Over the show’s history, there is a near 50/50 split as far as entrepreneurs that obtain the investment they are looking for and those that don’t. The businesses that walk away without the financial support they were looking for typically fail for similar reasons. By analyzing those failures, entrepreneurs of all types can maximize their chances of success, regardless of the industry.
Some of the basic advice learned on Shark Tank is:
Know what your business is worth
Valuating your company is a lot more complex than just picking a number. The value of your company is a mix between a variety of factors, including supply and demand, your target market, competition, profit breakdown, and growth predictions. Businesses that value themselves too high are usually shot down as being unrealistic and therefore unreliable. Those that under value themselves, however, risk being taken advantage of. Your valuation should be a number (or even a range in some cases) that minimizes your risk and maximizes your potential.
Make an offer to establish your position
Anytime you set up a meeting with a potential investor, know what type and amount of investment you are looking for. Evaluate your needs and make your position clear from the very start. You should also know what you are willing to accept. “Shoot high” is usually the best advice. It is much easier to start high and compromise down than it is to do the opposite.
Focus on what’s in it for the other guy
Investors want to know what investing in your company will do for them. They already know what you want – you want their money. In order to procure a mutually beneficial relationship you have to answer the question: “Why should I invest in your company?” If you can’t answer that to their satisfaction, your interaction will be over very quickly.
Prove the value instead of describing it (action)
One of the trademarks of Shark Tank is the product demonstration. Many people (investors as well as the general public) need to see things to believe their worth. We are a society that is largely based on visual learning. Standing in front of a potential investor and describing how your company or product works will not be as impactful as showing them. As the old adage says, “Action speaks louder than words.”
Ideas are not businesses
Some of the best business ideas in the world never make it out of the mental realm. Great ideas are worthless if they never materialize. You will not get very far trying to sell an idea. Investors are looking for concrete business applications that have gone past the creation and design phases.
Prep beyond the pitch
Many entrepreneurs on Shark Tank have a well-rehearsed and planned out pitch. Some fall apart, however, when they are asked follow-up questions or have to expand beyond the pitch. Investors are very savvy business people or they wouldn’t be in the position to invest in your company. They know the right questions to ask; they understand common pitfalls. Your job is to predict the questions they might ask so you are prepared for any possibility.
Exposure can be just as important as capital
Never downplay the role of exposure in a start-up business. The overall success or failure of your company can be largely attributed to exposure. The market needs to know that you exist and that you are ready to be a player in the industry. Investors often bring much more to the table than just money. Any time you can increase your business or product exposure, jump at the opportunity.
Focus on connections
Like exposure, making the right connections is extremely important to your company. Many of the sharks in Shark Tank bring business connections that have taken decades to create and nurture. The value of those connections cannot be quantified; and once again, they are as equally important as capital. Do not underestimate the power of making the right connections.
Be able to sum up your business in ten words or less
Imagine that you are riding an elevator when a potential investor gets in. You have five floors to tell him about your business. What would you say? What is the essence of your business and how can you express it in a manner that is both concise and powerful? Your job in this sort of exercise is to convince the investor to continue the conversation after you both leave the elevator. In order to do that, you need to grab their attention and portray yourself as confident and competent. Like with the overall pitch itself, the more you practice your summation, the better you will be.
Reality television is often thought of as nothing more than entertainment. Shows like Shark Tank, however, can be very valuable in helping new businesses owners get off the ground. The next time you are flipping through the channels and you happen upon this show, stop yourself. Watch with a purpose, take notes, critique the pitches before the sharks do. The better prepared you are when it is your turn to snag a “shark,” the higher your chances of success. This is one time where it is actually necessary to watch television!