Mark Cuban’s company, AudioNet (later named Broadcast.com), called me up in 1997 because they desperately needed my help in order for Cuban to become the billionaire he rightfully became. They wined me, dined me, called me up every day, until finally I granted them their wish.
I don’t follow every aspect of Mark Cuban’s career. So I’m only going to discuss my own brief interactions with the periphery of his business life to explain what I’ve learned from him. Suffice to say, he’s enormously successful. He had a company Broadcast.com which he sold to Yahoo. And then Mark Cuban sold all his shares at the very top, walking away with billions, which he’s probably turned into a billion or so more. He then bought the Dallas Mavericks, started HDNet, made a ton of investments, had a very public battle with Donald Trump, had a very public battle with the SEC, etc.
(Mark Cuban on Dancing with the Stars. I like the way she is looking at him)
I called a friend of mine the other day, “Are you jealous of Cuban?” I asked him. And he said, “of course I am.”
Which is good because if he said, “no”, he would’ve been a liar. And if he said, “no, that guy just got lucky,” he would be the worst personality cocktail out there: stupid and mean.
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What I learned from Cuban:
1) Create your luck. Most people I speak to about Cuban say he was lucky. He created a company with minimal revenues in the internet video/audio space, had the biggest IPO in history at the time (1998), immediately put the company up for sale, sold to the biggest Internet company (Yahoo), and then sold all his shares at the very top. How did he know to sell at the top? Is that the “luck” part everyone refers to? Or the fact that he started a company with no revs and was just “lucky” it was at the right time (the Internet bubble?)
It wasn’t luck at all. In chess there’s a saying, “only the good players are lucky”. Whenever a good player wins a game, the angry opponent often says, “ahh, you were just lucky”. But it always seems the good player gets lucky more than the bad player.
People are starved for love and affection. They thrash out everywhere to find it (business, games, relationships, etc) because they didn’t find it as children. And when they see someone else get love (money), they can’t understand it. Love doesn’t exist so how did X, Y, or Z get it? It must be luck.
In 1997, I had never heard of Cuban when AudioNet contacted me. AudioNet was the name of Cuban’s company before it changed its name to Broadcast.com.
At the time, my company, Reset, was putting together the first regular live online production of a TV show. The People’s Court with Ed Koch (a very prestigious TV show if you never watched it) wanted to stream live while it was being filmed. So people online could view it before it went on the air. I was very excited for several reasons.
The People’s Court with Judge Wappner was one of my favorites growing up. So now I was seeing from the ground floor how it was being made. A roomful of production assistants was going through every small claims court case on file. Hundreds or thousands of them. The most interesting ones were being pulled out for airing. We had our own office right next to this production room, where we would relax between airings. Then, we had a guy on site every day managing the streaming on the Internet. How many people watched every day back in 1997 online? Maybe 20? Maybe zero? But it was interesting. And they paid us well. I also loved being in the Hotel Pennsylvania, where it was being aired. Right across the street from Penn Station it was the site of many New York Open chess tournaments when I had been growing up. So I had fond memories. And also some bad ones.
AudioNet contacted us because they were dying for us to use their technology to do the live streaming. I forget the name of their local New York sales person. Very nice guy, persistent. “Listen,” he said, “Mark Cuban wants to go public and we NEED press releases. Press releases drive IPOs. This would be a great press release.” We all laughed about that. We ended up using them.
Mark Cuban understood the game right from the beginning. Create a brand, be at the forefront of technology (but not too far ahead (no electric cars for him) ) get as many press releases going as possible, sell as fast as you can. He knew, probably five years in advance, that a bubble was occurring and this was the exact plan to maximize value from it. He probably extracted more from the initial Internet bubble than anyone else. It doesn’t happen by luck that you sell at the top. You have to know five years in advance when that top wil occur. And then have to have a very precise plan for being at the right spot at the right time at the very top.
I didn’t understand the game. For instance, in my company, I was a service business. Even though I was developing my own software to build websites. We were streaming many live events. We were doing many things that we could’ve called “products” and we could’ve headed down the IPO route by branding our products, speaking at events, etc. I probably had more revenues than half the companies that went pubic at that time. But I branded myself a service business, not a products business.
I had no business sophistication at all. All I wanted to do was make payroll, have a little extra (profit) and then sell my business as a function of my profits. This is fine in most business cycles (it worked) but I didn’t maximize the way Cuban did. I don’t want to chastize myself but I was right there, right at the same time, and with just as many good products that I had made as anyone else, but I didn’t properly plan for the events that were occurring (in retrospect) in plain daylight around me. In other words, I just simply wasn’t as smart as Cuban.
Everything is a game. Understanding the rules allows you to succeed.
2) Dont invest in ugly. A few years later, in 2004, I was starting a fund of hedge funds. I wrote Cuban to see if he wanted to invest. To his credit, he responded and said he didn’t like the specific strategy I was using. I was starting a fund of PIPE funds. PIPE funds invest directly into public companies by doing private deals with them so they could get stock at a discount or under other favorable terms. Companies do this because they need to raise the money. So, in other words, the worst companies around because they are incapable of raising money through other means. Mark felt the area was ugly and didn’t want to be involved.
We wrote back two or three times and each time he responded. I tried to argue with him but he knew where he stood and he remained there. No.
When companies he invested in did PIPEs, he would get out (notoriously, his back and forth with the SEC over his investment in MAMA and his selling when they did a PIPE)
So what happened? He was right. I smelled the writing on the wall in 2006 and began unwinding my fund before any implosion occurred. The implosion did occur in 2008, two years later, when funds couldn’t get out of illiquid positions in microcap companies and they all crashed in the financial crisis. Mark probably didn’t see the exact writing on the wall but once again he predicted an event that was yet to occur for another four years. What I learned: PIPEs had a bad reputation even in 2004, but I thought that created opportunity. Mark correctly realized that its ok to be an optimist in bad situations, but don’t be stupid. If you do too many crazy things then you become crazy. My investors came out ok but it could’ve been a lot worse and I should’ve just listened to Cuban from the beginning.
3) Get comfortable, then get rich. Most people think Cuban just stumbled into the dot-com boom, made his billions, and then that was that. This next thing I learned from Cuban is critical for any entrepreneur. He had already sold his first software company in the early 90s (I might be getting the dates wrong. I make a rule not to look anything up while I’m writing). I don’t know how much he made, but it was enough (10 milion?) for him to be comfortable for the rest of his life. So that allowed him the confidendence to stretch out his muscles and really go for the billion. So the rule is, get comfortable, and only then get mega-rich. If you try to go for the big number too early, you can end up miserable.
4) Bleed. Cuban’s been blogging at blogmaverick.com just about before anyone was blogging. All over that site you can see stories of his first company, of his thoughts on the Dallas Mavericks, about broadcast.com, etc. A great resource. He then used this excitement about blogging to invest all over the space (icerocket, weblogs, etc) and although those were successes I think he was doing it more out of fun than anything. And he used his blog to keep his name out there in the community. To keep building his personal brand. Thats very valuable.
5) Cuban’s Rules for Investing: Cuban made his billions and now he does what ever he wants. And pretty publicly. He buys movie chains. He produces movies (because he knows he has distribution for them). He loves basketball (the initial impetus for AudioNet was that he wanted to watch basketball games from his college over the Internet.) so he bought the Dallas Mavericks and has probably increased their value by several hundred million. It seems like there’s a few rules to Cuban’s investing techniques since the 90s:
1) Find something you are super excited about and know that at least another 100 million people can be super excited about it
2) Either start a company in that space or invest as much as possible in it. Also, strongly participate in it. Make sure you are the most excited user of your own product.
3) No matter what you are doing, get as much press as possible. Don’t use PR firms (maybe he does use PR firms but he certainly doesn’t need to. He creates his own PR). Be OUT there creating your own buzz with your own energy. PR firms can never do that for you. Too many companies rely on PR firms to create buzz. But it will never work. You have to create your own buzz and that adds many multiples of value to what otherwise would be your value.
4) Have a good bullshit detector. If things smell, get rid of them. If things are frothy, sell. Don’t break this rule.
5) Engage the customer. Cuban is probably the most accessible owner in the NBA. He talks to the fans. he blogs to entrepreneurs. In 2004 or 2005 I ran into Jason Calacanis who started weblogs, inc. He told me he cold-called Mark Cuban about his weblogs, inc blogging platform and Cuban immediately invested. Cuban responded to my emails about PIPEs even though he didn’t know me and wasn’t even interested in PIPES. Its hard work. For me I respond to up to 100 emails, comments, etc a day and still can’t keep up. Somehow Cuban has the energy to keep on doing what he’s doing even though he could’ve long disappeared by now (when’s the last time you hear from Todd Wagner, his old partner at broadcast.com. I’m sure he’s doing fine but he’s not as public as Cuban).
And yes, I’m jealous. The guy has the dream life. Not everyone can make a billion, though. So the challenge then is to make the dream life (or go far beyond what you thought the dream life would’ve been) by re-calibrating whats really important to you. In my mind, right now, I’m a trillionaire. And getting richer every day.
