reach, and impact. that he'd originally overlooked. What I came to realize very quickly Wasn't so much from an investor perspective.

It was the people who were emailing me and calling me and stopping me. It was the same theme all the time. My whole family watches this show together. And I have a ten year old or eleven year old or a fourteen year old.

That now just started this business or that business or excited about starting a business. And you know. To me that was stunning. I hadn't even considered that. I was just doing it for the fun of it.

That's right. Mark an investor. hadn't thought that much about the view from the other side of the table. And hearing him say this got me talking to my producers about the difference between the mindset of the investor. versus the mindset of the entrepreneur.

investor goes in entrepreneurship says hey how hard is it and it's like well actually in fact there's tons and tons of detailed getting your hands in the clay versus just, hey, I'm a good strategist. I understand what the value of a business is. No. How do you bring a set of people together? To row together and then to grow the team together and everything else. And that's very different entrepreneurship than investment side. And then likewise, the entrepreneur goes in and investor and says, Oh, well, I made this.

So I'm not as successful. It's like no, no, but it's not you making it, it's them making it. It's picking them. That's one of the reasons why part of the way that I train investors is look. We at Greylock try to be as deep partners as possible to hold ourselves the highest standard of the entrepreneur goes, yes, they were deeply helpful to me along this journey. That being said, The investment criteria that I apply is

When I give this person the money and walk away and say Five years from now, how did it go? Because it's about the entrepreneur's journey, not yours. Not I as an entrepreneur can make this successful. It's can this person make this successful? And I'll try to help as much as I can. Entrepreneur or investor. Roles are very substantially different.

And one success pattern can mislead you from the other one. Mark quickly to see the value of Shark Tank not just as a tool for communicating with the founders of today, but for inspiring the founders and investors of tomorrow. By that third year we were one or two all the time for shows watched by families together. It was incredible, and so Once I understood that, then doing the show became a no brainer. And that's why I continue to do it to this day. It's not because I get access to these great deals, even though some are good, some are bad.

But just the idea that kids are watching or parents are telling me, you know, now my kids understand what I do when I explain that I'm in this industry or that industry. And so that's really rewarding, and that's exciting for me. Shark tank. connects with people on a fundamental human level. Whether the deals are closed or not is only part of the drama.

The real draw. is seeing the people behind these ideas. Putting themselves and their creations on the line. It's a window into the very heart. of being a founder.

And it's a place where entrepreneurial qualities of hunger, speed, and humility are on full display. One of the things I think is awesome about what you guys are doing in Shark Tank is that it's really important as part of the entrepreneurial journey to understand the investor's mindset. Because most of these companies require some kind of relationship with investors. And part of the Shark Tank is to say, look. This isn't just I've got an idea. You also have to figure out go to market, you have to figure out investment, you got to figure it out. Yeah, that's one of the most compelling things that we tell people, right?

Because particularly the Silicon Valley ethos is come up with that idea, get an investor. That's not how the real world works. You know? Yes. It's Have an idea, do some of your homework on it.

Come up with a prototype or you know an MVP. And see if you can find a customer. Because for ninety nine percent of companies that start up You're not going to get an investor and you live close to the people who are going to be your customers to help your business get started. Particularly if it's a service-oriented business. And so Shark Tank really conveys that message, and we try to reiterate it over and over and over again.

I asked Mark. to talk about some of his favorite investments. Unsurprisingly, all the founders he named display those three key qualities that made Mark so successful as an entrepreneur. Hunger. Speed.

and humility. I invest in a company called Simple Sugars, Laney Lazari, who was eleven years old when she came up with the concept and just started selling locally. And then by the time she was 19, she found a local grocery store, which gave her some sales, which gave her the confidence to come on Shark Tank. And here was Lady not even twenty one on the show. The show airs. And I get a call from her

And what I do is I typically get weekly or bi weekly emails and I always want bad news first. You always have access to me. You can email me any question, but I expect good news, right? I invested because I expect you to do good things. So I want to know the bad news so I can help you. And so I get a call. And she's like Mark and I'm thinking something's really wrong. She got

I have a million dollars in the bank. What the hell am I supposed to do? I mean it's just like the craziest thing ever. But that's an example who's someone who was just Starting small in a s in a suburb of Pittsburgh where I grew up and just worked locally.

Here's Laney. On the shark tank experience. First of all, I think that one of the big things for me was I tried to be very honest with myself going into the pitch about what my weaknesses were. I tried to be very aware of all of the things that they were gonna try to get me on. Some of the things that I thought were gonna be a big deal to them really ended up not being a big deal at all. Overall, I went in with a business where I knew that whatever Shark gave me a deal was really gonna kind of have to buy into the story and have some faith in my ability to continue to grow the company because from the financial side.

We had only done about eighty thousand dollars in sales. We had some debt. So it wasn't the strongest just on paper from a financial standpoint investment opportunity. So I really just kind of needed someone to basically believe in me and agree to support me. I was really pleasantly surprised to be able to partner with Mark and I just think it shows that they definitely are investing in a person, not just in a business. And I think that that's something that you wouldn't necessarily expect in that context, especially from someone who's like a billionaire who you've never met before. At the same time, though, it was a little bit scary when I accepted the offer because I was this eighteen year old girl giving away thirty-three percent of my company to this billionaire. And there was part of me that was kind of terrified that he was gonna come in and it wasn't gonna be my business anymore. It was gonna be like Mark Cuban.

Or Mark Cuban and his team telling me what to do and I wasn't gonna really have the control that I wanted to have over my business. And I'm really, really pleased to say that that's not at all what happened. We have a fantastic relationship. Mark has been an amazing partner. I've learned a ton from him, and he is always there when I need advice on something, but at the same time, he is there for support. That's something that I really appreciate. It's just been a really amazing experience all around to be able to partner with Mark. Another of Mark's favorite investments is in Noel Durity, the founder of the Twisted Up Comb, who we heard from at the start of this episode. And he was broke. I mean he was

Dead ass broke. And he started selling to people in his neighborhood first. to get proof of concept and get people to understand it. And built that up and built that up, then started getting some retailers and some wholesale business. But the whole thing that really was inspiring to me is that

You don't have to live in a rich neighborhood. You can find things that solve problems for people you know. And then turn that around and now Noel is Paid me back. Five six times over already. And he's asking me where he should invest his profits.

Before appearing on Shark Tank, Noel spent as much time researching his potential investors as he spent polishing his pitch. As far as the personalities of the sharks, that's the one thing I probably spent most of my time. Do me outside of not really rehearsing that much, most of my time was watching a bunch of shark tank episodes and understanding the personality profiles of each shark.

'Cause ideally you are trying to Entice. their personalities to make them invest in you. So At the end of the day out of the seven, eight sharks that Could have been on the chairs out of the five.

I knew that I wanted Mark. Or I went a daemon because Those are the two people that I felt that would actually invest in me. I knew Mark even if he didn't understand the product.

He may invest in me because He likes to invest in the entrepreneur. He likes to invest in the grip, the hustle. Mark also has an open door policy for the founders he's invested in. He's there to give them advice.

But he is clear they're the ones who call the shots. However. Not all investors take this hands off approach, and this is something you'll have to weigh when you think about taking investment. Raising money is not an accomplishment, it's an obligation. It's more about getting someplace where you can solve a problem and do something unique and special.

And once you get to that point. Yeah, a little bit of investment because the less you take, the more you own. Yep. The way I describe entrepreneurship is you jump off a cliff, assemble an airplane on the way down, and then financing is a thermal draft. It isn't success. It just makes the ground a little further away and comes with an obligation. Exactly right. Yeah, I like that. A thermal draft. It makes the fall a little bit longer, but it doesn't keep you from hitting rock bottom.

Raising money is not an accomplishment. It's an obligation. This is where the humility of the entrepreneur comes into play. Mark's phrase is something you should keep coming back to. especially if you are thinking of seeking investment in your company.

Investment is a thermal updraft. But with strings attached. Strings that can pull you crashing down. As well as soaring high. If you don't understand them properly.

An investor gets a seat at your table. they effectively become your financial co founder. And they now. have a deep set of interest in your company that will often align with yours. The best way to make sure that you and your investors interests align

Empathy. When working with investors, I think one thing that might get overlooked and we had to learn this. It's just having empathy for what it's like to be an investor. That's Brad Schultz of Future Proof.

Owners of beet box beverages. Brad, along with his co founders, were contestants on Shark Tank that Mark invested in. And having empathy is important as it means you will have the humility. To learn. Each person comes to investing with their own set of

Why they're investing. And what this investment means to them. This could be something Purely emotional. A lifestyle.

They want to live. I mean, truly understanding the person that you're sitting across from asking for money and being able to articulate how this investment will help them achieve their goals. Is just as important. As asking for it. I think learning that and learning what is important for the person you are asking to invest.

Is very important. And the most important thing to do before a deal is on the table. is to make a clear eyed honest assessment of yourself. I always tell people you've got to be brutally honest. You've got to kick your own ass. You've got to know how a competitor can destroy you.

Because once you understand what can destroy your business, you know what you need. And once you know what you need, then you can start evaluating potential investors. And part two to that is You have to do your homework. Right. I'm not gonna be the same type of investor as Kevin O'Leary or Reed Hoffman or anybody for that matter, right? We're all different and have different areas of skill and where we're good and where we're bad.

Then once you know what you need. Then you've got to know can this person potentially do they have that skill set? Can they deliver it? And can you work with them? Some entrepreneurs, you know, gimme your money and go away. And some investors are here's my money.

Call me when you need me and hopeful it'll be because things are well. And others like myself Or we have this whole organization to help you. My job is to help you. Are you the type of entrepreneur that is willing to accept help?

You need to know about yourself and you need to be honest with yourself. Once you have answers to those questions, then you can start taking those steps. to do what's best for your business. All too frequently, founders choose investors based on who seems to be most excited. Or who's paying the highest price.

But what you should be focused on is which investor Which network? Which partnership maximizes your chances of success ten years out. And to assess these factors, you really need to understand your potential investors as much as you can.

One way to do this is to listen to investors talking with each other. To give you an immediate example, I want to turn over the rest of this episode to part of my conversation with Mark. People always ask, how can I start a business? Should I start a business? And my first response is if you have to ask, you're not ready. Because entrepreneurship builds from a sense of confidence, not a sense of uncertainty.

Right, that you can solve a problem, that you have something unique, whether it's a technology or whatever. And once you have that sense of confidence that you've got something unique. That's when it's time to say, Okay. I'm not gonna quit my job, but I love this so much I'll do it at night and on weekends. And if you have that commitment to do it night on weekends, to give something up so that if you have a job, you're saving something. You're not splurging on something, you're actually saving your own money to build that prototype or offer that service on night or weekends.

That's how you start building that base to know that you can be an entrepreneur. If you're not willing to do even that You're not an entrepreneur. Because there's always a measure of sacrifice involved, no matter where you are. I don't care if it's you or I starting a business. There's something we were doing that we've got to stop doing in order to be able to do this.

By the way, one of the funny things is you probably know one of the biases in Silicon Valley is to invest in people who started coding before they were twelve. My actually belief in that, especially when you get to the whole world and not just Silicon Valley technology businesses. Is you actually want to invest in people who started entrepreneurship early. They understand and start hustling just like you. Yep. I agree, right? Because there's a cause and effect, right? No business has ever succeeded without sales. And some of the biggest mistakes and investments I've made is the kids were smart. The people were smart.

But they had no sense of customers and accomplishment and selling and You know, achieving customer goals and putting yourself in the customer shoes. If you're selling magazines door to door You know that better than anybody, right? If you were one of those kids selling candy help pay for your football or basketball team, you know that better than the kid who took up coding and wrote the first game, but never tried to sell it. There's no business in the history of businesses that there hasn't been blood, sweat, and tears, and you've had to earn what you've accomplished, right?

Yep. And actually that rhymes and has a very similar feel to a piece of advice I give people is start your entrepreneurial journey early. because you can learn and iterate from and by the way, earlier is easier to take risks. Right,'cause you go, Hey, look, some of us myself, I was lucky I could move back in with my dad if I ran out of all my savings and say, Okay, look, I'll restart, I'll get a job, but it's easier when you're younger. You got nothing to lose. And on top of that, your time's very much fungible, right? You've got so much more time, you know, that time you spent playing this game or that game, or messing around with this or that. You can find time to start even the smallest of businesses, whether you're selling shoelaces or trinkets or whatever it may be, you can figure these things out. You know, teach yourself coding, just basic stuff to come up with solutions. It's just

You've got all the time in the world, and there's no better time than when you're a teenager. What I tell people is doesn't matter how many times you fail, you only have to be right one time. Just one time. Then you're gonna be called an overnight success. be called lucky, but you're gonna be laughing all the way to the bank or whatever it is that you however you define success, because it's not always money, right? And so that's what I learned early on. And again, when you don't have anything to lose, and that's the other thing, like you were talking about, Reed, you know, when you're young and you start these businesses, you will fail or you will get bored with them.

And you'll learn that Okay, I failed on this as a kid, I failed on that as a kid, and I kept on coming back, right? And then I did a little bit better with this one and that one. And so you recognize that failure is just An issue of time. More than an anvil that's holding you down.

Yep, it's uh many people hear the dictum in Silicon Valley fail fast, but they don't realize that's fail fast to learn in order to succeed is like the complete Fail smart, regardless of how much time, right? You know, again, particularly in Silicon Valley. People. They're on to their next thing without having a full understanding. And one of the things

I try to spend more time reading about failed companies than successful companies. You get the idea, you look it up, right? You get that feeling in your stomach, and you you think, Oh wow, I looked it up on Google, nobody's ever done it. Well nobody tells That All those failed companies They don't keep their websites alive, right? And those websites are not indexed when you go and look something up, right? There's not a thing at the bottom of Google that says, okay, this is one of the 20 similar companies that failed. And so having an understanding of not what just successful companies have done.

But those companies within your industry, within your purview, whatever it is you're looking at. You've got to make an effort to find out those companies as well. I mean, with LinkedIn and all the things. There were a lot of comers and goers that said a lot of expectations and you watch them fall by the wayside, right? And you had to have learned a ton from them. Simply having hunger.

Speed and humility is no guarantee that your startup will avoid an eternity of obscurity in that imaginary graveyard of failed companies. But Embodying those qualities will help maximize your odds of success. And They'll also make you stand out in the sights of potential investors.

If you want to hear more of the full conversation I had with Mark Cuban, then check out the new Masters of Scale app where subscribers get exclusive access to full guest interviews. Our mindsets of scale course. And many other membership benefits. I'm Reed Hoffman. Thank you for listening.

Masters of Scale is a Wake What original. The show is recorded remotely with sanitized audio gear. Our executive producers are June Cullen and Darren Treff. Our supervising producer is Jay Punjabi. Our producers are Jordan McCloud, Adam Skuse. Catherine Clark Gray, Halle Bonnie.

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