Shark Tank is a reality TV show where entrepreneurs pitch their business to a panel of wealthy investors in hopes of securing capital to take their business to the next level. In a typical episode, entrepreneurs enter the tank, pitch their business, and negotiate with the investors or the sharks for a piece of their company.
Shark Tank has become one of my favorite shows and has taught me quite a bit about pitching to investors and the steps you need to take in order to grow your business. This is what I have learned after watching over 120 episodes.
A Product Does Not Make a Business
A business starts with a product, but having one product does not make it into a business. Every product has a life cycle, which means it has a start and an end. If you only have one product, your business is vulnerable. You must have a strategy of either growing into multiple products or have a long term vision of what the product can evolve to.
Have Something Unique
Having something patented and proprietary is extremely important. It essentially protects you from product plagiarism. If you don’t have something proprietary, a larger and more resourceful company may swoop in and crush you like the cockroach you are. Similarly, if something cannot be patented, you still must have a strategy in setting yourself apart from the competition. You truly have to find your secret sauce. This is not easily done, and many entrepreneurs have failed to convince a shark to invest without a proper answer.
Incorrect Company Valuation
The number one mistake entrepreneurs make while going into the tank is overvaluing their company. Valuation of the company should be performance based. The simple rule of thumb for startups is to value your company by revenue earned in the last 12 months. It is also reasonable to value your company with a projection of sales in the next 12 months based on historic growth. Entrepreneurs who value their company by what it would be worth many years down the line often get lambasted. You have to be honest with yourself and your company.
Know Your Numbers
If you don’t know the answers to the following questions, you must due your diligence and find out. Below are the most commonly asked questions on the show. If you do not know them, you could be called a bozo.
- How many sales (in dollars) have you earned in the last 12 months?
- How much profit do you make?
- What are your margins?
- How much does it cost to make your product?
- How much do you sell it for?
- How much is your customer acquisition cost?
- How much volume do you have to have in order to maximize cost reduction?
- How much would the product cost if you maximized cost reduction?
- How are you allocating all of your dollars earned?
Answer Questions Directly
When asked a question, answer it definitively. Many times frustrations brews when the investors asks a question and the entrepreneur dances around it without directly answering it. A smart investors knows the right questions to ask to reveal the financial risk. Telling the truth is the only way to earn the investors trust. Always directly answer questions with a definitives yes or no with supporting reasons if necessary.
Avoid Saying the Following
- “Pre-revenue” – Just discard it from your vocabulary. Pre-revenue is simply a fancy way of saying your business is in a prototype stage and have not earned any sales. Investors hate it. You are much better off if you are upfront in disclosing that it is a prototype or still in the proof of concept stage.
- “I am not an expert” – When running your own business, you have to be an expert of your own business. As an entrepreneur, you have to know a lot about your own business as well as the industry you are in. If you don’t have a clue, you have not done the proper due diligence to understand how your business can survive.
Show Your Commitment
Nothing speaks louder than showing your dedication and commitment to your business. The sharks like to hear how much you have personally invested in your business. Inspiration, self sacrifice, and personal financial investment are ways to show how much you believe in your own business. If you do not believe in your own business how can you convince anyone else to believe in you and your business?
The way I see it, it is all about the result. Have you exhausted all efforts before asking for help? Have you tried door to door sales? Have you sent emails, made phone calls, or approached customers directly? You have to want it bad enough. Be an entrepreneur not a wantrepreneur.
“Working hard doesn’t guarantee you will be rich, but not working hard means you’re sure to stay poor” – Robert Herjavec