Will CORONAVIRUS Cause the Next RECESSION | Ask Mr. Wonderful #20 Kevin O'Leary and Mark Cuban

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Hey everybody, welcome back to another episode of "Ask Mr. Wonderful." This one's very special because I've got fellow Shark Tank Antonian Mark Cuban here with me. We're working in New York, talking about moving Shark Tank back to Friday night, so we're doing a lot of promotion.

But while we're here in the studio, which we're in the green room, I thought what a great chance to ask a few questions. Fire away, Casto! I've been all around the world on this one. So here we go, we’ll get right to it. Mark, this one is from Nish in Oxford, England.

Okay, okay, you ready?

“Hello Mr. Wonderful, Nishio from Oxford. My question is here: what do you think the future of blockchain and cryptocurrencies is?”

Okay, Mark, that's perfect for you. Blockchain and cryptocurrencies— a lot of people think they're [ __ ]. So blockchain is different than cryptocurrencies, right? Blockchain is a feature of cryptocurrencies, but not all cryptocurrencies are used just for blockchain. So let's take them in two pieces: crypto. How much of your DoDEA is tied up in cryptocurrency?

So, you think it's [ __ ]?

Um, I don't know that it's [ __ ], but you have to ask how to value it. People value it in different ways, particularly blockchain—I mean, particularly Bitcoin. So with Bitcoin, some people value it as a store of value.

Yeah, which makes it like baseball cards, art, gold. They have value because people see value in it, not because they have insurance.

Oh, you say they have no intrinsic value? What is the intrinsic value of gold? I mean, minimal intrinsic value for manufacturing and jewelry, but not enough to justify the price of gold—that's typically that it typically trades at.

The Delta between the intrinsic value, the manufacturing/jewelry, and what it's being sold for—what's being valued out on markets—is what they call a store of value because people want to invest in it. They think in certain circumstances occur, like a pandemic, for whatever it may be, that there will be potential buyers at that value.

So they see it as storing value.

And they do it, go. Sounds like you prefer to own gold to store value than crypto.

I prefer neither right now, okay? Because I've never been a gold fan because, like I said, the delta between intrinsic and trading value is what people invest and see in it. But it's no different than tulips. It's no different than baseball cards. It's no different than a lot of different things because it's only worth what you think someone else will pay.

You're basically saying it's a speculation?

Yeah, of course.

Okay, let’s talk about blockchain. To me, that is actually a non-proprietary utility, right? Why would that in any way be a storage of value, blockchain anyway?

Blockchain is effectively a software, okay? So the distributed database—that's managed independently, and that inherently, that inherent combination makes it a utility. It makes it software effectively that has value in utils.

So when somebody's running around trying to raise a blockchain fund, that's just a software-for-hire fund in some respects, that they know. But there's a specific use—there are very unique use cases for blockchain. So for instance, when people say there’s no value, no intrinsic value to crypto, they don't really look at the value of blockchain.

Now, when you take blockchains from different types of cryptocurrency—Bitcoin versus Ethereum versus others—there are significant differences, but blockchain in general does have at least a basic intrinsic value—not as high as what the cryptos trade for, but there is a basic intrinsic value.

And I’ll give you an example. If, for instance, there was a blockchain driven general ledger system that had auditing capabilities, so for instance for a big company, you wanted to have a truly independent auditor so you would set up a general ledger system using blockchains where an external third party would be able to look at different segments of the general ledger.

But there wouldn’t just be one auditor; you can have leads that make the process more efficient. So it has value there, but it makes it not just more efficient, but it makes it then truly independent.

But there’s no equity that I can buy in blockchain?

Well, let me finish. Imagine if this was the system used for Enron. Yeah, so that instead of having Arthur Andersen doing their auditing and their accounting—and we know what happened from there—the auditors and the accountants were there. There were three different auditors and accountants that, using blockchain, were able to look at a specific segment of their general ledger.

And so they would have caught the fraud way early! They would have caught the fraud because you couldn’t fake out all three of them. So it has utility there, I guess. Yeah, thank you. Nice, very interesting.

Let's have a look at number two here. I got some very interesting questions for you. Might wanna be honest with you—you’re gonna find this different.

Alright, Dolores, ready?

“Mr. Wonderful, I love you. You’re my favorite shark. Operator, about as an entrepreneur just starting out, I’ve been told that it would be good to raise money from friends and family, and I don’t have the type of friends and family, though, that can give me.... I don’t have a marketing budget to start my venture. I’m working really hard, but I don’t come from that type of socio-economic level where, you know, friends can give and family can give me money. So what do I do if I’m being told by everyone, ‘Oh, friends and family first’, but most of those people that are saying that have friends and family who have been able to give them, you know, sizable amounts of money? But for those of us who don’t have that, those means and those contacts, what do I do?”

Hey, thanks a lot so much. Oh, thank you, I appreciate that!

You talk about your past a lot—nobody gave you a lot of dough! So what's the answer to this woman's question?

You don’t raise money! Sweat equity is the best equity. You start smaller! You know, there are most businesses— I’d say at least ninety, if not 95% or more percentage of small businesses startups can start without raising any capital at all.

You just use sweat equity! Now obviously we don’t know what kind of business she’s trying to start, but you just have to try to start smarter with smaller.

The hard part for most people is that trade-off between, do I keep my job or how do I start a company when I have a job? Most people feel like they need to raise money so they can quit their jobs.

You advocate they quit their job?

No! I say go make it happen! Get some revenue! We improve it at work. There’s a bartender at night. I mean, whatever you have to do—that’s part of being an entrepreneur.

So if you have to work on weekends, you have to Uber at night, Uber on weekends so you have some income coming in so you can work on your company.

Or you work your regular job during the week, and at night and weekends, that’s when you work on your start! So the good news there is anybody can be an entrepreneur if they’re willing to work their ass off for 24 hours—that's what it takes. I think that’s your message.

So, you know, like they always say, entrepreneurs work 80 hours so they don’t have to work 40!

Alright, good one, thank you. Next, Cooper!

Hey Mr. Wonderful, this is Cooper from Missouri. I'm 19 and I'm in my second semester at college, and I haven’t really decided on a major yet. I mean, I’m thinking law school just because I like arguing, and I like business, and Shark Tank is my favorite show. And obviously, you’re my favorite shark.

But I was just wondering, in your expert opinion in this time and era, what would be a good degree to get—like maybe a major and a minor to apply to law school—or even your opinion on just a career outside of law school with just a degree? Thank you!

Oh, Cooper, I’m gonna give you a hell of a deal today because you got two sharks for the price of one! Mark, this is a question you must get all the time.

Of course! I mean, this is guidance for the next generation. What do you say to Cooper?

First of all, Cooper, notice! And, you know, as a potential lawyer, potential entrepreneur, you have to pay attention to the details. Notice the first thing Mr. Wonderful does—he asked me; he doesn’t answer!

I’m trying to be polite!

Next time, no more Mr. Wonderful, I’ll tell you that right now. But here’s your answer, Cooper: you don’t have to figure it out when you’re 19! I started off as an accounting major—I realized that was awful! I didn’t want to do audits of furniture and carpet spools and changed my major multiple times.

I knew I wanted to be in business; I just didn't know what the details were going to be. So don’t stress about it, but take a lot of different types of business classes because when you’re learning how to learn and you’re experiencing different parts of business, you’ll find something that sticks with you.

And by the time you need to declare a major—or even if it takes you a little bit longer—you'll know more! Then you can decide if you should be a lawyer, if you should be an accountant, if you should be in finance, marketing—you said you want to start a business.

You know, take some entrepreneurship classes! You want to be rich? You know, in order to get there and be prepared to start a business if you’re going through college, take as many—you take marketing, take accounting, take finance—those are all the languages of business.

Take technology classes because these are the things you’re gonna have to learn no matter what! So you experience different things, Cooper. Try it all, and then you'll be in a better position to decide!

And I will add to that example within my universe, and you actually know Alex Kenji. He's a lawyer! He was an IP lawyer, but he’s also an entrepreneur.

He combined the two together, and now he runs O’Leary Ventures. And Alex has done very, very well working with us on Shark Tank over the last decade. He owns 15% of every deal I do, and I love the money—that's how I do it.

So, he’s putting his own kahunas on the line, and if he doesn’t put that loan in place, I don’t close because Alex does all the due diligence with your guys—Stephen, that’s how we do it! Those guys work together with Alex.

Oh, you know a lot of attention, servitude, because I ain’t doing the deal unless he’s fully engaged! But that’s the cool thing! Thank you for that, Cooper. That’s wonderful to hear.

Next, we've got Theresa! Don’t you love these international type questions? Yes, it’s cool!

Hello Mr. Wonderful, my name is Theresa Black. I own a Mochi Gelato company that makes sweetened gelato. I am growing quickly, and everyone who tastes my product loves it! But I would like to know how do I get the right people to taste it so that I can grow faster?

How do I even know who the right people are, and how do I find...? You know, I gotta tell you something, Mark. If she doesn’t make it in the gelato business, she’s gonna make it in radio.

Yeah, really! It’s a beautiful voice, Theresa, you have! But Mark, you’ve been doing a lot of food deals at Shark Tank in the last year, and there’s a lot of Theresa's to get in front of you and pitch you, right?

Yeah, I actually did a deal called One a Date with Aunt Renee. Melissa, and she’s got a date spread which is incredible—it’s the benefit of dates versus just cane sugar.

Well, first of all, it’s natural, and so you’re not getting any added sugars. Second of all, particularly her date spread is relatively low calorie; it’s only 25 calories from a natural date.

Another merit of it. Third, it’s got great nutrients; I’m a big believer. You try to get all your RDA allowance of nutrients and vitamins from foods as opposed to...

I remember that deal now! I said better ones with just the milk of a camel and dates could live forever!

Exactly, right! You have it!

But you didn’t answer the question, right? How does she get this great product, this date-based gelato, in front of people? How do you get it out of there?

Well, obviously, not knowing what market she's in, it’s hard to give her specifically, but generally speaking, that’s where you go to farmers markets—that’s where you go to flea markets. That’s where you go anywhere where people are going to be at, and you sell!

Right? You make it that morning, you freeze it, and you take it out there! Get yourself a refrigerator or freezer or whatever you got to hump it out there! You’ve got to hump it!

But then, initially, you do it all yourself so you can learn about your product and get feedback. And one thing you need to do is collect email addresses, right? Because you want to be in an email dating database!

So that you can email them and say, “Here’s my website,” and, you know, because you’re local, I can deliver it to you and sell it to you at a premium price because it sounds like a premium product.

Part two to that is, even though it seems like a real grind to do flea markets, etc., you know, farmers markets, find some college kids, some high school kids that can work for you, you know, at ten, twelve, whatever dollars an hour or maybe commission, and get them out there doing the same thing.

So you have a network of people. Then hopefully you build up enough demand, collect enough email addresses that you could have the first date gelato route, right?

So that people are getting these things delivered! Then, once you have a base and you have data and you have sales and you’ve started to grow and you understand what’s involved in growing your business because it’s hard to grow a food business like that in terms of, you know, making it and distributing it—

Then I would go to the local grocery stores that deliver and even find the local regional head for Whole Foods who then may be able to offer to—through Amazon Prime—be on Amazon Fresh because they can deliver within two hours frozen products.

And like I’ll order frozen products through Amazon all the time. So that way, you can start building up even larger local trade! Then you’ll see the progression and if you can accomplish to the point where you're being delivered by Amazon Fresh through Whole Foods, then the sky’s the limit!

So, Theresa, Cuban just gave you your business plan! Now chop-chop, get to work and start going those farmers markets. That’s what it’s about!

It’s just grinding!

Your job in radio? Yeah, boy—is that what a beautiful voice you have? That’s just crazy!

Alright, next up on the hit parade, we’ve got Rohan Reddy on!

Yeah!

Hello, Mr. Wonderful. Everyone in business says that you should find out what you’re good at—I mean, stick with that in business. But my question is, how do you actually discover what you’re good at and what you’re gonna do well?

Mark, that’s a good one for you again because you suck at everything and somehow you made money!

I’m great at a couple things; that’s all it takes! I’ll tell you a quick story, Rohan. When I went to college, I took one technology class and I cheated at it. It was a Fortran programming class, but that was basically, I just asked for help, and I really didn’t ever think technology would be a strength for me.

You said you became a coder; you were actually coding!

Then I went out of college, then I moved to Dallas and I was working as a bartender/barback at night and got a job working for a software store during the day.

The guy asked me, I’m like, “You don’t know a lot about software, so what are you going to do?” I’m like, “I’ll teach myself.” He’s like, “How are you going to teach yourself?”

And I told him I’d read the manual, and that’s exactly what I did! I worked in this store during the day, quit my job bartending at night.

Then at night, I would take home one of their computers because I went to RadioShack to buy a computer, and they turned down my credit.

So I would take one of the computers they had, take it home, and just work all night! Saved up, even, to passion about it. The point is, you gotta find something you love to do that well!

Yeah, because then the bigger point is I didn’t even know that I was gonna be passionate about computers until I got a job at a computer store.

And so the point about it is you’re gonna have to try a lot of different things. You’re not going to know!

But eventually you’ll come across something that not only that you’d like to do but that you can be good at.

And once you find something you’d like to do and that you’re good at it, then try to be great at it! Because if you could be great at it, A—nobody quits anything they’re great at, and B—that’s where you find your chance to make a lot of money! Great advice!

Brilliant! Go out there and do it!

Very interesting! Alright, next!

Shaggy, that's interesting. Ready for Shaggy? Mark!

Hey Mr. Wonderful, Shaggy from New Jersey. I was wondering what you thought about the space tourism industry. Do you think it's a viable industry to invest in, or do you think it's all hype and it'll take many decades for it to be an actual viable business? Thank you for your time!

Another Cuban question! Space exploration! You know there's a stock that's on fire—Galactic! Makes no money, got a lot of orders! Risky! Is hell, if you're getting in there!

Yeah, would you pay $250 to go up in that thing?

Me? No! Because I’m terrified of heights! But Shaggy, let me just say it wasn’t me—I had to get that in there! Sorry!

I think it’s a legitimate industry; we just don’t know who the winners are going to be yet. And so, people will pay for tourism.

Space tourism, obviously, it’s going to be expensive, but it’s all relative! Being able to go up in a rocket, right, is of interest to people who can afford it. But like that thrill—you know?

And so if, how big a market is that? I don’t know.

How do you start a company there? You’re going to need a lot of capital to do that and you’re gonna be able to take on losses. You’re gonna have to take on losses for a long time.

It’s kind of, you know, Tesla or, you know, the board company. Those are things that are huge investments.

But if you can raise enough money and stick it out and having unique enough advantage—

In my, you know, I had a chess interview with Branson—you know him as well—and he told me eventually it's not just tourism because if you can get from, let’s say, Dallas, Texas to Dubai in two-and-a-half hours, twenty-seven hours, of course, that’s pretty good!

Yeah, it’s like the old Concorde. That’s why people use the car! You know, at some point, you pay 80 or 100 grand to get that!

Well, yeah, there’s no asset that’s more valuable than time!

So there’s that—industry’s viable!

Okay, alright, very interesting.

Next, I think this may be our last one, Mark! I’ll be here all day for you, Kevin.

Well, am I happy you’re doing that? I’m making you do some work finally! That’s a good thing!

Hello, Kevin. My name is Ian. I’m a 38-year-old Irish dad living in Sydney, Australia. I’m about to purchase a B2B manufacturing business for $2 million. I have an investor who will invest $1 million for 10% ownership.

I must pay back that $1 million at 8 percent interest, plus he gets 20 percent of the profits till that $1 million is paid back. I have $1 million of my own money, and I have no half-standing—

Do you think the scheme is fair, or should I lift the bar from the bank and have 100 percent ownership myself?

Well, Ian, baby, you’ve come to the right place! You sound like you’re paying a royalty, but it’s really interesting—the loans! I think they’re going along!

So, first of all, Mark, let’s break it down. I mean, this is a deal—this guy’s got a serious business here, right? Putting up $2 million one way or another, right? A million of his and potentially a million from the investor.

But it sounds like he’s got the opportunity to borrow from the bank.

Yeah! And so it really comes down to how profitable is the business? If the business is profitable enough that you can support the loan, you always do the loan.

Which is $80,000—8 percent, $1 million, right? $80,000 a year!

So if he can afford that, you do the loan every time because you can get—it's probably three years max, right?

Yeah, who knows if it’s balloon or whatever? Maybe he’s in Australia, so I don’t know all the opportunities there.

The only reason you would use the investor is that he or she was strategic in some way.

So if it's the same money and they're not strategic, you go with the bank all the time!

Although they can bankrupt you if you don’t pay their loan back—yes, so can the investor, you know?

I mean, you’re gonna have an obligation and you probably have to personally guarantee it one way or the other!

If you're confident in the operation, if you’re confident in the profits or that you can increase the profits, you go to the bank!

But without knowing details, the first red flag that comes up is that this person is selling you the business for $2 million, right?

And so, if it’s being sold for $2 million, it’s not probably not generating $2 million in profits, right?

So you’re asking yourself—what multiple? You would ask the question: what multiple of cash flow are you actually paying for the company?

And so is he paying five times and generating $400,000 in cash flow, or is it some hot trendy business and he’s paying twenty times earnings?

Because if you’re paying $2 million for twenty times earnings, you’re only making $100,000, and that’s before you pay yourself.

And if you’re paying 80% in interest with either deal, right—that’s a challenge!

So the basic message here from your point of view on this real deal, because $2 million in serious money. If you can get it from a bank, it has less covenants and strings probably than the investor unless they’re strategic.

Well! If not, if not that there’s less covenants or strings, it’s just that there’s no equity of debt, right? You’re not giving up anything!

Okay, we got one more Mark—I think you’re gonna be a little surprised on this one.

The coronavirus is causing Apple to shift some of its iPhone production out of China.

Do you see this as a temporary measure or a part of a wider trend for companies overly dependent on one country for most of their factory labor?

And if part of a larger trend, what countries do you think are well poised to seize the opportunity?

Alright, very current question, right? We got a virus pandemic—maybe people don’t know it’s changing production lines and sourcing a product in the case of Apple. That’s a big deal for China! What do you think?

So there are three questions there. First, going backwards, are there other companies that can act as hosts for manufacturing, and should you?

Then number two is should you invest in placing production there?

So every country has its own risk of one sort or another—whether it’s Mexico, Indonesia, Thailand—where you may choose that has a low...

Most of them are getting some virus breakout.

Well, put aside the virus, right? There’s always going to be some sort of inherent risk. It could be political; it could be economic; it could be any number—it can be medical.

So there's always going to be risk! And so it would suggest that if you can afford it, that you want to have as many locations as possible!

It's almost like a diversification!

Yeah, diversification of risk! So it’s almost like cloud computing; you never want to have a vendor who has all their assets, their data centers in just one location! Because if something happens, then you’re out of business!

And manufacturing—similar! But because supply chains have become so complex and products ain't no materials come from so many different locations, that really makes it difficult to source and ship all the different materials to multiple locations unless you're very big!

So that’s just a decision each company will have to make!

Now, as far as the coronavirus, I’m not an expert, but here’s what I’ve read. What I’ve read is that it will spread; it will be a pandemic.

And the reason why is because it’s like a serious cold; it’s like a light flu, and because it’s respiratory transmission, right? But the real issue is that a lot of people who have it are asymptomatic; it’s not so serious that they even think they’re sick!

And unless you're some... It’s death!

Well, but like the flu for some people—if you’re older, if you’re already sick, if your immune system is compromised...

Again, this is just for me reading a couple articles. I’m not an expert. So then, like the flu, you could have really problems.

And so there’s a 2% death rate from corona—I don’t know what the death rate is from the flu, particularly because there are vaccines, but it’s the same type of risk!

So where this leads to, because it’s easily communicable, it will be a pandemic!

But whether or not—just like the flu, there’s a vaccine, but there’s no cure once you get it.

It’ll become seasonal; in other words, we’re gonna see this on a rotating basis. That’s another flu strain!

Yes, virus! Somehow, we’re gonna have—maybe we’ll have medicine for it at some point; a vaccine, I’m sure at some point we’ll figure it out. It takes about a year!

Yeah, who knows how long, but just like there's a flu season and we know to get a vaccine for the flu season, don’t be a corona season!

And I’m not talking about with Jimmy Buffett and having a beer!

Right? So it will happen, and your best reaction is to stay healthy!

And help, you know, usually be well, right? And help your employees and your family do the same thing!

Because it’s happening.

Has it changed your investment thesis in any way in terms of what you’ve done within your investments already?

So I'm not at all! Now looking at the market, it’s been crushed because people just don’t know and how much it could slow growth in various recession!

Economists have written that it will slow growth some, but I don’t see that as a long-term impact!

But I think the scale of the decline, you know, the three, four, whatever percent has been—as much to do with the fact that the market's at all-time highs!

Yeah, they need an excuse to do a correction.

Exactly! Down about eight percent—the correction would be ten! That could happen the next day or two!

Right?

And like, I haven’t sold anything!

Yeah, I get it! And I’m the same way! I’m just kind of riding it up, saying I don’t know enough to make an investment decision!

And you know, over the last three years, almost four years, I’ve increased my cash as the market’s gone up!

So, you know, I’m a Warren Buffett acolyte. When there’s blood in the streets—then when you buy! That’s when you buy!

And so, if something crazy happens and the market just goes upside down, I’ll be lining up to buy! You have some powder dry!

Listen, Mark, this has been a fantastic episode of Ask Mr. Wonderful. Clearly, all these guys just think I’m the better shark!

What a problem!

Yeah, four questions can way to rock it! I’m looking forward to taping Shark Tank with you in season 12!

We’re here, and we work together! What are we doing? Why are we here?

Why?

We’re because we’re promoting the fact that Shark Tank has moved up Friday nights on ABC! Exactly!

So turn your channel, tune in every Friday night to your local ABC affiliate! If you miss it, don’t ever do us again, Mark!

I will see you in LA and I will kick your ass on Shark Tank yet again for the 12th year after!

Thank you, my dreamer! Thanks everybody, see you next week!