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Speaker 1

00:00

The person who controls the algorithm controls the world. Right? And if you are committed to 1 specific platform as your singular source of information or affiliated platforms, then whoever controls the algorithm or the programming there controls you.

Speaker 2

00:20

The following is a conversation with Mark Cuban, a multi-billionaire businessman, investor and star of the series Shark Tank, longtime principal owner of the Dallas Mavericks, and is someone who is unafraid to get into frequent battles on X. Most recently over topics of DEI, wokeism, gender, and identity politics with the likes of Elon Musk and Jordan Peterson. This is the Lex Friedman Podcast.

Speaker 2

00:46

To support it, please check out our sponsors in the description. And now, dear friends, here's Mark Cuban. You've started many businesses, invested in many businesses, heard a lot of pitches privately and on Shark Tank, So you're the perfect person to ask, what makes a great entrepreneur? Somebody who's curious,

Speaker 1

01:08

they wanna keep on learning because business is ever changing, it's never static. Somebody who's agile because as you learn new things and the environment around you changes, you have to be able to adapt and make the changes. And somebody who can sell, because no business has ever survived without sales.

Speaker 1

01:28

And as an entrepreneur who's creating a company, whatever your product or service is, if that's not the most important thing and you're just dying and excited to tell people about it, then you're not gonna succeed.

Speaker 2

01:38

But it's also a skill thing. How do you sell? What do you mean by selling?

Speaker 1

01:42

Selling is just helping. I've always looked at it about putting myself in the shoes of another person and asking a simple question. Can I help this person?

Speaker 1

01:50

Can my product help? And from the time I was 12 years old, selling garbage bags door-to-door and just asking a simple question. Do you use garbage bags? Do you need garbage bags?

Speaker 1

01:59

Well, let me save you some time. I'll bring them to your house and drop them off to you know streaming. Why do we need streaming when we have TV and radio? Well you can't get access to your TV and radio everywhere you go so we kind of break down geographic and physical barriers and you know cost plus drugs.

Speaker 1

02:15

You know what's the product that we actually sell? We sell trust. In a simplistic approach, we buy drugs and sell drugs, but we add transparency to it. And bringing transparency to an industry is a differentiation and it helps people.

Speaker 2

02:30

Trust in an industry that's highly lacking in trust.

Speaker 1

02:33

Exactly.

Speaker 2

02:35

Okay, so what's the trick to selling garbage bags? Let's go back there. 12 years old, what, I mean, is it just your natural charisma?

Speaker 2

02:41

I guess a good question to ask, are you born with it? Or can

Speaker 1

02:44

you develop it? Oh, you can definitely develop it. Yeah.

Speaker 1

02:47

I mean, because selling garbage bags door to door was easy, right? It was like, 12 year old Mark going, hi, my name is Mark. Do you use garbage bags? You know what the answer is going to be, right?

Speaker 1

02:56

Can I just drop them off for you, you know, once a week, whenever you need them, you just call and I'll bring them down? Sure. So that was easy.

Speaker 2

03:02

But I'm sure you've been rejected.

Speaker 1

03:04

Oh yeah, of course. Not everybody says yes.

Speaker 2

03:06

What was your percentage?

Speaker 1

03:08

I don't remember, but it's pretty close to 100%. Oh, okay, so that's why you don't remember. Yeah, right, because who's gonna say no to a 12-year-old kid who's gonna save him time and money.

Speaker 1

03:17

But you know, typically my career where I've started companies, it's to do something that other people aren't doing. Whether it was connecting PCs to local area networks and at micro solutions and you know, the Salesmanship was walking into a company and just saying, look, talk to me and I can help you improve your productivity and your profitability. Is that important to you? And the answer is obviously always yes.

Speaker 1

03:40

And then the question is, can I do the job and can I do it cost effectively? And So you didn't have to be a born salesperson to be able to ask those questions, but you have to be able to be willing to put in the time to learn that business. And that's the hardest part. I'm sure there's a skill thing to it too, in like how you solve the puzzle of communicating with

Speaker 2

04:01

a person and convincing them?

Speaker 1

04:03

Yeah, I mean, there's skill from the perspective that I read like a maniac. Then, like now, you can give me an example of any type of business, and it'll take me 2 seconds to figure out how they make money and how I can make it more productive. And I think that's probably my biggest skill, being able to just drill down to what the actual need is, if any, and then from there being able to say, well, if this is what this company does and this is what their goal is, how can I introduce something new that they haven't seen before and is that a business that I can create and make money from?

Speaker 1

04:35

So figure out how this kind of business makes money in

Speaker 2

04:38

the present and then figure out is there a way to make more money in the future by introducing a totally new kind of thing.

Speaker 1

04:43

Correct. And you

Speaker 2

04:45

can just do that with anything?

Speaker 1

04:46

Pretty much, yeah. And you

Speaker 2

04:48

think you're born with that? No, I

Speaker 1

04:50

worked at it. Because going back to what I said earlier about curiosity, you have to be insanely curious because the world is always changing. My dad used to say, we don't live in the world we were born into, which is absolutely true.

Speaker 1

05:02

If you're not a voracious consumer of information, then you're not gonna be able to keep up and no matter what your sales skills or ability are, they're gonna be useless. What'd you

Speaker 2

05:13

learn about life from your dad? You mentioned your dad.

Speaker 1

05:16

My dad did upholstery on cars, you know, got up, went to work every morning at 07:00, came back 5 or 6, 07:00 exhausted. And I learned to be nice. I learned to be caring.

Speaker 1

05:28

I learned to be accepting. Just, you know, qualities that I think he really tried to pass on to myself and my 2 younger brothers were just be a good human. And I think he didn't have business experience, so as I got into business, he would just say, sorry Mark, I can't help you. I don't understand what you're doing.

Speaker 1

05:48

Neither 1 of my parents had gone to college. You've got to figure it out for yourself." But he was also very insistent that... He worked at a company called Regency Products where they did upholstery on cars. He would bring me there to sweep the floors.

Speaker 1

06:01

Not because he wanted me to learn that business, because he wanted me to learn how backbreaking that work was. I mean, he lost an eye in an accident at work, a staple broke, and the only thing he wanted from my brothers and I was for us to never have to work like that, to go to college, to figure it out.

Speaker 2

06:18

You said to be nice. That said, you also said that you, when you were first starting a business, you were a bit more of

Speaker 1

06:24

an asshole than you wish you would have been. Absolutely, yeah. Because I was more of a yeller.

Speaker 1

06:29

I was, You know,

Speaker 2

06:30

I didn't have- No, really? Yeah.

Speaker 1

06:32

Yeah, what you see on the sidelines, you know, with me at a Mavs game, maybe a little bit, but I also didn't have any patience for somebody I thought wasn't using my kind of common sense, right? Because I was always on the go, go, go, go, go, particularly when I was younger, just trying to be successful, trying to get to the point where I had independence. And I would tell this to people, either you're speeding up and getting on the train or we'll stop and drop you off at the next station, but let's go where you go.

Speaker 1

07:02

Did you have trouble with the hire fast, fire fast part

Speaker 2

07:05

of running a business?

Speaker 1

07:06

Yeah, always, because I hated firing people, because it meant, 1, it was an admission of mistake in the hiring, and 2, the salesperson in me always wanted to come out ahead, and I was always horrible at firing. But I always partnered with people who had no problem with it, so I always delegated that.

Speaker 2

07:23

Well, that's the tricky thing. When you're working with somebody and they're not quite there and you have to decide are they going to step up and grow into the person that's the right or they're not? And in that gray area is probably where you have to fire.

Speaker 2

07:37

It was hard,

Speaker 1

07:38

yeah, for sure, because it's obviously a failure somewhere in the process. What did we do wrong? And when I would interview people for jobs, I think 99% of the people I've ever interviewed I've wanted to hire because in my mind, it was like, okay, I can figure out how to make this person work, right?

Speaker 1

07:58

And then they wouldn't, and then, you know, People at the company would be like, Mark, you suck at this, you know? And so I always delegated the hiring.

Speaker 2

08:06

Yeah, I mean, I'm the same. I see the potential in people, I see the beauty in people, and which is a great way to live life, but when you're running a company, it's a different thing.

Speaker 1

08:14

It's different, and You gotta know what you're good at and what you're bad at. I was a ready, fire, aim guy, and I always partnered with people who were very anal and perfectionist because where I could just go, go, go, go, go, go, they would keep me inside the baselines.

Speaker 2

08:29

They would do the due diligence, I suppose.

Speaker 1

08:31

Yeah, or just, yeah, the detail work, the dot the I's and the cross the T's.

Speaker 2

08:35

What does it take to take that first leap into starting a business?

Speaker 1

08:38

That's the hardest part. It really depends on your personal circumstances. Like, I got fired.

Speaker 1

08:42

I was sleeping on the floor, 6 guys in a three-bedroom apartment, So I couldn't go any lower. So there was no downside. Yeah, there was no downside for me starting a business. And it was just like, you know, I was 25 when we started microsolutions and, you know, I just gotten fired.

Speaker 1

09:00

And it was like, look, I'm a lousy employee. I'm gonna just start going to some of my prospects that I had at my job and ask them to front the money that I needed to install some software and found this company, Architectural Lighting, who put up $500 for me. That allowed me to buy software and have 50% margins and that's how I started my company.

Speaker 2

09:22

But like by way of advice, would you say? I mean, it's a terrifying thing.

Speaker 1

09:25

Yeah, I mean, you've gotta be in a position where you're confident. I get emails and approached by people all the time, what kind of business should I start? That tells me you're not ready to start a business.

Speaker 1

09:34

Either you're prepared and you know it or you don't. In the United States, with the American dream, everybody kind of always looks at themselves and say, okay, I have this idea. And then you go through this process of saying, okay, you talked to your friends or family, what do you think? And then almost always, oh, it's a great idea, right?

Speaker 1

09:54

Then you go on Google and you say, oh my God, no 1 else is doing it without thinking 10 companies have gone out of business trying the same thing, but okay, it's on Google. And then people stop, right? Because that next step means, okay, I have to change what I'm doing in my life. And that's not easy for 99% of the people.

Speaker 1

10:14

Some people look at that as an opportunity and get excited about it. Some people get terrified because it's, okay, maybe I'm comfortable, maybe I have responsibilities. And so whatever your circumstances are, if you want to take that next step, you have to be able to deal with the consequences of changing your circumstances. And that's the first thing.

Speaker 1

10:34

Do you save money? If you have a job, do you have a mortgage? Do you have a family? You gotta save money, you can't just walk.

Speaker 1

10:41

I mean, they've gotta eat and they've gotta have shelter. But on the Other side of the coin, if you've got nothing, it's the perfect time to start a business.

Speaker 2

10:49

Yeah, desperation is a good catalyst for starting a business. But in many cases, the decision, as you're talking about, you're gonna have to make is to leave a job that's providing some degree of comfort already. So I suppose when you're sleeping on the floor and there's 6 guys, it's a little bit easier.

Speaker 1

11:05

It's really easy, right? Particularly when you get fired and you don't have a job. You know, and you're looking at bartending at night to try to pay the bills.

Speaker 1

11:11

And so it wasn't hard for me, but to your point, it really comes down to preparation. You know, if it's important enough to you, you'll save the money, you'll give up, you know, whatever it is you need to give up to put the money aside. If you have obligations, you'll put in the work to learn as much as you can about that industry so that when you start your business, you're prepared. And you can always, at night, on weekends, whenever you find time, lunch, start making the calls to find out if people will write you a check, transfer you money to buy whatever it is you're selling.

Speaker 1

11:46

And by doing those things, you can put yourself in a position to succeed. It's where people just think, okay, you know, Geronimo, I'm leafing off the edge of a cliff and I'm starting a business. That's tough.

Speaker 2

11:57

But sometimes that's like the way you do it though.

Speaker 1

11:59

There's always examples of any situation or scenario. Right, right. But I mean.

Speaker 1

12:03

Anecdotal evidence for everything. Yeah, but if you're going into a new business, you're gonna have competition unless you're really, really, really, really, really lucky. And that competition is not gonna just say, okay, let Lex or Mark just kick our ass. And so you've gotta be prepared to how you're gonna deal with that competition.

Speaker 2

12:18

What do you think that is about America that has so many people who have that dream and act on that dream of starting a business?

Speaker 1

12:28

You know, I think we've just got a culture of consumption and more. You know, and to get more, you've got to, you know, creating a business gives you the greatest potential upside and the greatest leverage on your time, but it also creates the most risk.

Speaker 2

12:47

So that capitalist machine, there's a lot of elements by contrast. The respect for the law, like an entrepreneur can trust that if they pull it off the law it'll protect them, there won't be a government.

Speaker 1

12:59

Hopefully that's still the case, yeah.

Speaker 2

13:01

There's always, there's always some.

Speaker 1

13:03

Yeah, us versus other countries. Yes. Right, right, so us versus other countries, like Joe Biden of all people said to me, it was at an entrepreneurship conference that when he was vice president, he had put together.

Speaker 1

13:14

And we had gone up there, a bunch of us from Shark Tank, to talk to young entrepreneurs from around the world. And he said to me, Mark, the 1 thing that separates, I've been to every country around the world, and the 1 thing that separates us is entrepreneurship. We're the most entrepreneurial country in the world, and there's no 1 else who's even close. And when you look at the origin of our biggest, you know, the biggest companies in the world, for the most part, there's an American origin story somewhere behind there.

Speaker 1

13:43

And I think, you know, that just gets perpetuated on itself. We see those Horatio Alger stories. We see examples of the Jeff Bezos of the world, the Steve Jobs of the world, and those are the types of people we

Speaker 2

13:57

want to copy. Yeah, we wanna be really careful and try to really figure out what that is because we don't wanna lose that. For sure.

Speaker 2

14:04

We wanna protect the whatever, you know, and that's a lot of the discussions about what's the right way to do government, big government, small government, what's the right policies, but also culture, like who we celebrate. 1 of the things that troubles me is that we don't enough celebrate the entrepreneurs that take risks and the entrepreneurs that succeed. It seems like success, especially when it comes with wealth, is immediately matched with distrust and criticism and all that

Speaker 1

14:32

kind of. Yeah, it's changing for sure because you can go back just 12 years, right? Traditional media dominated, let's just say, through 2012.

Speaker 1

14:41

That was the peak of linear television. Newspapers weren't as strong, but they still had some breadth and depth to them. And then social media comes along and everybody gets to play in their own sandbox and share opinions with people who think just like them. And it also gives them the opportunity to amplify those feelings.

Speaker 1

15:03

And I think that's where celebrating entrepreneurs really started to subside some. There were always people who were progressive that were like billionaires are bad or millionaires are bad depending on the time period, but you didn't really see it on an ongoing basis, right? It wasn't gonna be on the evening news. It wasn't going to be in the front page of the newspaper.

Speaker 1

15:24

It was going to be if you read a book and someone talked about it, or you read a magazine and there was an article talking about this progressive movement or that progressive movement, whatever it may be, or political parties. But now, all of that is front and center in social media.

Speaker 2

15:41

And we're trying to figure it out, how we deal with the mobs of people and the virality of it all. I think we'll find our footing and start celebrating greatness again.

Speaker 1

15:51

Well, I mean, that's the whole reason I do Shark Tank.

Speaker 2

15:52

That's true, that show celebrates the entrepreneur.

Speaker 1

15:56

It's the only place where every single minute of every single episode, we celebrate the American dream. And the reason I do it is we tell the entire country and it's shown around the world even. We're amazing advertising for the American dream in I don't even know how many countries.

Speaker 1

16:12

But every time somebody walks onto that carpet from Dubuque, Iowa or Ketchum, Idaho, that sends a message to every kid who's watching, 789, 10, 12 year old kid, that if they can do it from Ketchum, Idaho, you can do it. If they can have this idea and get a deal or even present to the sharks and have all of America see it, you can do it. And that, I mean, I'm proud of that. The 15 years of that is just, it's just been insane.

Speaker 1

16:39

You know, now kids walk up to me and go, yeah, I started watching you when I was 5 or 10 and I started a business because I learned about it from Shark Tank. And so, I think we're being, it celebrates it and we convey it and I don't think it's going away, but there are different battles we have to fight to support it.

Speaker 2

16:57

Yeah, I love even when the business idea is obviously horrible. Just the guts to step up. To be there.

Speaker 2

17:05

To believe in yourself, to really reach. I mean, that's what matters. I mean, because like some of the best business ideas are probably maybe even you and Shark Tank will laugh at.

Speaker 1

17:17

Oh, for sure. Without question. The good ones, we're not gonna recognize every good 1, and then sometimes we'll just motivate people to work even harder to get it done because of what we say to them.

Speaker 1

17:26

And that's fine too. There's been great success stories that we said no to. What stands out as a memorable business

Speaker 2

17:33

on you've been pitched on Shark Tank? What's the best 1 that stands out?

Speaker 1

17:37

There's no best 1, right? They're all different. They're all best in their own way, I guess.

Speaker 1

17:41

The stupid ones and you know, we haven't had any, you know, world changing earth shattering ones, right? Because those aren't gonna apply to Shark Tank. They don't need us. So we typically get businesses that need some help at some level or another.

Speaker 1

17:59

But there's ones I've passed that I wish, like spike ball, do you know what spike ball is? So it's this rebounding net that you can put on the beach and you have these yellow balls and you play a game of, it's just a competitive game, but they're killing it. So if you go to beaches in New York or LA, you'll see kids playing it all the time. And it was a fun game that I wish I had done a deal with.

Speaker 1

18:19

There's, and there's been others.

Speaker 2

18:21

And you passed.

Speaker 1

18:21

And I passed. They were getting some traction and they wanted to create leagues, spike ball leagues. And they wanted me to be the commissioner.

Speaker 1

18:28

And I don't want to be a commissioner of a new spike ball league.

Speaker 2

18:32

So you have to kind of have this gut feeling of, will this scale, will this click with

Speaker 1

18:38

people? Of course, yeah. Can it be protected? Is it differentiated?

Speaker 1

18:41

Is it something that makes me think, why didn't I think of that? Or is it just a good, solid business that's gonna pay a return to the founder and may not be enough of

Speaker 2

18:53

a business to return to an investor? Yeah, and I guess the question you're trying to see, Will this scale, this promise, will the promise materialize into a big thing?

Speaker 1

19:06

Well, see, I don't even care if it's gonna be a big thing, right? Because it's all relative to the entrepreneur. We had a 19-year-old from Pittsburgh, Laney, who came on with a simple sugar scrub.

Speaker 1

19:16

And there was nothing outrageously special about it. I didn't see it becoming a $100 million business. I thought it could become A23, $5 million business that paid the bills for her, and that was good enough. And 6 months after The show aired, she called me up, she goes, Mark, I've got a million dollars in the bank, what am I gonna do?

Speaker 1

19:35

I'm like, enjoy it, put aside money for your taxes, and go back to work. And so it doesn't have to be a huge business, it's just gotta be 1 that makes the entrepreneur happy.

Speaker 2

19:45

But then there's the valuation piece. I mean, do a lot of the entrepreneurs overvalue business? Of course,

Speaker 1

19:52

yeah. I mean, that's the nature of it, right? I mean, and that's really where the biggest conflicts in Shark Tank happen, that's in the valuation. They think this is the best business ever.

Speaker 1

20:03

We had 1 lady, couple that came on, and they had this scraper for cats' tongues, right? Nice. Bizarre. The most bizarre pitch ever.

Speaker 1

20:13

I love it. And they had this insane valuation, and it was on because it was corny and fun TV, not because it was a good business.

Speaker 2

20:20

Oh, really? Okay. You didn't see the potential?

Speaker 2

20:23

No,

Speaker 1

20:24

none. There's a lot of cats in the world, Mark. Yes, there are. They'll go do very well without me.

Speaker 2

20:30

So how do you determine the value of a business, whether it's on Shark Tank or just in general?

Speaker 1

20:35

It's actually really easy, right? So if you take, just to use an example, a business that's valued at $1 million, and I want to buy 10% of that company for $100,000, Then in order for me to get my money back, they've gotta be able to generate $100,000 in after-tax cash flow that they're able to distribute. Can they do it or can they not, right?

Speaker 1

20:59

And If it's a $2 million value, whatever the valuation is, that's how much cash, after tax cash, they have to generate to return that money to investors. Or the other option is, do I see this as business potentially having an exit? Do they have some unique technology or do they have something specific about them that some other company would want to acquire? Then the cash flow isn't as, I don't want to say important, but isn't going to guide the valuation.

Speaker 2

21:28

And how do you know if a company's gonna be acquired? So it's the technology, like the patents, but also the team?

Speaker 1

21:34

Yeah, it could be any of the above, right? It could be a super products company that I think is gonna take off.

Speaker 2

21:41

And how do you know if they can generate the money? What's the, you made it sound easy.

Speaker 1

21:46

Yeah, I mean, can the person sell? You know, and if not them, can I do it? Or someone on my team do it for them?

Speaker 2

21:52

So you're looking at the person?

Speaker 1

21:54

Yeah, for sure, yeah. That's where Barbara Corker is the best. She can look at a person and hear them talk for 20 minutes and know, can that person do the job and do the work.

Speaker 2

22:02

Can you tell if they're full of shit or not? So 1 of the things with entrepreneurs, they're kind of, like we said, overvaluing, so they're maybe overselling themselves, but also they might be full of shit in terms of their understanding of the market or exaggerating what they're thinking to do, all that kind of stuff. Can you see through that?

Speaker 1

22:21

Yeah, for sure, just by asking questions. So if they are delusional at some level or misleading at another level, I'm gonna call them on it. So you get people trying to sell supplements that come on there and it's a cure for cancer or whatever it may be, or there's this latest fad that increases your core strength without doing any exercises.

Speaker 1

22:45

Shit like that, I'm just gonna bounce, I'm gonna pound on them, right?

Speaker 2

22:48

So you still love that, I still love the trying.

Speaker 1

22:51

Just trying. No, I, you know, give them credit, right? Because they know all of America's gonna see it and they're deluded themselves to believe this story so strongly.

Speaker 2

22:58

I mean, there's a delusional aspect to entrepreneurship, right? Like you just.

Speaker 1

23:02

I don't see, that's a great question. Do you have to be ambitious and set aside reality at some level to think that you can create a company that could be worth 10, 100, a billion dollars, right? Yeah, at some level, because you don't know, it's all uncertainty.

Speaker 1

23:19

But I think if you're delusional, that works against you. Because everything's grounded in reality. You've got to execute, you've got to produce. You can have a vision, right?

Speaker 1

23:31

And you can say, this is where I want to get to, and that's my mission, or this is my driving principle, but you still got to execute on the business plan, and that's where most people fail. Yeah, you have

Speaker 2

23:41

to be kind of two-brained, I guess. You have to be able to dip into reality when you're thinking about the specifics of the product, how to design things, how to, the first principles, the basics of how to build the thing, how much it's gonna cost, all of that.

Speaker 1

23:53

Yeah, I mean, because if you can't do the basics, you're not gonna be able to do the bigger things. And at the same time, you've gotta be able, 1 of the things that entrepreneurs do that I always try to remind any that I work with on is we all tend to lie to ourselves. Our product is bigger, faster, cheaper, this or that, as if that is a finite situation that's never gonna change, right?

Speaker 1

24:15

And there's always somebody, I call them leapfrog businesses. Whoever's competing against you, you know, if you do A, B, or C, they're gonna try to do C, D, and E, right? And you better be prepared for that to come because otherwise they're out of business too. So you're never in a vacuum.

Speaker 1

24:30

You're always competing against sometimes an unlimited number of entrepreneurs that you don't even know exist who are trying

Speaker 2

24:35

to kick your ass. And the tricky part of all this too is you might need to frequently pivot, especially in the beginning. Hopefully not.

Speaker 2

24:45

So you think like in the beginning, the product you have should be the thing that carries you a long time.

Speaker 1

24:51

Yeah, because I mean that's your riskiest point in time. And so if you've done your homework, which includes going out there and testing product market fit, you should have confidence that you're gonna be able to sell it. Now, if you didn't do your homework and you go out there and you sell whatever it is, then and you've raised money or whatever, just to pivot, you've already shown that you haven't been able to read the market.

Speaker 1

25:19

And so it's not that pivots can't work and always don't work, they can, but more often than not, they don't. You pivot for a reason, that's because you made a huge mistake.

Speaker 2

25:27

Well, I also mean like the micro pivots, which is like iterative development of a thing. Oh yeah, oh

Speaker 1

25:33

yeah, that's not, yeah, just iterations. Yeah, you know, entrepreneurship being, having any business is just continuous iteration, continuous, your product, your sales pitch, your advertising, you know, introducing new technology, how do you use AI or not use AI, where do you use it, what person's the right person. There's just a million touch points that you're always reevaluating in real time that you have to be agile and adapt and change.

Speaker 2

26:00

But especially in software, it feels like business model can evolve really quickly too. Like how are you gonna make money

Speaker 1

26:06

on this? Yeah, with software for sure, because, you know, anything digital, because it can change in a millisecond.

Speaker 2

26:13

Speaking of which, how did you make your first billion?

Speaker 1

26:16

So my partner, Todd Wagner and I, would get together for lunches and we were at California Pizza Kitchen in Preston Hollow in Dallas. And he was talking about how we could use this new thing called the internet, this is late 94, early 95, to be able to listen to Indiana University basketball games. Because that's where we went to school.

Speaker 1

26:42

And he was like, look, when we would listen to games, we would have somebody in Bloomington, Indiana have a speakerphone next to a radio, and then we would have a speakerphone in Dallas and a 6 pack or 12 pack of beer, and we sit around listening to the game because there was no other way to listen to it. So I was like, okay, my first company, MicroSolutions, I'd written software, done network integration, and so I was comfortable digging into it. And so I was like, okay, let's give it a try. So we started this company called AudioNet and effectively became the first streaming content company on the internet.

Speaker 1

27:17

And we were like, okay, we're not sure how we're gonna make this work, but we were able to make it work. And we started going to radio stations and TV stations and music labels and everything and evolved audionet.com, which was only audio at the beginning, to broadcast.com in 1998, which was audio and video, and became the largest multimedia site on the internet, took it public in July of 1998. It had the largest first day jump in the history of the stock market at the time. And then a year later we sold it to Yahoo for $5.7 billion in Yahoo stock.

Speaker 1

27:55

And I owned right around 30% of the company, give or take. And so after taxes, that's what got me there.

Speaker 2

28:02

Well, there's a lot of questions there. So the technical challenge of that, you're making it sound easy, but you wrote code, but still in the early days of the internet, how do you figure out how to create this kind of product of just audio at first and then video at first.

Speaker 1

28:18

A lot of iterations, right, like you talked about. We started in the second bedroom of my house, set up a server, I got an ISDN line, which was a 128K line, and set up, downloaded Netscape server, and then started using different file formats that were progressive loading and allowing people to connect to the server and do a progressive download so that the audio, you can listen to the audio while it was downloading onto your PC. Yeah, was it super choppy?

Speaker 2

28:48

So you were trying to figure out how to do it?

Speaker 1

28:49

Oh yeah, for sure, for sure. It would buffer, it was, yeah, it wasn't good, but it was a start.

Speaker 2

28:53

But it was good enough because it's the first kind of?

Speaker 1

28:55

Yeah, because there was no other competition, right? There was nobody else doing it. And so it was like, okay, I can get access to this, this, or this.

Speaker 1

29:01

And then there were some third-party software companies, Zing and Progressive Networks and others that took it a little bit further. So we partnered with them and I started going to local radio stations where literally we would set up a server, right next to it I had a $49 radio, the highest FM radio that I could find. And we'd take the output of the audio signal from the radio with these 2 analog cables, plug it into the server, encode it, and make it available from audionet.com. Then I would go on UUNet bulletin boards, I would go on CompuServe, I would go on Prodigy, I would go on AOL, I'd go wherever I could find bodies.

Speaker 1

29:44

And I'd say, okay, we've got this radio station, KLIF in Dallas, it's got Dallas sports and Dallas news and politics. And if you're in an office or you're outside of Dallas, connect to audionet.com and now you can listen to these things on demand. And that's how we started. And it started with 1 radio station, and then it was 5, then it was 10, then it was video content, then the laws were different then, so we could literally go out and buy CDs and host them and just let people listen to whatever music.

Speaker 1

30:15

And we went from 10 users a day to 100 to 1,000 to hundreds of thousands to a million over those next 4 years. How did

Speaker 2

30:25

you find the users? Is it word of mouth? Word of mouth.

Speaker 2

30:27

Just word of mouth.

Speaker 1

30:28

Didn't spend a penny on advertising.

Speaker 2

30:29

So the thing you were focusing on is getting the radio stations and

Speaker 1

30:32

all that. Well, radio and TV, anything, any content at all. To pick up the phone, how'd you?

Speaker 1

30:36

I would, wherever I could, like everything that was public domain, I'd go out and buy a video or a cassette, whatever it was, you know? And this was before the DMs, the Digital Millennium Copyright Act of 90, whenever it kicked in. So literally anything that was audio, we would put online so people could listen to it. And if you think about somebody at work, they didn't have a radio most likely.

Speaker 1

30:58

And if you did, you couldn't get reception. Definitely didn't have a TV, but you had a PC and you had bandwidth available to you. And the companies weren't up on firewalls or anything at that point in time. So our in-office listening, you know, during the day, what just exploded because whoever's sitting next to you, what are you listening to, right?

Speaker 1

31:17

And that was the start of it. And then in early 98, we started adding video and just other things. And we had ended up with thousands of servers. There was no cloud back then.

Speaker 1

31:28

And just pulling together all those pieces to make it work. But where we really made our money was by taking that network that we had built and then going to corporations and saying, look, it's 1996, 97, 98, and to communicate with your worldwide employees, what they would do is they would go to an auditorium that had a satellite uplink, and then they would have people go to theaters or ballrooms and hotels that had satellite downlinks, and they would broadcast the product introductions, whatever, And so we said to them, look, you're paying millions of dollars to reach all your employees when you can do it. Pay us a half a million dollars and we'll do it just on their PCs at work. So we did, you know, when Intel announced the P90 PC, we, you know, charged them $2 million or whatever to do that.

Speaker 1

32:20

When Motorola announced a new phone or a new product, we would charge them. And so we used the consumer side to do a proof of concept for the network. And then we would take that knowledge and go to corporations and that's how we made our revenue.

Speaker 2

32:34

And there was some selling there with the corporations. Yeah, a

Speaker 1

32:36

lot of selling there, but we were saving them so much money. And they were technology companies, they wanted to be perceived as being leading edge. And so it was win-win.

Speaker 2

32:45

How much technical savvy was required? You said a bunch of servers. Like at which point do you get more engineers?

Speaker 2

32:51

How much did you understand could do yourself? And then also, once you can't do it all yourself, how much technical savvy is required to understand enough to hire the right people to keep building this innovation?

Speaker 1

33:03

I did all the technology and then we hired engineer after engineer after engineer to implement it. And so, yeah. From putting together a multicast network to software to just all these different things.

Speaker 2

33:17

Was this like a scary thing? Like it's terrifying,

Speaker 1

33:20

right? Because as we were growing, trying to keep up the scale and literally we're buying off the shelf PCs and then server cards as the technology advanced and hard drives and things would fail and we would have to, you know, we didn't have machine learning back then to do an analysis of, you know, how to distribute server resources. So, you know, like there was a time when Bill Clinton and all the Monica Lewinsky stuff happened, they released the audio of their interviews of him or something like that, right? And we literally, I knew at that point in time when that was released, everybody at work was gonna wanna listen to it, right?

Speaker 1

34:01

So we had to take down servers that were doing Chicago Cubs baseball, right? You know, and just make all these on the fly decisions because we didn't have the tools to analyze or be predictive, but yeah, it was all technology driven and marketing.

Speaker 2

34:17

The acquisition by Yahoo, can you tell the story of that? But also in the broader context of this internet bubble. This is a fascinating part of human history.

Speaker 1

34:27

So on the acquisition side, We were the largest media site on the internet and it wasn't close. There was nobody close. We were YouTube and relatively speaking, we would be 10X YouTube relative to the competition because there was nobody there.