We Study Billionaires - The Investor’s Podcast Network - TIP 017 : My Business Deal with Billionaire Mark Cuban (Investing Podcast)

Episode Date: January 11, 2015

IN THIS EPISODE, YOU’LL LEARN: Who is Stephan Aarstol and what does his company Tower Paddle Boards do? How Stephan Aarstol landed a business deal with Mark Cuban. How to run a business with Mark Cuban. Ask the Investors: Should I put the majority of my portfolio in an industry that is currently undervalued? BOOKS AND RESOURCES Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, and the other community members. Stephan Aarstol’s Company, Tower Paddle Boards. Stephan Aarstol’s LifeStyle Brand, Tower.Life. Benjamin Graham’s book, Security Analysis – Read reviews of this book. Shari Thurow’s book, Search Engine Visibility – Read reviews of this book. Tim Ferris’s book, The 4-Hour Work Week – Read reviews of this book. Eric Ries’s book, The Lean Startup – Read reviews of this book. Alistair Croll’s book, Lean Analytics – Read reviews of this book. Related Episode: Lessons From Billionaire Mark Cuban - TIP208. Related Episode: Billionaire Mark Cuban’s Book – How To Win At The Sport Of Business - TIP51. New to the show? Check out our We Study Billionaires Starter Packs. Our tool for picking stock winners and managing our portfolios: TIP Finance Tool. Check out our Favorite Apps and Services. Browse through all our episodes (complete with transcripts) here.   SPONSORS Support our free podcast by supporting our sponsors: Bluehost Fintool PrizePicks Vanta Onramp SimpleMining Fundrise TurboTax HELP US OUT! Help us reach new listeners by leaving us a rating and review on Apple Podcasts! It takes less than 30 seconds and really helps our show grow, which allows us to bring on even better guests for you all! Thank you – we really appreciate it! Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm Learn more about your ad choices. Visit megaphone.fm/adchoices Support our show by becoming a premium member! https://theinvestorspodcastnetwork.supportingcast.fm

This is episode 17 of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll take complex things and make them seem insanely simple. They make your boring drive to work feel exhilarating. They give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. All right.

everybody doing today. This is Preston Pish, and I'm your host for the Investors Podcast. And as usual, I am accompanied by my co-host, Stig Broderson, out in Denmark. So today, we've got a very exciting guest, and his name is Stefan R. Stahl. And for anybody in the United States, you're probably familiar with this show called the Shark Tank. For our audience abroad, you might not necessarily know what the show is about. So what I'm going to do is I'm going to briefly describe what the show Shark Tank is all about, and it's a very popular show here in the United States. What the Shark Tank does is it brings on different people that pitch ideas to high-powered investors.

There's a couple billionaires on the show, and all the other investors that are on there are well worth over $100 million each. So the combined value of all these sharks on the show is probably upwards of like $2 to $4 billion in total for the people that are getting these ideas pitch. to them. And so what's really neat about the show is these up-and-coming entrepreneurs come on and they pitch their ideas like, hey, I've got this idea for this glasses holder that you'd put your eyeglasses into your shirt pocket or something like that. And so then the sharks will argue and they'll sometimes fight over equity into the person's business. And the great thing about the show

is they do it all live right there. And the negotiation takes place right there on TV and it's really quite interesting and quite funny and fun all at the same time. And so our guest today, Stefan, he went on this show and he presented his company, which is a paddleboard business. And it's called Tower Paddle Boards. And he presented the idea to the investors. And it was a very interesting episode. And for me, this was a very, this was an important episode for me because it aired a few years back.

How far back was it, Stefan, two years ago? Yeah, well, not quite too, but 2012. Okay. So back in 2012, he went on the show. And for me, I was watching this interview and Stefan went on the show and he started pitching his idea to these billionaires. And they're starting to argue and they're shooting all sorts of holes through his idea and his business plan and Stefan's up there trying to defend it. And then he said something that was really quite interesting and something that was really poignant that resonated with one of the billionaires. on the show, Mark Cuban, and he said, you know, so when you search paddle boards on the internet and you go on the Google and you search for paddle boards, my business will show up

not only in the first spot, but it will show up in the second and third spot too. And as soon as he said that, Mark Cuban's eyes just like popped because they were all kind of like going against you. Correct, Stefan, they were all getting ready to push you out. They were all getting ready to push him out the door. and then he said that one little nugget. And so when he said that, Mark Cuban's eyes just popped open and he realized, hey, this guy knows what he's talking about. And this guy has some value, some intangible value here that a lot of people might be overlooking.

And so you had a couple people that had already said, I'm not investing. I'm out. And Mark Cuban was just kind of sitting on the sideline listening to the way you were presenting yourself and the different things you said. And so whenever he said that about the search engine optimization of his site, Mark Cuban made him an offer. And let me look through my notes here to see what it was. It was for, what was it? $150,000 for 30% of your company was the offer that Mark Cuban had presented.

So what was amazing is one of the people, Kevin O'Leary, who's also a billionaire, he was just, you know, beaten Stefan up and saying how horrible his business was. I can't really remember because it was a few years back. But I remember him kind of beating him up. And as soon as Cuban comes in and he says this about, how there was this value and how he made an offer. Kevin O'Leary quickly changed his tune and all of a sudden now he wants to make an offer to Stefan because he realized the value that Stefan had with his business.

And so I really am excited to bring Stefan on the show because Stefan, he doesn't realize this, but he actually had an impact on me and my business at the time because I was watching this two years ago and I didn't really know that much about search engine optimization. And so whenever he came on the show and I saw how Mark, Mark Cuban lit up about this idea of search engine optimization, I immediately, you could ask my wife, I immediately went out and bought, I don't even know how many books on search engine optimization that night as I was watching this. And so then I started studying it. I started researching it because I realized how important search engine optimization was for an online

business. And so, Stefan, I personally want to thank you because you don't realize it, but you had an impact on me that night that you were on that show. And I really, realize something that has created more value for myself, has created value for our audience, for Stig and for some other people in our community, all because of that, of your appearance on that show. So I just want to take the opportunity to say thank you and welcome you to our show because I'm really excited to have you on today. Well, you're welcome. Thanks, Preston. Okay, so let's fire off this first question. And I think a lot of people in the United States are very curious to know the answers to

some of these questions. And Stefan, we're not looking for a long answer. We're actually looking for kind of a quick short answer so we can get to some of the other questions. But this is to give the audience an idea of what it's like to go on the show, the Shark Tank, because I think there's a lot of myths and a lot of people don't know what it's like to be behind the scenes. But since you've been behind the scenes, we want to ask you those questions. So the very first question, and we're looking for a quick response is, did you get to meet the sharks before the show, or was it all cold turkey walked up there and it just happened. Yeah, you don't get to meet them before the show.

So it's not like you're having coffee. And then they say, okay, cut, let's go shoot this. You're sort of staged with a bunch of other entrepreneurs. They probably see 13 to 15 in a day. And it's just one after the other and they have a short break there. So you're sort of in this back holding room. You come in. First time you see them is when you walk up there.

Did you have a chance to talk with some of the other people that were pitching their ideas prior to going up there and pitching. and pitching your idea to the sharks? Yeah, you're at the Sony studios, and they have like this little, you know, trailer where there's all these rooms. And there's probably, when I was there, maybe 15, 20 people that were in each individual room.

And you're just sort of waiting there. Like, we were there for six hours, you know, waiting to pitch. So you can talk to these people. There's lunch, you know, and stuff like that. Yeah. So you do get time to meet some people. And the interesting thing is because then when you watch the show, like you know a lot of these people just from you were there

right when they were pitching, you know. So it was interesting. Oh, that's pretty cool. Did you have a chance to interact with any of the sharks after you had done the deal? Or was it just kind of like, hey, let's go do the paperwork with some of these executives at the network and then that was it? Or did you have a chance to actually talk with like Mark Cuban after you were done? Yeah, no, you're in and out. And it's even odd.

So when you go in there, the first time you see these people, they tell you you, you've got to walk in and you can't talk for a minute. So you have to go up and stand on your spot and you can't smile and you can't. talk for a minute. So you're just standing there. It's this really uncomfortable, you know, period. There's these celebrities in front of you. You can't smile at them and you can't say anything. So they're looking at you funny. You're looking at them funny. And then, you know, the sort of buzzer goes off. And you say, okay, and then you smile and you go into your pitch. And then when you're done with your pitch, you know, like if you make a deal, you give a hug, you know, and then you walk out. It's last you see. They cart you off across the studio. Wow. So they're probably catching some type of

like video footage that they could then edit or something like that. That's probably the way they had just standing there or something like that. That's pretty interesting. Okay, a couple more rapid fire questions. So how long did it take for your pitch? Did you say 15 minutes? No, I would say my pitch was probably 45 minutes to an hour. Okay. Wow. On the show, which you're seeing, you're seeing like a highlight reel of like a sporting event. So there's, you know, there's big, some people are in there for two hours. and then they edit that down to about 10 to 12 minutes of what you see on TV. Oh, wow. So it's a lot longer than I had anticipated.

Huh. Did any of the sharks, before you went in, did you have a shark that you wanted to work a deal with prior to going in? Or did any kind of deal was something you were looking for? Well, I had never seen the show when they called us to be on it because they wanted a paddleboard company on there because it was sort of a hot, you know, hip sport. And then so they said, hey, would you like to be on this show? and I wasn't even really raising money at the time. But they're like, the show's on ABC on Friday nights. I'm like, yes, I'll be on this show.

No brainer, yes, I will be on the show. So then I started looking at the show and you couldn't find much online at that time. And I found a couple episodes. And I didn't really know any of these people. Cuban was not on the show at the time. He was a guest shark. And then so then when I went to film it, you go up to L.A. for like four days. You're kind of sequestered in an hotel.

I didn't even know Cuban was going to be on. the show until two days into that. So then as soon as I knew him, knew his name, and I thought, well, his money's worth a lot more than everybody else because there's a celebrity endorsement with it. So he was my obvious, you know, target. But I went in there just thinking, you know, any of these guys will work fine. Yeah. Oh, that's really cool.

And for anybody who doesn't know Mark Cuban that maybe lives out of the U.S., Mark Cuban, he's worth about like $2 billion, I want to say, and he's the owner of the doubt. Dallas Mavericks, which is a basketball team, a professional basketball team down in Dallas, Texas. So this is my last question, and I'm sorry Stigfer, like, hogging all the questions here. I'm sure you're rolling your eyes each time I ask another one. Don't think about it. Don't think about it. So, Stefan, this is my last question, then Stig will ask you one.

So why the paddleboard business? On the show, there was that major turning point that I described with Mark Cuban, recognizing your business's SEO position. Is SEO something that you had planned your business around, or did you optimize your search results after you had established your business? Yeah. So I had a previous business that was a high-end poker chip business. So the same chips you can buy in casinos, I sell those to consumers, you know, for their home game. So really expensive, $500 to $1,500.

That's a business I started in 2003. It's a business. It was doing maybe a half a million a year, but took 10 to 12 hours of my time. So I had a lot of free time. So I was looking for other businesses. And because I was starting businesses with no money, I mean, you've got to figure out how are people going to find out about this.

SEO is basically just sort of a cheap marketing strategy. And then so when I look at other businesses, I would, you know, analyze them from an SEO perspective. Can I go into this business, spend no money on marketing and can I, you know, get sales? Because if you're starting with no money, that's what you have to do, basically.

Yeah. And so I sort of look at every business through that lens. And I looked at a bunch of different, opportunities and when a buddy took me paddle boarding I was like well this is fun seems like a wide you know audience could use this product and then I looked at the you know the search statistics on it and they were off the charts because the industry's growing 100% a year for like five years straight and nobody was doing it in a very tech savvy way it was a bunch of you know surf companies and you know old brands but I figured I could go in there in a very short period of time and sort of dominate

that industry so your your question is do you did I start a business and then apply SEO tactics No, I wouldn't start any business unless I knew SEO would work for it. So I just want to throw this out to our audience for anybody that would maybe want to start their own online business. What Stefan just said is really the important part that you've got to understand. So a lot of people are like, oh, I really want to do this and they start this business. And then they're like, oh, I've got to figure out how do I market it? How do I get potential customers? But the people that are truly at the top of their game with online business, people like Stefan,

they go out and they understand the search engine optimization. And why this is so important is because if you rank in the number one spot on Google for whatever your business might be, guess what? You don't have to pay for advertising. It is free. If you have 10,000 people looking for a certain key search word and you come up as the number one search and they click on it, you literally paid nothing for that advertisement that basically popped up number one. So what he's saying here is that he knew that this market was ripe.

He knew there was a lot of people searching for paddle boards. And so then he optimized his entire business around that search engine optimization keyword. And he's done extremely well. I mean, when you went on the show, let me see what some of the stats are here, Stefan. When you went on the show, your full year revenue was 250K. The last thing that I saw was in the 2012. You had over $1.5 million in revenue. and you're probably well over two or three million at this point, correct?

Well, no, the numbers are a little different there. So you got the revenue the year we aired. So when I pitched the sharks, we had $100,000 in revenue lifetime for the company. Yeah. And it was maybe nine months into the business. And then in this last year, 2014, we did $5 million in revenue. We recently got an award for the fastest growing company in San Diego. Now, that's any company, your tech companies, B.C. funded companies.

and they had this award show where they're counting down the 100, and they get to number one, and we go up there and spy people in the company, and it's a surf company. Everybody's like, how does this happen? Dude, that's awesome. That is fantastic. Now, have you been able to hold on to the other 70% of equity? I'm assuming you have. Yep, yeah.

Oh, great. Great for you. That is awesome. What a great news story. Okay, all right, Stig, go ahead and fire away your question. Great. So this is actually related to what you said before about you have evaluated. you were valuating my Cuban's money to be worth a lot more.

I think I read somewhere I said like three times as much. I mean, this was really a guy that you wanted to do business with. But aside from the immediate attention you got and the funding, of course, how else have you been able to benefit from your relationship with MacCuban? So, yeah, and that really goes into why I value his money more. The investment was only $150,000, so it wasn't a large amount of money. I probably could have got that money somewhere else. I mean, I'm not an expert at raising money, but I probably could have friends and family, you know, if the business was taking off.

But once the deal was actually, his offer was 150,000 for 30% of my company. Plus, he negotiated for first right or refusal to invest in any business I do in the future. So that was another thing. I was thinking, well, you know, I'll make a little money on this company. But if I do well here, I potentially set myself up to have a backer for any business I want to do. So that was another important reason why I took that deal. But so what I've been able to, how I've been able to leverage him is when we were negotiating a deal, I asked, before I signed the papers, I said, hey, Mark, I want to put

your face on the front page of our website. So, you know, and that to me was actually more important than the money. You know, having a check that has Mark Cuban signature on it, you know, for PR purposes, is actually more valuable than that check itself. It's the way I was looking at this. And really online, you know, conversion rates are very low, you know, when we started this business, conversion rates were maybe a 0.5%. So we have 1,000 people come under our website, you know, through SEO and five of those would buy. Where in a, you know, a regular retail store, you walk down the store street and you go into a store, a thousand people go into that store, 600 of those people will buy. So there's this massive, you know, chasm between what's online and

in retail. So anything you can do to enhance, you know, the trust of your brand, you know, can ratchet up your conversion rate. So just putting Mark Cuban's name, on. I mean, he's not a huge celebrity, but, you know, a good chunk of people know him, especially in the sports world, and we're sort of a sports themed product at that time, that really, you know, bumps our conversion up. And we've seen our conversion go up to almost, you know, one and a half percent through Mark and some other stuff that we've done. And we've sort of, you know, organically grown our brand over the, you know, past three or four years. Wow. Wow. That's really impressive. One thing I want to highlight was actually one of the first thing you said about,

like you were giving, well, not giving away 30%, but you're selling 30%. And I think that you're really, you know, hit a nail on this one, because I think what a lot of people are missing is that 100% of zero is really still zero. But what you're talking about is even though that you might have a smaller percentage, even though a 70% ownership is a lot, It's really important how big the pie is. It's not like if you own the whole pie or not. And that's really the key to start investing, which is the main issue here for the show.

Preston, I see you have something. Yeah, I wanted to add. So, you know, Stefan, you might not be familiar with the stuff that we do, but what we try to do is we try to teach people how to value assets, particularly the way that Warren Buffett values assets. That's what our podcast really does. And we have a couple sites that teach people how to conduct asset value. And one of the things that a lot of people really struggle with is how do you value intangible assets?

And it's funny because you're talking about Mark Cuban and how you were saying his signature on the check and just being associated with him was worth countless more dollars than the $150,000 he wrote the check four. And that's something that I think a lot of people miss, especially if they're getting ready to start a new business, to give up 30% equity just for his brand or his stamp of approval, which is a lot of people miss. especially if they're getting ready to start a new business, to give up 30% equity just for his brand or his stamp of approval, which is completely intangible. There is an enormous amount of value. And you actually see this on the numbers that Stefan is talking about. He's producing $5 million in revenue from the numbers that he started with. It's incredible. He's one of the fastest growing businesses.

And it's all due to, well, a majority of it. I mean, I'm sure your hard work and everything else you're putting it to it. I don't want to discount that. but there's an enormous piece of it that's coming from this intangible value of being endorsed by a celebrity. And that's something that it's very hard to stick a price tag on, but it's something that you have to properly value whenever you're looking at a business or anything that you're trying to properly value. Yeah, I mean, that's a good point.

And there's Mark Cuban is one aspect here. And the other aspect is, you know, Shark Tech that show airs to maybe seven or eight million people every Friday. And you would get reruns on there. So we've aired like seven times. So every time that happens, we'll get, 40, 50,000 in sales, but it's like hitting them with another advertisement for our brand. So those two things are, you know, hugely valuable and way more valuable than the money.

And Steve, you mentioned when you let in there, you sort of, it was a slip of the tongue, but you said you gave away 30% of your company, you know, for this amount. But that's exactly how I look at it. Like, there's no way I would have taken 150,000 for 30% of my company. My business plan maps this company out over the first three years to a valuation of about $11 million. So when I actually, when Shark Tank called us to be on the show or called me to be on the show, there was just me and one other person at that time. They made me do a pitch tape, right?

And never seeing the show, I just figured, well, how am I going to pitch investors? I said, well, okay, first they're going to want control of the company. No investors going to put in a bunch of money and not have control of this company. I said, number two, they're not going to make a business. small investment, right? So I asked for $5 million for 60% of my company in this pitch tape. And the producers got this and they came back to me and they said, what the hell is this? Like, nobody's never to ask for that bunch money. Are you crazy? And I'm like, well, are these guys investors? Aren't they billionaires? Like, how else would they do it? So then

I went back and watched a few episodes of the show and I saw, okay, all of these guys are investing in basically no man's land, you know, 150,000 to 250,000 to 5 million. and where no regular investor would come in. And because who wants to have 20 investments, little tiny investments, and then they didn't want control of the company. They just want to make a little side bet on this horse and let them run with it. So that show is a little different than regular investing. And I get a lot of calls from people who have been approached to be on the show

or have applied to the show and they're really close. And they're like, you know, I don't know if I want to go on there and, you know, give away some of my company because I think I can raise more. elsewhere. And I say, I tell them, I mean, you're looking at this wrong. You need to go on there. You're just giving away a chunk of your company, maybe for zero dollars. So I'm going to look at the dollar amount. And then how are you going to leverage that? And how can you make that, you know, this much greater pie, what you were talking about, Steve? Let's take a quick break and hear from today's sponsors.

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All right. Back to the show. Yeah. And is it true that Shokhtang actually have an option on the companies that are the entrepreneurs that are in the show?

Yeah, there used to be an option. It was 2% royalty at the time I did it. So 2% royalty, an option for 2% royalty on profits, I guess. And then, or a 5% equity in the company.

And then if you had an exit or something like that, they can exercise this. Now, they didn't exercise that in very many companies. But a lot of people that I talked to other investors in the show were really, or other entrepreneurs, we're really concerned about that option. I looked at it. Like, I had a company that had $100,000 lifetime. I mean, it's 5% of nothing at this point. And you get to be on TV.

Like, yeah, that's no-brainer. And now that, you know, it's a $5 million company, I would love nothing more than for ABC to exercise that option. Because then I basically have a media partner for another tiny percent of my company. And they can re-air this thing into oblivion. I mean, they're actually coming out with a follow-on show called Beyond the Tank. Have you guys heard of this show? No.

No. So it's a follow-up to Shark Tank, it's a spin-off. And I assume it's going to err in the hour after Shark Tank. And they're going to do like, you know, 15-minute or hour-long segment follow-ups on, you know, successful companies from the show or maybe successful and maybe unsuccessful companies. And so then we're already filming for this, you know, starting early in quarter one of this year. And so then we're going to get, you know, even more exposure. Oh, yeah.

The 5% for all the marketing and the advertising to millions of people is just, you want their motivations aligned, right? Heck, yeah. All right. Hey, I'm going to go to this next one. So one of the unique caveats in the final contract was Mark Cuban with the first term rights to any equity sale that you have in the new businesses that you create. I took this, whenever I watched that, I took that as a huge compliment to you because

this was Mark Cuban basically saying, I know you're not just going to do with this business, but you're going to do with a bunch of more businesses and I want to be on that gravy train was basically what he was saying. And so have you thought about any new businesses or have you done any more business deals with Mark? Well, I'm a big fan of focus. So I'm trying to, I figure I've got a big opportunity in front of me. I want to knock this one out first.

and then I have some other businesses that I would look at doing. But the reason that whole thing came up, and it was probably hard to read that from the show, because in one part you guys didn't mention it. So when I started my pitch, I like forgot my lines and or my pitch, my prepared two minute pitch, stumbled and I was silent for what was like three or four minutes on the real time with these charts like Terry. They actually edited it down, but it was still like hard to watch from friends and family.

And then I had to come back from there. And part of that was I looked like an idiot on TV because I couldn't communicate my pitch. But the other part was I was pitching this paddleboard company that had, you know, no proprietary IP. I didn't have a really competitive advantage. I had no money behind me. I had no traction even. And I was going up against, you know, huge brands that have been around for 30 years. And these guys were like, how is this kid going to compete?

This is ridiculous. And I said, no brain. I mean, I've got free marketing for three years. We're going to be the biggest company in this industry. You just give me five years. And these guys just thought I was on crack. They said that you're crazy. So I had to, and they didn't like the paddlework business.

They didn't realize how big of a market that was. It's kind of a tricky big market. And so I had to go back and tell them like, okay, I've done this poker chip business. You know, my brother did this like tree trimming equipment company that he took from, you know, basically about a quarter million in sales to eight million in sales over a period of seven years. And this was a 20-year-old company that he basically injected, you know, search engine optimization strategy into. And you just basically eat the lunch of everybody else.

So you're just eating market share, even in an industry that isn't growing. So I went through several of these examples that I've been, you know, involved with. And I said, look, you guys have all of these companies. You have, you know, hundreds of millions of dollars behind you. You know, let me use your sort of war chest. And, you know, it's hard to actually, like, start a company from zero and grow it to five million in sales, what we've done. That's a very difficult. Absolutely it is. But it's an easy task is you buy a company for $10 million that doesn't have this stuff. You inject that and we

flip it for $30 million in two years. And that is actually where Kevin O'Leary's eyes popped because he's sort of an M&A guy. And then these guys saw the like the bigger picture. Like this kid, okay, who cares about the paddleboard company? He can potentially help us in our other businesses. And, you know, he can do what he's done in the paddle board business or any other opportunity that comes along. This is a consultant in my back pocket is the way that they're looking at. I can consult this guy because he understands SEO better than anybody else out there and he can turn and assist in these other ventures that we have. That's brilliant. That's awesome. That's funny. The way you put that because the one negotiation, you know, after the Shark Tank,

when we went to do all the due diligence and stuff, the one thing that I asked that wasn't included in the show offer was I wanted to put Cubans face on my homepage. And Cuban, Cubans asked, he's like, okay, you can do that. But I want you to, basically free consult with my other 80 companies on SEO. And I'm like, okay, fair. There you go. All right. Okay.

Go ahead. Let me just pick this up what you said before, Preston, because as a successful entrepreneur, and I know, Stephen, that you've done a lot of different things, and you mentioned the poetry business yourself. I mean, you must have a ton of different opportunities. And if you are like the rest of us, You only have like 24 hours a day, right?

So how do we prioritize which project you should pursue? Well, I've really now focused in on, and the paddleboard company has really evolved into, you know, more of what we're calling a beach lifestyle company. So we have paddleboards now, but our initiatives over the next year is we're starting this new, basically a beach lifestyle magazine. It's a digital magazine initially,

but it will be in a glossy magazine. We're going to try and leverage the reach of social media to grow just this massive audience of Beach Lifestyle enthusiasts by giving them content. Similar to your guys' business model, right? You're just bringing in this whole audience, is interested in investing, and then you've got the audience, and then you make products for that audience, as opposed to the traditional business strategy,

which is, oh, I've got this great idea for a product, you build a product, and then, okay, how the hell am I going to market this now? So we're sort of flipping the script there. We've got this nice base, you know, a $5 million business that's, you know, really, really profitable, and that's by, probably going to just sort of organically grow to $10 or $15 million. And then what else can we do? So we're going to use that money to grow this big beach lifestyle audience and then bring in other products.

The initial products we're bringing in is like wood sunglasses. We're going to bring in bikinis. We're actually doing a podcast as well. We have this sort of side shoot of our business called the Tower Girls, which is just beach models, basically, you know, bikini models and stuff like that. So we're going to have two Tower Girls doing podcasts. of, you know, successful people in the beach lifestyle, you know, industry athletes and stuff like that. This is a rough line of business you're in, I'll tell you.

It is. That's funny you say that. So I was in the poker chip business before. And when you've got a business that sort of supports you and you're working 10 to 12 hours a day, a month, a week, you've got a lot of time to think about what business do you really want to be in? And that's actually what I did about two years prior to starting this? I'm like, what would be the perfect job? And I was like, and I live in San Diego here by the beach. And I was like, it would be sweet to be like the CEO of a surf company.

Like that would be doing bikini shoes for traveling to exotic locations. And then my buddy, you know, took me paddleboarding. And I was like, holy cow, this all sort of fits together. Like, this is exactly what I was looking for. So basically, like the last 10 years, I've been poker and bikini girls and surfing. Is that really what you're telling our audience? And the fastest growing company in San Diego. I mean, geez.

I mean, when people say it's a lifestyle business, they think, okay, well, we're checking out on growth and they're just trying to, you know, pay their, pay their bills and work as little as possible. This is a lifestyle business, but I believe this has a potential to be, you know, $100 million to a billion dollar brand. Wow. Good for you. Seriously, Stefan, it is just awesome. And we're just so delighted to have you on the show. And I know our audience is eating this up because we're having a blast talking with you. Okay, we just have a couple more questions.

and then we won't take up any of your time because we know you're a busy guy. So this one here is something that I really am interested in hearing your response to. For anyone wanting to start their own online business or just any kind of business, brick and mortar or whatever it is, what are your top three things that you would focus on during the beginning stages of the business? I mean, the first thing is your burn rate. I mean, I think that's you got to keep your costs like super low. I've spoken a lot of universities and the kids are always like, you know, when should I start a business or what should I go into? And I said, actually, the perfect time to start a business is when you're in school. Because basically you've got student loans.

You can finance the business out of some of that. You can live on nothing. And you don't have any expectations. You don't have kids. You don't have a family. You know, you don't have even car payments, mortgages and stuff like that. As you get older and older, it gets harder and harder to jump from that secure job and start a business. But when you don't make any money, it's very easy. But as you start this business,

you're going to sort of go through cash. And a lot of people say, well, I'm going to give myself a year to start this business. And if I run out of money, then I'll go back to doing something else. But you want to get to sort of cash flow positive as quick as possible. When not making any revenues, the best way there is just have zero expenses. I mean, don't have an office. You know, don't have anything. Don't spend any money on marketing. Just refuse everything and say, I'm only going to do stuff that is basically free. And that will get you, it does a couple things for you.

It gives you a longer runway to start. And then it also forces you to find hacks. Like if I started a paddleboard company and I had, you know, $500,000 to go out and do this paddleboard company, which a lot of people do in this industry, they go out, they buy a magazine ads, they go to trade shows, they do this, they have this big plan of how. how to get from A to B, which is the same plan that everybody else has. But if I say, I want to build a $100 million paddleboard company and I have no money to do it, you have to find a hack. And a hack is, a growth hack is like SEO. It's like I can go for three years and spend $0 on marketing or, you know, or leveraging social media.

You know, any way you can figure out to spend no money and, you know, get free marketing. then you're going to refine that hack. And then when you get, you know, three or four years ahead of every, you know, three or four years down the road, you're going to have this natural built and advantage that you've learned because you were forced to. I don't want to interrupt you, but I've got to comment on what you're talking about because so many people think, I need to go to the bank or I need to find some venture capital person to give me $100,000 so I can go advertise or I need to go do something else.

And they miss the point and they miss the essence of. what you're talking about because they don't understand that the only way that you're going to get to that cash flow positive position is by being enormously creative in minimizing your costs like you're saying. And these people that get that $100,000 influx of capital, they just burn straight through it in a couple months and it's gone and they never had to become creative with how they're actually producing cash flow. So I freaking love that point. I just, I do. I love that. So keep going. Sorry to interrupt.

So yeah, that's one point is you got to keep your burn rate low. And then the second point is, and this is something that I struggled through. I mean, when I went off into being an entrepreneur, I was, you know, 31. And I wanted to be an entrepreneur, you know, in college. But I didn't have the right, you know, opportunity or whatever. But in, in college, I was taught, you know, here's how you value the business, you know. And then once you got the value on the business, then you're going to go out this and shop this to investors and then get your investment and then start your company. Okay, well,

the problem there is that getting an investor is really hard. I mean, I got an investor. It was a fluke thing on TV, right? But the idea of just having a business idea and finding an investor is enormously rare proposition. I mean, it happens in small pockets in Silicon Valley, and it happens if you have, you know, a rich uncle or something like that. Aside from that, there's no money out there. And forget the banks. They're not going to lend you a money. I mean, we're... You know, we just got our first line of credit or anything, even a credit card about three months ago, you know. And we're talking about the fastest growing company. We made a million dollars last year.

We couldn't get a $5,000 credit card from a bank. So you have to assume there's no money out there. But if you're looking at businesses and you say, okay, this business requires money to start. This business does not require money to start. You put them in two columns. And then you take every business that requires money and you throw it. It's off the table, you know, unless you actually have money yourself. or you have a rich uncle or something like that.

So that's the second thing is just, you know, you know how I picked a business based on would SEO work for this business or not? Yeah. And you also have to pick a business. Does this business work for having no money at all? And then focus all of your effort there because I spent probably 10 years, you know, looking at businesses that were these grand business plans, but it required, you know, $3 million in capital or, you know, $500,000 in capital.

And it's a waste of my time because I'm not a, I don't have the ability to raise money. And so if I would have just said, I can't do any of that, what can I do for free? Even if that means starting as a consultant or whatever, just put a shingle up and get started because you need to get off on your own and then sort of go from there and you can sort of iterate. And you've got to stay at it like you're saying. You've got to find something that doesn't cost a lot of money to start. But you have to set something on a daily basis that I'm going to put an hour or three hours

a day into this and progressively work at it and tell you. Time is on your side when you're working in that manner. And that's how you'll eventually grow into that position where you will have the credit or you will have the opportunity to get that influx of capital if you even need it at that point. Most companies don't need it like yourself. You were saying you didn't even have the line of credit and look what you grew it to. That's a good point there. You put like that sort of that, you know, there's some book talks about a 20 mile march like every day. Every day you need to do that, you know, that minimum over a long period of time.

And that's really the basis of success. Like when people hear that I was on Shark Tank, they're like, oh, you got you got so lucky to be on Shark Tank and do this. But if you look at that, I've been working for basically 15 years to get to this point. Like I learned all the stuff that I know how to do now, starting in 1999, you know, early on working for another company. And then I started the poker chip business, you know, with SEO. The poker chip business was on TV as well, you know, because I knew like in SEO, you want something that's, you know, pop cultural, interesting, because then you get free media. It's easier to get links and stuff like that.

So I had no question that when I started the paddleboard business that we would attract the media. Now, getting on Shark Tank was much more than I had, you know, planned for. But it's this long path. A lot of people think like, oh, you just, I'm going to have a business idea and I'm going to work at this for six months and it's going to pop. No, it's 10 to 15 year. And everybody will tell you this that's been had a good deal of success.

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I think it was Malcolm Gladwell's book where he says, you know, you got to have 10 years of experience in something before you become an expert of it. And, you know, a lot of people watch the shark tag and they just say, oh, that guy's so lucky he got it, but they didn't see the 10, 15 years of growth and learning and how you understood SEO and all those other things that led up to that culmination point. and they just see that culmination point and that's it. So that's really interesting topic. Stig, I saw you had something you wanted to say.

Yeah, and that was related to the poker chip business. I'm sorry, Stefan, that I keep returning to this whole thing by poker. It's probably because I used to make a living of playing poker. But, you know, yeah, it's just, you know, I think it was really amazing that you saw this trend when Chris Moneymaker was winning the world serious. And I'm sorry if it sounds really geeky or very nerdy what I'm talking about right now. But Stefan, Cheryl knows what I'm talking about. because I'm sure that you saw that this was really a trend poker because it was now on TV

and you saw this, you know, Average Joe, sorry Chris, winning the World Series of poker, beating all the pros. So it's also just to say to the entrepreneur up there that you don't have to be a genius and that's really not to discount you anything, Stephen, but, I mean, you don't need to have an IQ of 200 or something to be, you know, successful. But if you see that a new trend is coming like poker or palboarding, I mean, there is So it's just so many of changes out there and so many of changes that are about to come. The interesting thing with that, the poker chip and the paddleboard business are exactly like,

you sort of nailed it on the head. Chris Moneymaker came in. There was this huge rise in popularity. You know, 50%, 100% growth a year. I saw that. And that is actually very friendly for SEO too, because you're running a race that I know how to run much faster than anybody else. And then when paddle boards came, I saw that. I was like, I already know the finish line of this.

There was no risk in this business for me. I was like, this is just very obvious. I was actually six months into a different business, a green energy, a portal for the green energy industry. And then I saw this, this, which had, and the green energy thing needed to raise money. It was a much bigger opportunity. But I was like, paddle boards. This is exactly like poker chips.

I can actually see around corners in this business. So it was much less risk. Wow. Wow. The final question from me, Stefan, that is, you know, out there. There, we have so many different advice, you know, probably more bad than good ones. But what is the best investment advice that you ever got? I mean, I'm not really, I'm not really an investor.

You know, I'm still trying to figure out how to borrow money from people to, I'm more by people's money type of guy. So you guys are the investment experts. I don't, you know, I'm just trying to get money and, you know, invest it in yourself. I guess that is probably the best investment, I would say, is sort of, you know, invest in yourself because you don't have to invest a lot of money. There you go. That's some fantastic advice. Yeah. And so the audience, so I, I have two ways of seeing things. There's basically two ways that you can invest your money. You can create assets, which is what Stefan's doing, or you can take the money that you've got and you can buy assets. And so typically Stig and I focus on the latter category of going out and buying assets that already exist. But there's a whole other side to that equation. And that's what Stefan's talking to us about today. And that's creating assets for yourself. And to be honest with you, there's a lot more risk in that area, but the reward is enormous. A lot of people want to become millionaires overnight in the stock market.

And it's almost somewhat humorous because when you're buying assets that that timeline doesn't occur at the same speed as which it does whenever you're actually creating an asset and putting something out there for people to consume. And so I don't want to throw that out there because a lot of people, I think, lose sight of that, that difference between. asset creation and the purchase of assets. And so just something to highlight. Last question, and we really appreciate your time. We didn't intend on taking up so much of your time, Stefan. So we really appreciate that. Our last question is, do you have any books that you'd recommend for people as they

conduct their self-improvement, maybe an SEO or entrepreneurship, something like that that you could recommend to the audience? For SEO, there's a good book. It's called Search Engine Visibility by a Lady and a Lady of, named Sherry Thoreau. It was written like 10 or 12 years ago. It's very basic stuff. But the thing about SEO is it's actually very basic. Just roll your sleeves up type stuff. There's no sort of quick hacks. I mean, if you're looking at sort of long-term strategies, you have to provide value the people that are searching on the web, give them, you know, information, basically.

So that's a good book. And don't worry about any of the black hat, you know, hacks or the latest, what's going on? What's the latest algorithm? I mean, that's all sort of, you know, BS and propaganda. how you think it within the industry, so you'll hire a consultant. It's very easy stuff. Roll up your sleeves and do it. For entrepreneurs, I would say like Tim Ferriss's book, The Four Hour Work Week, I think, is sort of a Bible for entrepreneurs. And it's just, it shines a light on that we are really living in a different world

today. Like, I mean, you guys have this Investor's podcast. You know, you guys can run this to several million, you know, viewers. You know, two guys in two continents. You know, you're not even working in the same office. And you could create a major media channel. I mean, that's what we're doing with our Tower. Dot Life site, which is a, you know, a Beach Lifestyle magazine.

We really believe we can roll out several million, you know, a following of that. And imagine, you know, 10 years, 15, 20 years ago starting a magazine and trying to get, you know, just hope beyond, you know, hopes that you could get 10,000 subscribers, you know, and make a go of this thing. You can get that in, you know, a few months with Facebook marketing and, you know, a good sort of viral strategy and great content. And I think the four-hour work week really sort of lays out a roadmap of what this new world is. And then for sort of like a business optimization and sort of an iteration guide, I think the lean startup is a great, you know, book. And there's several books in this lean stuff. And this is some stuff that I'm getting into now where, you know, we had a big run with our,

our business initially. And now it's how do we take that base and how do we iterate that and go from, you know, because it's one thing to grow to a five, you know, million dollar company is a whole other thing to take that to a $50 million company or $100 million dollar company. And that's, that's a challenge in front of me. And a lot of that is I can't just fall back on, okay, is there a booming market like poker chips or paddle boards and can I use SEO to go after this? I really have to get a little more advanced in my business thinking now.

And I think that the lean learning strategy as you build a business is something vital there. And so you're referring to like Lean Six Sigma and stuff like that, Stefan? Well, there's a book called The Lean Startup. I think it's by Eric Reese. And there's this whole lean, it's not lean manufacturing, but it's sort of similar principles, but applied to a startup or lean entrepreneurship. Another book called Lean Analytics. So it's then how do you apply, you know, statistics to this.

And it's basically the idea of just, you know, getting product market fit and figuring out exactly what people want to buy. SEO, like starting a paddleboard business, is sort of product market fit backwards. I figure out what people are buying and I don't make a product unless I know somebody's already buying. Product market fit is, you know, used a lot in software. companies where they start out with, you know, Instagram started out of a certain type of company,

and then they figure out, well, which piece are people using? And then you sort of pivot the company towards that. So it's this constant learning and improving and, you know, building on that. So that's a, it's interesting stuff, I think. Well, Stefan, seriously, thank you so much for coming on our show. This was such an enlightening interview. I know everyone's really going to enjoy this. It was really kind of a neat glimpse into what's behind the stages at Shark Tank. And then, Your wealth of information as an entrepreneur and startup with the company is just really exciting to listen to and to hear firsthand. So thank you so much for coming on our show.

So, Stefan, if our audience wants to learn more about you or they want to go out and buy a paddleboard, how can they find more information about you? Sure. So, you know, our paddleboard company is Tower Paddleboards. So you can just Google Paddleboards and find us or go to Tower Paddleboards.com. But really, the tower, like a lifeguard tower, is our sort of a beach lifestyle brand. And we're expanding greatly from just our paddleboard routes. We have a new online beach lifestyle magazine at tower.life that we're, you know, if you're interested in anything to do with, you know, the beach lifestyle, we've hired a full-time filmmaker

and full-time writers. And there's just a lot of great content and, you know, interesting stuff to anybody that's interested in sort of the beach lifestyle. And that includes sort of the beach lifestyle entrepreneurs too. And then, you know, we're coming out with wooden sunglasses. We're coming out with flip flops. We're coming out with bikinis. Anything related to the beach lifestyle, you can just, you know, go to tower for that in the future.

So what we'll do is we're going to have links in our show notes for all those different things that Stefan had talked about so that if you want to check it out, you want to go get some cool sunglasses. This sunglasses sound awesome. I think I might pick myself up a pair of those. It sounds really neat. But we'll have a link in our show notes to all that stuff. So if you guys are interested, you can link to it that way or you can just pull it up on your own. So, Stefan, thank you so much for coming on the show. We just really appreciate it.

Thanks, guys. All right. So this is the point in the show whenever we play one of our questions from the audience. And this question comes from Nick Patel. And here's his question. Hi, Preston and Stig. My name is Nick. And I'm calling from Atlanta, Georgia.

Let me start by saying that you guys are doing a, a fantastic service for the value investing community. Thank you so much for bringing in Guy Speer on the podcast. So I had a question about putting all your eggs in one basket. I've heard that saying a lot, and I do understand the inherent risk that it poses. But I do understand that when, you know, the stocks are at maybe an all-time high or, you know, close about to their all-time high, and if you put all your eggs in one basket, and if you have a drop, like the recent drop in oil that we had,

you're likely going to incur a lot of losses. But what about when the stocks are beaten down 50, 60 percent? Like I'd like to talk about oil again, where you have really good companies that are just severely beaten down because of oil, but they're still fundamentally very strong, and nothing has changed fundamentally in terms of valuations for those companies and they look really cheap. So at that particular point, what do you think about putting, if not all, you know,

majority of the eggs in one basket, maybe 50 or 60% of your portfolio in oil-related stocks? I'd really appreciate your answer and insight to this question. Thank you so much. Okay, Nick, so fantastic question. Stig's going to go ahead and answer your question for you. So, Nick, like you, I'm a strong believer in a concentrated podcast. portfolio. And when I say concentrated, I would say for most investors, if you have something like 10 to 15 stocks in different industries, I think, you know, as a rule of thumb, I think you should be,

you should be good to go. So you specifically asked about 50 to 60% in all stocks. And as you could probably hear from my more like generic answer, when I say like 10 to 15 stocks, I would probably say that 50 to 60% is way too concentrated. And I would say it's too concentrated for advanced investors and it's definitely too advanced for a beginning investor. So that was really to answer that question. But on the flip side, I personally think that you're right about the all industry. That is probably one of the few industries where you can still find great stocks at decent prices. And note that I'm saying decent prices. I'm saying decent prices. I'm I'm not saying that it's like once in a lifetime margins.

It's not like, even though that you hear in the news that all stocks has dropped this and that, I don't think that we're in 2009. It's not really that great opportunities, but it's definitely great companies with somewhat low prices that we're seeing at the moment. And this really makes me think of security analysis by Benjamin Graham, because in this book he talks about how low prices in itself can be a margin of sales. safety. So this is not the same as saying as oil stocks cannot drop even more in price. Of course, they can, and especially they can't do that in the short run. But it means that even if you're slightly wrong in your perception of a great company, it's very unlikely that you will lose your

principle. And that's an extremely important point when you talk about stock investing. Because what we see right now is high uncertainty in the oil industry, but I also think that we see low risk. So in this sense, low risk of losing the principle. So, Nick, my thoughts, I'm in total agreement with Stig. The only caveat that I'm going to say as far as having the weighted portfolio of 50 or 60% into one thing, I think if you're doing that potentially with an index, say you wanted to have 25% of your portfolio and an S&P 500 index and maybe the other 25% and an index that has money into the top 1,000 capitalized companies. I think that that's not a bad thing because you're spreading the money across just numerous companies.

But whenever you're dealing with individual stock picks, I think going anything over maybe 20 to 25 percent is really starting to push it because you're not protecting your downside at that point if something, if you're not accounting for a variable that maybe you're missing. Whenever you're dealing with individual stock picks, I'm always thinking to myself, what is it that I am missing? Because there's just so many variables out there that there's a good chance you might be missing something. So your other question is about the oil industry in general and saying that they're undervalued at this point.

And that's something that I think that you've got to be very hesitant to quickly come to that conclusion of that the oil industry is undervalued. Whenever I see a large industry like that moving in a certain direction right now with it all moving down, I try to understand what are the critical variables that are causing that. And so I went through Lean 6 Sigma one time, and I had this instructor who was this risk manager, efficiency expert that worked for the Bank of America. And he was a master black belt in Lean 6 Sigma. And he had this saying, and it was really funny saying, and I'll never forget the saying. He said, take the Jerry Garcia method. And he said, get as high as you can and stay there for as long as you can.

And I thought it was really funny because what he was saying is he wasn't implying that you should get high. What he was actually implying was that you need to look at things from the highest vantage point that you can. So when you're looking at the oil industry, the first thing you should ask yourself is, why is all these oil stocks going down? What is causing that? And so when you look at it from a very high vantage point, you realize that there's an enormous shift, an enormous change in the supply and demand of energy companies around the world. So then you have to ask yourself, well, what's causing that shift? Why is there a change in the supply and demand? What's going to be the long-term impact of the supply and demand? And you have to start with those really big questions first. And you've got to fully understand

those big variables, those big chunks. And then once you feel like you really understand it, you can start digging down more into the weeds of the smaller, maybe indirect variables that are causing it. So I guess my point is this. Don't be your really quick to just say the industry is undervalued. I would argue you had to fully understand the big variables and really try to pressure yourself to understand what those variables are before you act on any type of decision to buy an individual stock pick in that particular type of industry. Because it might persist for another year or another two years. And then you're starting to worry about opportunity costs and where you could maybe put your money that would have maybe served it better

until you started to see that supply and demand maybe start to change and shift in the opposite direction. So really long answer, I apologize for that, but some different nuggets to maybe think about as you're assessing individual stock picks and how you're balancing your portfolio. Always protect your downside. That's a protect your principle. Yeah. And this is just really a quick comment here. I completely agree with Preston as saying. One thing that you should definitely pay attention to when you are analyzing something, for instance, like the oil sector, is that the data that you're having is looking back in time. And if you'll looking back, say the last few years, you're looking at oil price above $100.

So you cannot like say that, well, we're probably going to have the same earnings if the earnings are based on the oil price of $50. So just remember that when you're looking at the valuation today and you're using historical data. Exactly. That is nail on the head stick. So when you're looking at that, it's the valuation, yeah, it's undervalued if you're still valuing oil at $100.

is a barrel or more, but maybe the outlook in the future, and that's the hard part. That's what you've got to do the research on. What is the value of a barrel of oil going to be as we look towards the next five or ten years? And then you have to value the companies based on that. So we'll leave it at that. Great, fantastic question, because it really makes you think when you're looking across individual stock picks. So we really appreciate that. We'll send a free sign copy of the Warren Buffett accounting book to you in the mail. And that completes our show. So we'd like to thank Stefan for coming on the show. We really had a fun time talking with him, and we'll look forward to seeing you guys next week.

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