SharkTank--the prime-time feeding frenzy where successful entrepreneurs fight over
promising startups, and ruthlessly chew up the unprepared--is stirring up much
buzz in its third season. To date, the Sharks have invested more than $6.2
million of their own money in a number of companies. With billionaire Mark Cuban, real estate mogul Barbara Corcoran, venture capitalist Kevin O'Leary
(aka Mr. Wonderful), and other business magnates sitting in as the Sharks, the
show offers a glimpse of pitching sessions gone totally right--or deliciously
wrong.
In all that action there are quite a few business lessons to take home.......
1)
If you get what you ask for, take it. Mark Cuban offered one entrepreneur
exactly what he requested. The entrepreneur then asked for more and lost the
deal. No one likes to do business with someone who gets what he requests and
then asks for more; it’s a sign of what’s to come in the relationship.
2)
Networks matter. The Shark Tank investors bring huge value in their networks.
Daymond John got the sticker guys distribution in Best Buy as well as retail
distribution for Nubrella. Lori Greiner is able to help the businesses she
invests in get on QVC. When you’re looking for investors understand their
networks and more importantly if they’re willing to leverage them for you. Ask
about this before you sign a deal. Sometimes a deal with less lucrative
financial terms is better if it brings the right network to the table.
3)
Do your homework. When Mark Cuban
negotiates and tells you a deal is final, he means it. I’ve seen enough
episodes to know this, so I cringe when an entrepreneur tries to negotiate
further and loses a deal entirely. You won’t have the benefit of seeing most
people you’ll negotiate with on TV in advance, but you can still do plenty of
due diligence — like researching their past deals and talking to their business
partners.
The
most successful entrepreneurs also know enough about the Sharks to customize
their pitch. They tell each one why he or she should personally be interested
in the business.
4)
Get an advisory board. Getting a Shark to invest in your company is one way to
get partners with experience and a network, but not everyone can be on Shark
Tank. Creating a strong advisory board can also increase your opportunities;
for a small amount of equity you can build a great board. I have found that
retired executives with extensive networks are often eager to get back in the
game and make tremendous advisory board members.
5)
Know your absolute bottom going into a negotiation. One entrepreneur was
offered a deal and needed to think about it. By the time she decided to move
forward, the Sharks had talked among themselves and reduced their offer. If she
knew her absolute bottom going into the show, she could have made a decision on
the spot and had a better deal.
Too
many entrepreneurs are unsure of what they’d accept and their hesitancy gets them
worse deals. Also, if you don’t know the lowest offer you’d accept, you could
commit to something you’d regret later. Of course, there may be exceptions if
unexpected elements come into play, which sometimes happens on Shark Tank.
6)
Solve your own problems. The most successful founders built companies to solve
problems they faced. They’re building for a market they understand and are
passionate about. A couple examples are Travis Perry who developed ChordBuddy
to help his daughter learn to play the guitar and Eric Corti who invented the
Wine Balloon to better preserve wine after he and his wife opened a bottle.
Of
course, the problem you’re solving has to address a sizable market. No Sharks
wanted to invest in Ledge Pillow because they didn’t think the market was big
enough.
7)
Investors buy into people as much as ideas. The Sharks get most excited about a
passionate, likeable entrepreneur. Be honest. If that’s not you, and you need
investors, consider finding a partner who fills this role.
8)
Do a deal that works for everyone. The Sharks often say they won’t invest in
something because they don’t have the right background or connections to help
the business. If you’re looking for investors, try to find those that can help
you by serving as more than just a bank. In any deal, whether it’s related to
VC or not, make sure both sides provide value. You’re probably going to do more
deals in the future, and a one sided deal won’t be good for your reputation.
9)
Listen. The Shark Tank investors offer great advice when they turn people down.
If you’re told “no” don’t be so displeased that you can’t listen to the
rationale. And, if they don’t tell you why, ask so you can leverage that advice
moving forward. This is a chance for insight from experts.
10)
Don’t respond to people you’re pitching with disdain or sarcasm – even if they
say something nasty. The people who do, tend not to get deals. How you act in a
pitch will shape what potential partners think it would be like to work with
you. In fact, maybe they’re pushing you just to see how you’ll react under
pressure.
11)
If you can’t sell, learn to. This lesson is for everyone. Even if you’re in a
large company, you need to sell your ideas and yourself to get ahead. In the
case of investors, Sharks are looking for people who can sell. And, business
valuations are significantly higher when someone has revenue. Do whatever you
can to get sales prior to approaching investors. Mark Cuban stresses that
selling is one of the most important skills for entrepreneurs in his great
book, How to Win at the Sport of Business.
12)
Prepare. I’ve seen entrepreneurs on the show who don’t know their financials or
seem to freeze up in the middle of their pitch. When you’re going to a meeting
or pitch, practice enough that you can talk about your business even in
stressful circumstances and please know your financials. The most successful
people are usually over prepared. This is something Barbara Corcoran mentions
in her excellent book, Shark Tales: How I turned $1,000 into a Billion Dollar
Business.
13)
Demonstrate your commitment. Investors want to see that you’ve taken a risk –
investing your money and time — showing that you believe in your business.
Don’t ask for their money if you haven’t invested yours.
14)
Patents are extremely valuable. A worthwhile investment if you have something
unique.
15)
Have options. You can almost always tell when someone believes they have no
other options. Those entrepreneurs get a worse deal than they’d otherwise
receive. Whether you’re selling a stake in your company or buying a car, you
need alternatives to get the best deal. One alternative is knowing at what
point you’ll say “no.”
16)
Ask, “Are there any other offers on the table?” Some people have gotten much
better offers when they ask this rather than responding to the offer that was
given. Like anything, the more competition you can create for your business,
the better deal you’ll get.
17)
Don’t quibble over small numbers. I’ve seen deals get lost because someone is
dickering over 1%. Don’t do it.
18)
Ask for something valuable . . . besides money. Steve Gadlin and Mark Cuban
were negotiating an investment in Steve’s business, I Want to Draw a Cat for
You. When the financial terms were on the table, Steve asked Mark if he’d draw
and sign every 1000th cat drawing. Mark said “yes.” It was easy for Mark to say
“yes,” and it will add value to Steve’s business. Look for opportunities where
the other side can provide additional value without any out of pocket expense.
19)
The right partner offers more than financial terms. There are some great
businesses that are giving up huge chunks of equity for a seemingly small
amount of money. Kevin O’Leary bought into Talbott Tea at what seemed like a
great valuation for him, but within a short period of time he had the business
packaged up and sold to Jamba Juice. When you do a deal with a Shark you’re
giving up more than you’d offer someone else, because they can exponentially
grow your business faster.
20)
Don’t tell potential investors they’re wrong. When you tell Sharks they’re
wrong – especially in front of other people (like the national TV audience of
Shark Tank) they will naturally stop listening to you. No one wants to be told
they’re wrong in front of other people. Instead, say, “I think that . . .” or
“What do you think about looking at it like. . . .” How you defend your
position makes a difference.
21)
If someone asks you to sell him something, ask, “Why do you want it?” Daymond
John challenged an entrepreneur to sell him a pen. The guy did a good job, but
I think he could have done better. Instead of jumping right into selling the
pen, he could have asked Daymond what he was looking for in a pen and
customized the pitch.
22)
Find investors who are passionate about your business. The Sharks gravitate not
only to the businesses they like but the ones that they’re passionate about.
Kevin O’Leary invested in the tea company (loves tea); Daymond John in the
trash can cover company (he said he had just lost his own garbage can cover);
and Robert Herjavec in the guitar learning company (he has a lifelong dream to
learn guitar). Those entrepreneurs were solving problems that the VCs
personally experienced. Do research to find partners passionate about what you
do. You’ll have a higher likelihood of making a deal.
23)
More Sharks are better than one. Every investor will bring a different network
and expertise to the table. Jewelry company M3 Girl Designs, founded by Maddie
Bradshaw when she was 10, was offered $300K from Lori Greiner and Mark Cuban.
Maddie said she’d take the deal if they’d let Robert Herjavec in as well. She
got the same financial deal with one additional investor. See if you can
increase the parties who have a stake in your business.
Interested in more
Shark advice? Follow us on Twitter @gbshconsult.
GBSH
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