Interview: Kevin O’Leary, O’Leary Financial Group

Kevin is the Chairman of the O’Leary Financial Group.

IBR: What inspired you to become an entrepreneur?

I’ve talked to lots of entrepreneurs about this. There’s always some seminal event that occurs in their lives, usually early on that pushes them towards starting their own business. For me, I was living in Ottawa attending Nepean High School and I had a job in the afternoons at the Lincoln Fields Mall in an ice cream store called Magoo’s. I had only worked there for three days or so, and I was a scooper. While people are choosing their flavor, the scooper generally gives them a sampler stick with the ice cream on it. Often, they take the gum out of their mouth and throw it on the floor. The parlor had Mexican tile. And so, the owner, on the third day, said to me, “Look, before you leave, scrape all the gum off the tile.” And I said, “Wait a second.” I was very concerned because the only reason that I took the job was that I was interested in this girl in my class who was working in the shoe store right across from Magoo’s. She was watching me, and I did not want her to see me on my knees scraping gum off the floor. So, I said to the owner, “Look, you hired me as a scooper not a scraper.” And she said, “How about this? You’re fired.” I said, “What do you mean fired?” She said, “You’re fired—I own the store and you will do what I tell you to do.” I said, “Well, I mean, if you told me I had to scrape gum off the floor, I would not have taken the job.” She said, “Look, get on your bike and get out of here.” So, I went back home and told my mother what happened, and it was very traumatic because I had never really had a job before, and here I was getting fired within the first few days of starting. It was my seminal moment. I realized then and there that in life there are people who own the store and people who scrape the gum off the floor, and you have to decide which one you want to be. And I’m not saying being an employee is a bad thing; I’m just saying I’m not built for it. I wanted to control my own destiny and I did not want someone telling what I could and could not do. That was the last time I ever had a job and I’m very, very happy for the outcome. I went back years later to try and find her to thank her for the vector she put into my life. However, the store was gone, and nobody knew where she was.

IBR: Throughout your path of entrepreneurship, could you tell us about some of the crucial learning points from when you graduated, to starting Softkey and how you decided it was the right time for you to sell your ownership?

I went to Ivey, obviously, where you are, because after graduating from Waterloo, where I took psychology and environmental studies, my dad said to me, “You’re going to starve to death. These degrees do not lead to employment.” Because at the time in 1977, environmental concerns were not as powerful as they are today. Professors Sally Learner and Greg Michelangelo are now very famous in environmental studies. They were the team that started that faculty at Waterloo, and I was one of the first graduates. But I could not get a job anywhere. So, my father said to me, “You should go get your MBA and apply to Ivey and see if they’ll take you in. And I was lucky—I got in and I did my MBA there. When I received the acceptance letter, I called the Dean and asked him if I could document my two-year MBA experience in a film. I argued that the film could be a fantastic recruiting vehicle. The only problem was I didn’t have the budget to produce it. Bud Johnson, the Dean at the time liked the idea and funded the project. It went on to do very well for the school and we followed up with a second production five years later to track the outcomes of the graduates. By then they were working all around the world in some very interesting careers. They really speak to the global brand the Ivey Business School had built, even back then, and it has only gotten bigger since.

Growing up, I had always wanted to be a photographer or a musician, that’s when my stepfather said, “Those are really hard careers to be successful in.” But I formed a film company, called Special Event Television with two other partners right after we got out of Ivey and we got a contract doing all of the feature intermissions for Hockey Night in Canada. We also created and owned Don Cherry’s Grapevine; we produced Bobby Orr and the Hockey Legends and the Original Six. We did all kinds of hockey programs for Boston, Detroit, Toronto, and the rest of the Original Six markets. It was a very successful company and we got acquired three years later. That was my first experience of building something from scratch and having it create value and then be acquired. And from those dollars, I founded SoftKey Software Products, out of my basement on Shaw Street in Toronto, which was the predecessor of The Learning Company. We were Canada’s fastest growing company at the time, and I went to raise capital—and this is a little political in nature, but it gives you an idea of the path that occurred—I went into the international markets trying to raise, at the time, $50 million. Everybody said to me, your company is located in the highest tax jurisdiction in North America; it’s in Ontario where the government at the time put all kinds of constraints and taxes on growth industries, real estate development, and everything else. So, I went to try and see some of the officials in the government and said, “Look, I’m in the software industry, this is a new industry and I’m the fastest growing company in Canada and creating hundreds of jobs. We need to raise capital, and nobody wants to fund us because the shareholders and employees are taxed at ridiculous rates. Can you make an exception for this industry so that you can support it and we can be competitive with the U.S.?” They could not have cared less. So, we moved the whole company to Boston to get out of the oppressive tax regime. They didn’t get it; software development is not a heavy cap-ex industry, so it can be moved anywhere. We were up and running in Boston within two weeks and never looked back. We became the number one educational software company on Earth. We hired thousands of people all over the world, none of which were in Canada. That gives you an idea of how bad policy affected Canada then, as it does now. I don’t want to get into politics, but the worst investments you could have made in the last five years of all the G7 countries were in Canada. It has been decimated by bad policy and weak, inexperienced leadership. And it just depresses me, you know, I’m trying to do everything I can to make a change there. But that’s a huge lesson learned and I’m just one company with one story. Bad policy creates economic destruction, and that’s what’s happening in Canada right now. Every week there is another story of a company closing shop in Canada and moving billions of dollars and hundreds of thousands of jobs to other jurisdictions. When I was young, I ignored politics, I don’t make that mistake anymore. I’m a global investor now and realize that capital always finds the path of least resistance and that’s not Canada. Nothing gets done or built in Canada anymore. It gets stuck in the meat grinder of government or gets litigated in the courts until the money simply goes elsewhere where it can get a return. Policy matters. I hope some of the cohorts that are graduating at Ivey today consider taking roles in government. The country desperately needs leadership that has more experience, executional skills, and understands how global business works.

IBR: Now that you’re a venture capital investor, what makes entrepreneurs stand out when they pitch to you, whether it’s on Shark Tank or outside of the show? Do you have any tips for aspiring entrepreneurs at Ivey?

I have investments in over 40 companies now, with all kinds of great men and women entrepreneurs. I’m very proud to support them; but the ones that are successful on a tactical basis in today’s world, understand they need two things to thrive. The first is: they must find a market that you can acquire customers in economically. If you can’t figure out a way to acquire a customer economically within three years, you go bankrupt. In other words, if it’s costing you $8 to acquire a customer that only gives you $5 of profit or lifetime value, you’re going to fail. The successful companies figure out what they need do to form a direct relationship with their customer and acquire them on an economic basis. If you can do that, you are going to win. When I teach, that’s what I lecture about. What is your strategy for customer acquisition? Every successful company, as a startup, has figured out how to acquire customers economically. The second thing is: I want great entrepreneurs that are willing to work 25 hours a day and forget about life balance. To succeed you must be prepared to let your business consume you because there’s someone in Mumbai or Shanghai that is ready to work harder and eat your lunch. Understand that we’re competing globally; if you have a good idea, you’re going to get knocked off in five minutes.

IBR: Splitting your time between 40 businesses, your investment funds, and your charitable projects, how do manage all these responsibilities while maintaining your personal life?

I enjoy working, I think it defines who I am. I tried retiring for three years, I didn’t like it. I got really bored. To me working is living and living is working, I just love to compete, but to pull it off you need great people around you. Alex Kenjeev, who runs O’Leary Ventures, manages the private portfolio with his group. I have a social media and PR team managed by Kirsten Rudyk and Nancy Cheung, and they work with all the television networks and all the social platforms like LinkedIn, Facebook, Instagram, YouTube, and Twitter. It’s a complicated integration. I have four million followers on these platforms, and we publish every day, and that is how we communicate with them directly. That’s the way the world works today, you need to build your own broadcast network. When you’re building your brand and supporting entrepreneurs and their products and services, you help them with television and social media, you help them get the message out. That’s part of the value I bring to the equation in any investment I make. I say, look, if you become part of my portfolio, you’re going to get the benefits of hundreds of thousands of people everyday learning about your company and your product. Each year we gather all my CEOs down in South Beach and we have a conference. Since we spend so much in digital advertising, I can get the executives from Amazon, Facebook, Twitter, Google, and LinkedIn to come out and educate our CEOs on what’s changed on each of their platforms and how to get more productivity from their ad spend since the algorithms are changing all the time. I can’t run their business for them, but I can certainly tell them what not to do and the mistakes I’ve made in the past. I think I add a lot of value from that perspective. I don’t consider myself an ordinary investor, we bring extraordinary value to the companies we invest in and ask to be compensated accordingly but I don’t have to sell that to anybody. My CEOs do that for me.

IBR: Given the fact that you have been involved in so many things since your first ice cream job, what would you say your proudest achievement to date is?

Well, I’m very proud that today I can actually afford to be a photographer and sell my work for charity or that I can afford to go into a recording studio and make music. All the music on our social media is stuff I’ve written and played. I was a shareholder in Fender for a while, so I have many guitars and I’m crazy about watch collecting. And so, the whole idea is that if there’s certain passions that you have in life, the pursuit of entrepreneurship is not about the greed of money, it has nothing to do with it. It’s about the pursuit of personal freedom. Every entrepreneur I’ve ever met that’s been successful does not remember the day they became a multimillionaire. It just happens because you’re so passionate about what you’re doing. What it does give you later in life for all hard word you have done, is the freedom to pursue anything you want.

IBR: You mentioned some of your passions like music and we’ve also heard you’re quite interested in wine. Could you tell us a little bit about how your passions have intertwined with your professional career?

My stepfather taught me about wines when we were living in Switzerland and France and at an early age when I was a teenager. I got very interested in various varietals, particularly Burgundian wines and various Bordeaux. I have five wine cellars around the world now and I invested in wine futures. About seven years ago I thought: why is it that 97 per cent of wine sold in North America, the largest wine market on Earth, is sold for under $14 a bottle? So, if you’re going to be successful in the wine business you must be able to make a great wine for under $14 and I thought that was a huge challenge. I started O’Leary Fine Wines seven years ago, and today I’m the largest purveyor of wine on QVC because in the U.S. you can ship directly to customers in 41 states. Shipping direct to your customer cuts out three tiers of distribution and increases gross margins by 60 per cent.

We don’t have that in Canada because we have extremely bad policy. It’s at the provincial level that really hurts the wine business. Provinces are trying to protect their regional markets and they can’t see the big picture. It’s extremely difficult for Canadian wine makers to ship wine from B.C. to Quebec or Ontario. It’s a huge problem. Also, in Canada we make it almost impossible for wine producers to ship directly to their customers anywhere in the country. Again, I am bashing bad policy, but the reason that the wine industry is held back in Canada is that the policy is destructive. As Canadians we strive to make free trade deals with other countries, but we have massive barriers and tariffs between provinces. How stupid is that! However, after expanding into the U.S., O’Leary Fine Wines is now profitable after three years of losses. I have a rule: If a business is not profitable after three years of operation, I take it out behind the barn and shoot it. With the wine business, it was a close call! But I love it and my consumers are constantly leaving me their reviews on my YouTube channel. I introduce new blends based on their preferences. That is the major advantage of selling direct.

IBR: Thinking back to the time when you were an Ivey student, in what ways did your MBA help you succeed today as the owner of so many different businesses?

That’s a great question. The answer is that it’s the people I met in that class that I’ve stayed in touch with all these decades that have been so important in building out my career. People don’t understand that about the MBA or HBA program. It’s not what you learn in the class, it’s the people you meet. I might annoy some professor or someone saying this, but the truth is, the value that I got out of that period were all these incredible people that are all around the world today. When I was raising money, I was making phone calls to Hong Kong to some of my classmates, to New York, to San Francisco, to Toronto. They’re everywhere, they know I’m an Ivey grad and that they’re Ivey grads. I once made a phone call saying, look, I’m trying to raise $500 million, for an acquisition that The Learning Company was making, and I need to get a syndicate together. It was all Ivey grads all over the world in almost every financial market that made it happen.

Those contacts are just invaluable. If you’re going to quote me, it’s not what you learned in the classroom, it’s who you met there. The network is powerful, and it just grows every year as graduates go out to become leaders in their industries.

IBR: If you could go back and give yourself advice as a university student or MBA student, what would you tell yourself?

I would tell myself to start earlier. I wish I had done more earlier on. The younger you are, the more you should try because the minute you get married and you have kids, you have responsibilities and mortgages, it gets harder and harder. It’s better to take chances early, just get out, maybe spend a year working for somebody and then do your own thing. Not everybody’s going to pursue entrepreneurship, maybe about a third of the class will. Many will go on to illustrious careers as bankers, lawyers, and engineers working for somebody else. But if you have it in you to be an entrepreneur, don’t wait, get going, there is nothing like it!

The subject matter of this interview does not necessarily reflect the views and opinions of the Ivey Business Review or Ivey Business School.