On ABC’s “Shark Tank,” five extremely successful millionaires and billionaires – the “sharks” – hear pitches from business owners and occasionally vie with each other to invest. If the business owners play their cards right, they can score much-needed venture capital funding and strategic partners who practically guarantee them future success. If they’re weak, they’re sent packing with little fanfare and plenty of regrets.
I probably have about six episodes of “Shark Tank” saved on my DVR at any given time – but it’s not purely for entertainment value. The show teaches us all a great deal about business subjects such as investing, royalties, and licensing.
Now, I’m no venture capital expert, but I’ve definitely learned the basics from my Friday night guilty pleasure – and if I’ve learned a lot, think what small business owners can walk away with. If you’re just starting out as an entrepreneur, you may not get to make a deal with the likes of Mark Cuban or Robert Herjavic, but you can learn a lot from the hits and misses of those who brave the tank.
Small Business Tips From the Sharks
1. Ideas Are Not Businesses
Just because you have a great idea or product, it doesn’t mean you have a viable business. A thriving company has plans, goals, marketing techniques, an online presence, and, above all, a leader who is dedicated to success. While a number of good products have been showcased on “Shark Tank,” the sharks themselves don’t bite if they don’t believe in the business.
To make your idea more than just a hobby, you’ve got to prove to investors that it can go the distance. Develop a solid, well-researched, and well-rounded business plan, and make sure you’re capable of executing it the moment you get the necessary funding.
2. Go Proprietary or Bust
On one episode of “Shark Tank,” a product called Elephant Chat was pitched. It’s essentially a stuffed elephant that a spouse can display at home, suggesting there’s an “elephant in the room” that requires discussion. It’s a cute enough idea, but the owners were practically laughed out of the tank when they revealed their price point was set at $60.
Why? Because there’s nothing proprietary about a small stuffed elephant. It isn’t patentable, which means anyone could theoretically head to the dollar store, buy a cheaper one, and save $59.
The sharks prefer patented products because that kind of protection makes it illegal for a competitor to replicate design and functionality. Not only does a proprietary idea help your chances of success in the market, it entices investors who understand the importance of exclusivity.
While you can’t always patent a product, you can create a sense of propriety by taking steps to ensure your small business is the absolute best at what it does. Another option is to offer services unique to your company that can make it stand out. For example, a photography company that specializes in capturing proposals pitched the sharks. While another photographer could always offer the same specialty, Paparazzi Proposals closed the deal with a proprietary service that was the first on the market – they scored $250,000 from Kevin and Lori.
3. Ask for What You Want – and Stop When You Get It
I’ve seen at least 10 instances on the show in which a small business owner asked for a specific amount of money, got the offer, and then stalled to ask the other sharks to throw their hats in the ring. More often than not, the shark who offered the original deal ends up withdrawing the offer and the business owner walks away empty-handed.
The lesson is, ask for what you want right out of the gate. Don’t undercut your business by being greedy. Run the numbers and know exactly how much you need and how you intend to use every single dollar – or you could end up shooting yourself in the foot when it comes time to close the deal.
4. Prep Beyond the Pitch
In one episode, a pair of doctors pitched a social network for physicians called Rolodoc. At first glance, they knew their stuff. They spoke with a ton of enthusiasm and moxie, but as soon as the sharks started asking questions, they completely fell apart, prompting Mark Cuban to call it “the worst pitch of all time.” When they couldn’t explain their future plans, how the site worked, or who was using it, they walked away without a deal.
A great pitch is important, but it’s not enough. Potential investors know their business inside and out, and you have to do the same if you want to earn their faith. Some of the more common questions you can expect an investor to ask include the following:
- What are your past annual sales?
- How many customers do you have?
- What are your costs for marketing, production, packaging, shelf space, employees, warehouse space, and anything that affects your net revenue.
- What are next year’s sales projections?
- What is your marketing plan?
- What is your five-year plan?
If you can’t answer these basic questions, the best pitch in the world won’t sell your product or service.
5. Numbers Aren’t Everything
When your sales numbers aren’t where you want them to be, divulging that information can feel embarrassing – but numbers aren’t everything. “Shark Tank” has seen companies with millions of dollars in revenue walk away with nothing, and businesses that are barely breaking even close deals.
The difference usually boils down to growth potential. The sharks may balk at a million-dollar company that’s slowing down, and then jump at the chance to invest in a small venture that’s growing rapidly in a competitor-free market. Your bank account might be low, but if the potential is there you’ve got a shot at making a deal. Proving potential isn’t always easy, but well-researched projections, market analyses, and current sales growth can stir up some serious enthusiasm.
6. Be Open to Creative Solutions
Kevin O’Leary, affectionately known as “Mr. Wonderful,” is famous for his creative investment solutions. While other Sharks typically offer a specific amount of capital in exchange for a share in the business, he’s more prone to making royalty-based deals or offering money contingent on certain conditions, like the ability to license a product. Sometimes the other sharks jeer O’Leary for his greedy ways, but there is definitely something to be learned from his aggressive tactics.
A straight capital-for-share investment isn’t always the best fit for a small or newbie business. Sometimes, thinking outside the box and asking for a line of credit or a partnership with two investors can help you get the funding you need. Crowdsourcing is another potential solution. Sites such as Indiegogo, Kickstarter, Crowdfunder, and Fundable allow you to create a company profile and fundraising goal which you can then share with others to help drum up some capital.
7. Exposure Can Be Just as Important as Capital
Just because some businesses walk away without a deal doesn’t mean they leave with nothing. If you do a web search for the companies that appear on “Shark Tank,” you’re likely to find many that have a web presence, social media marketing pages, and a marketing strategy in place. They generally take advantage of their exposure on the show by giving updates, posting “As seen on ‘Shark Tank’” banners, and even linking to videos of their appearance on their websites.
During season three, an entrepreneur named Scott Jordan pitched his business, but didn’t disclose its true projections – which were actually very promising. Later, he was accused of going on the show just for the exposure. If that’s the case, it worked. He has sold more than 10 million units to date.
While Jordan was portrayed as a villain on the show, he did prove the value of exposure over money. He walked away without a deal, but also with a good amount of notoriety, which helped increase sales. While you don’t have to go on reality TV to get exposure, keep in mind that good marketing, word-of-mouth recommendations, and getting your business seen, heard, and talked about can be just as effective as asking for an investment.
8. Think Like a Customer
Start thinking about the business from the customer’s point of view and you can address problems, come up with solutions, and market more effectively. Take Edwin Heaven, for example. He invented Throx, a package of three socks – giving the consumer an extra, in case one is lost.
After his initial pitch, the sharks went after the fact that while it might have solved a common problem, it didn’t really solve the problem well. What’s more, the sock market is already saturated with competitors, and packaging three socks together is not a proprietary product. Heaven wasn’t thinking like a customer, and as a result he walked away without a deal.
By predicting how investors and customers are going to react to your product or service, you can fix potential issues before you go to market or make your pitch. Here are some things to consider:
- What problem does your product or service solve?
- Why would customers purchase your product if they saw it in a store?
- Why would customers purchase your product instead of a competitor’s?
- Is there something on the market that already solves the problem? Does your product improve on that solution?
- Why is your product important to you?
Answer those questions and you’re well on your way to better understanding your core customers, and how best to market and sell to them.
9. Focus on Connections
Season four featured an unlikely hero and success story: Scrub Daddy, a smiley-face sponge that looked like any old kitchen sponge. With demonstration, though, it was revealed that the material in the Scrub Daddy is soft and pliable with warm water, but stiff and heavy-duty with cold water. This genius product sparked a bidding war, ending with QVC queen Lori Greiner offering double what the business owner asked for. The very next day, she put the Scrub Daddy on QVC and sold 70,000 sponges within six minutes – a QVC record.
Often, the real difference between a business that flourishes and one that doesn’t isn’t money – it’s connections. Greiner was the right partner for Scrub Daddy because she could bring it to the right audience and start selling immediately. While you might not get the chance to do business with a millionaire shark, you can’t underestimate the power of a solid connection. Find a mentor, meet people online, join entrepreneurial groups – do whatever you can to expand your circle.
10. Get Real About Longevity
I’ve seen plenty of small businesses completely ripped to shreds by the sharks over a very specific issue: longevity. While an individual might come on the show and pitch a great product with solid numbers, if the business doesn’t look like it can last, it’s not going to get an offer.
A recent season welcomed an inventor who created a Star of David outfitted for a Christmas tree so that Jewish families could celebrate both holidays if they were so inclined. Unfortunately, the sharks didn’t bite because there was only one product, and once purchased there would be no repeat business.
The best entrepreneurs are always looking for ways to increase customer wallet share – from new products, to add-ons, to goods that need to be purchased again and again, such as disposable sponges. If you don’t get real about longevity and the importance of snagging loyal, repeat customers, it might be time to go back to the drawing board.
Who says you can’t learn anything from reality TV? I would recommend “Shark Tank” as required viewing for any small business owner. While you might not have the sales, capital, or investments of the show’s participants, you can learn a lot from their successes and failures. When the time comes for you to pitch investors or reinvent the wheel, watching “Shark Tank” can make you better equipped to forge a clear path, using what you’ve learned to increase your chances of success.
Do you watch “Shark Tank”? What have you learned from the show?