25 Proven SHARK TANK Success Factors
25 Proven SHARK TANK Success Factors
We came. We pitched. We got a deal. On April 21st our episode of Shark Tank aired on ABC (Season 8 Ep. 22). After a lengthy negotiation with Kevin O’leary (Mr. Wonderful), we ultimately were offered a deal by Robert Herjavec, who coincidentally had said he was “out” earlier in the pitch. For us, Shark Tank was a great experience, and I don’t think that it was by accident. My business partner Adam, and I, were very prepared and ready for anything. We had done our research, and had assembled a set of guidelines that we used during our time in “the tank”. We created our list from our research, watching hundreds of Shark Tank pitches, and my own years of business experience. Since hindsight is 20/20, I have updated my “guidelines” list to create this list of 25 PROVEN SHARK TANK SUCCESS FACTORS, that if followed, will significantly increase your chances of being successful in the tank. To some of you, these may seem like common sense. In effect they are, but I still think it is helpful to see them all together in one place. These are not in any particular order. I hope you find these helpful.
1. Know your business and your numbers.
The Sharks want to see entrepreneurs who are in command of their business and how it operates. To demonstrate this, you need to know all your numbers. At a minimum, you’ll need to know the following. What are your sales? What are your profits? How much does your product/service sell for and how much does it cost to produce? How much do you spend on marketing and other overheads? How much will you sell this year and next? How much do you pay yourself and any employees or contractors? How much money did you or anyone else put into the business? How much do other owners own? How much money do you owe? How did you arrive at the amount you are asking the Sharks to invest (i.e. justify your valuation)?
2. Know your strategy and be prepared to explain and defend it.
The Sharks want to see entrepreneurs with a vision and a plan. That is, where are you trying to get to with your business, and how do you plan to get there. If you don’t have both, they’ll eat you for lunch. The Sharks might not agree with your current vision or execution plan, but they will respect that you have thought it through enough to have them. In addition to having a vision and a plan, you need to be able to articulate it concisely. Think of having to explain to somebody what you want your business to achieve and how you plan to do it, all in a 30 second elevator ride. If you can’t do this, then you either do not have a clear strategy, or do not have a good enough understanding of it. Work on it. If the Sharks see weakness here, they’ll move in for the kill.
3. Bring a reasonable valuation.
Nothing pisses the Sharks off more than an entrepreneur that wants a ridiculous amount of money for their business. The Sharks get offended because you’re implying that they’re stupid, or that you are arrogant and have an inflated perception of self worth. Neither is the message you want to communicate. Besides turning the Sharks hostile, there are two other negative outcomes from too high a valuation. First, you will spend all your time in the tank defending your numbers. The sharks will grill you on your valuation, rather than taking time to learn about your business and why they should invest in it. Second, the Shark Tank rules state that if you do not get at least the amount of money you initially asked for, you get no deal at all. The Sharks are not allowed to offer you less than your initial offer. That said, if your valuation is too high, the Sharks will either need to take a much bigger chunk of equity than you are prepared to give away, or they will offer you a lousy debt or cash-sucking royalty deal. Avoid this. Do some research and find out what your business is worth. One to two times annual revenue is usually about right for most “non-tech” businesses.
4. Manage the conversation and address every Shark’s questions and concerns.
When you get into the tank, questions will fly at you from all directions. Sharks will talk over you and each other. Be careful not to leave anyone out. If you skip over any particular Shark’s question, it will piss them off. Don’t be afraid to tell the Sharks, “let me answer so-and-so’s question first, then hers, and I promise I’ll get to yours.” Every question is important if a Shark bothered to ask it, so don’t ignore it. On top of showing respect for the Sharks, this demonstrates to them your ability to stay calm and manage multiple competing priorities. They will respect you for this.
5. Stay calm.
As we say in Ohio, “Don’t show your ass.” In other words, don’t get worked-up and don’t lose your cool. The Sharks will say some things you don’t like, and they will intentionally poke at you to see how you handle conflicting opinions. Don’t get defensive. Respectfully respond to them, politely correcting them if necessary. If you get worked up, you won’t be able to think clearly, and the Sharks will pile on when they smell blood in the water. Smile, nod, laugh, thank them, or make a joke. Just don’t get red, blow your top, or lash out at them.
6. Be respectful and polite (don’t be arrogant).
The Sharks think they are richer, smarter, and more successful than you. Maybe they are, and maybe they’re not. Let them have it their way. This is not a debate or a contest. Make them feel smart. Show them that you respect their points of view. The Sharks hate arrogant entrepreneurs. Showing arrogance or disrespect is the fastest way to turn all the Sharks simultaneously against you. Conversely, showing etiquette and grace in the heat of a negotiation frequently will win Sharks over, as you will earn their respect for you as a person.
7. Don’t appear desperate or weak (even if you are).
Nobody wants to invest in a failing business or entrepreneur. If your future is not bright and you don’t feel optimistic before getting a cash and Shark infusion, it probably won’t improve much after. Sharks want to invest in businesses to grow them big, not just to prolong their demise. Don’t tell, hint, or imply to the Sharks that without their investment, your business will go under. Assuming they don’t just run away because they are not confident that you know how to run a business, they will offer you a complete dog of a deal once they know how desperate you are. Keep your poker face on and accentuate the positives of your business.
8. Be able to articulate clearly why you are there, want a deal, and will do with the money.
Even if the Sharks like you and your business, if they don’t feel like you need their investment or that you aren’t going to deploy it appropriately, they will bow out. Kevin puts it best when he says that he likes his money to be like gasoline poured on an already roaring fire. Therefore, be prepared to explain exactly how their money will be your “gasoline”. Connect all the dots for the Sharks on how you will use their money and how that will grow your business. Show that you have a well thought out plan of execution. DO NOT suggest that you will use their money to enter markets or product line extensions where you do not already have a successful track record. This throws up a total red flag of RISK for them, and is exactly what they do not want to hear. Also, do not tell them that you will spend the money on marketing. That is a totally thoughtless answer to simply say I’ll spend money on marketing and therefore get more customers and grow.
9. Show energy and confidence.
The Sharks want to invest in energetic confident entrepreneurs. If you do not show energy and confidence during your big break on Shark Tank, why should they think that you are energetic or confident anyplace else? So how do you do this, you might ask. Walk with your head up, and keep it up. Make eye contact. Stand tall with your shoulders back. Speak with passion, and be as animated as you can when you speak (without feeling dopey). Appreciate every question, and jump on it like it is the opportunity you’ve been waiting for. If you truly have done all your homework and you have nothing to hide, this will be easy for you.
10. Smile and be personable.
Be somebody the Sharks would want to work with. People want to work with positive happy people. Nobody chooses to surround themselves with difficult depressing people. Make the Sharks feel like you would be a pleasure to work with, and that they would enjoy the interaction. You want to come across as somebody that would be a bright spot in their day.
11. Don’t make excuses. Own your failures.
Odds are, not everything in your business to date has succeeded. Don’t be afraid to point out your failures and own them. Nobody wants a partner who cannot accept any blame. Be prepared to discuss your failures, why they occurred, what you have learned, and how you will avoid them in the future. Do not blame other people. Even if it was somebody else’s fault, take responsibility for it by acknowledging that you put the wrong person on the job.
12. The Sharks are not “armchair” investors. Don’t treat them like one.
An “armchair investor” is someone who only contributes money to a company, but has no involvement whatsoever in its ongoing operations. Armchair investors expect a certain financial return, and will compare investing in your business against other similarly risky investment opportunities for their money. The Sharks are not armchair investors, so don’t treat them like they are. What that means is that the return on their money should be greater than the return an armchair investor would expect. The Sharks will be helping you. They will contribute their resources, time, expertise, and relationships. It would be an insult to the Sharks to not value their contribution over and above the return a passive investor would expect.
13. Don’t expect the Sharks to pay for the value you want them to add.
Here’s the scenario I see time and time again on Shark Tank. An entrepreneur says they’ll do about $40,000 in sales this year, but they expect to do $1M next year. Then they base their company’s valuation on the $1M in sales. So where did this $1M number come from? Typically, one of two places. 1) Out of the entrepreneur’s ass – a completely made-up BS number with no real basis or rigor behind it, or 2) They’re thinking that they’ll get a deal with a Shark and that will launch them to $1M in sales. News flash! You cannot expect somebody to pay for a revenue number you have not yet achieved. This is especially true if the only way you would achieve that number is with the investor’s assistance. Sharks will only pay for what you have achieved, and not what you hope to achieve.
14. Do not argue.
You won’t agree with everything the Sharks have to say. You might even be 100% right and they may be absolutely wrong. Doesn’t matter. They think they are right, and odds are you are not going to change their minds in the short time you have. Feel free to explain your position, but if they do not change theirs, just move one. Getting into a pissing match with one of the Sharks will have no desirable outcome for you. You do not want to appear stubborn or argumentative, or unable to accept constructive criticism. Be polite. Respect their point of view however wrong you feel it may be, and move on.
15. Practice your pitch until you can do it in your sleep.
The toughest part of the whole Shark Tank experience is your opening two-minute pitch. This is all you, and it is your first-impression moment. You walk out into the tank and it’s sensory overload. There are lights, cameras, real Sharks like you’ve been watching on TV, and you. No time to get warmed-up or acclimated to the new environment. The producer says “go”, and you go! You are nervous, stressed, and overwhelmed. The last thing you need is to mess up your pitch. The way to avoid that is to practice it hundreds of times until you can do it in your sleep, drunk, while riding a unicycle and juggling, or while getting a colonoscopy. I cannot emphasize this enough. Do this, and you will see your stress level go way down.
16. Appear trustworthy and be believable.
I probably say this a lot, but Sharks invest in people not businesses. Very rarely have I seen them try to buy a business contingent on the entrepreneur leaving. The first hurdle you must clear is to have them believe you and believe in you. If they do not think that you are being 100% honest and transparent with them, they will drop out. So how do you build trust? Answer every question fully. Do not leave out pieces of relevant information they may find out later. Address your past failures or issues head on, and be open about why they happened. Be able to back-up and authenticate all of your statements, claims, and numbers. Make sure your product and your business is based on being 100% honest and transparent with consumers. Be open about all your costs, debts, partners, investors, litigation risks, liabilities, and commitments. Most things are not that bad when offered up voluntarily and discussed openly. Most things are really bad when only found out through digging and probing.
17. Have an authentic back story.
Both Sharks and customers like products that were created by real people in response to a real need. I invented my product in response to a theft while I was on vacation. People identify with people, not nameless faceless companies. Don’t hesitate to talk about who you are and why your company exists. Tell your story and talk about your struggles. It may seem like mundane mom-and-popsy drivel to you, but it helps to establish your authenticity.
18. Don’t quote irrelevant statistics.
Statistics are a double-edged sword. Yes, you need to know some of the basic numbers about your product and marketplace to demonstrate that you have done your homework in the event you are asked, but using them inappropriately will get you in trouble with the Sharks. For example, so many entrepreneurs use the size of the total addressable market to justify their sales projection and valuation. I’ve heard too many entrepreneurs say, “well, the total global market for my widget is 40 billion dollars annually. Therefore, if I only get one hundredth of one percent of the marketplace, I’ll still make four million dollars.” That’s total crap logic, and the Sharks hate it. Just because the market is big, does not mean that you have the ability to win any piece of it. On top of that, the bigger the market, typically the more competitive it is. If you are not asked to provide any statistics, you are better off keeping them to yourself.
19. Don’t be chummy with the Sharks.
After having the Sharks on TV in our living rooms every week for numerous seasons, we begin to feel like we know them and have some sort of relationship and connection with them. You might. They don’t. Remember, they don’t know you, have never seen you, and quite possibly might want nothing to do with you. One time an entrepreneur called Mark Cuban “Cubes”, and it really pissed Cuban off. Stick with sir, mam, or their first names (although Kevin does seem to like being called Mr. Wonderful). It is inappropriate to address the Sharks as though you have any type of pre-existing relationship with them.
20. Savor the moment.
Shark Tank was a highlight of my life. I recognize that I’m a business nerd, and this is the kind of thing that is really fun for me, but you need to enjoy it. Shark Tank is your moment to shine. Think of how much work you put in to get there, how much effort you put into your business, and how many people would give anything to be in your shoes at that moment. It’s a big deal, and something you will always remember. Make it a great memory. Go in there with a positive attitude, and make it an experience that will make you smile when you look back upon it. Not only will that give you a priceless memory to cherish, but the Sharks will sense it too, and be far more likely to want to offer you a deal. Own your happiness. Sorry to get all “Tony Robbins” on you guys, but I think this is important.
21. Listen to your producers.
You will be assigned a set of producers months before you ever get a chance to enter the tank. Your producers don’t care if you get a deal or not. They care about one thing, creating good entertaining TV. If you are good TV, you have a high probability of filming and airing. If you are bad TV, you have a zero probability of filming and airing. With that said, your #1 priority should be creating good TV, filming, and airing. How do you do this? By listening to your producers. As I stated, they are there to create good TV, so everything they tell you will be to help you create good TV. You may think you know better than them on how to present yourself and your business. Doesn’t matter. They know what the executive producer and director ultimately want. They will try to pull you out of your shell and make you appear very energetic, and it may be out of your comfort zone. If you want this bad enough, listen to them and just do it.
22. Make the sharks laugh.
Making people laugh and smile disarms them and is typically a good way to start a relationship. I always envy the entrepreneurs on Shark Tank who really get the Sharks laughing hard (intentionally) on their opening pitch. It totally starts the dialogue off on the right foot, and usually leads to a positive experience. The Sharks appreciate entertaining pitches, and prefer to work with entertaining people. You will earn instant respect with some well-placed and well-timed humor. Even if it’s self-deprecating, it will only help you.
23. Sharks invest in people, not companies.
I’ve said this before, and I’ll say it again. It’s more about you than your business. Focus all your effort on why they should invest in you. The business you are pitching is just a small extension of you. The business won’t succeed or fail. You will! Never lose sight of this, and do not stop selling them on YOU. If they believe in you, they will likely invest in your business.
24. Don’t play “hide the bunny”. They’ll find it.
Don’t leave out important pieces of information, even if it’s bad. To do so is just downright dishonest. You do not want to develop a business relationship based on incomplete or incorrect information. There is no upside to that. They will eventually find it out. If they find it out during the due diligence process prior to closing a deal, they will most likely walk away from the deal. If they find out after the deal closes, you could end up with a big lawsuit on your hands. Sometimes they find it out just by asking a few probing questions while still in the tank. It never ends well for the entrepreneur when this happens, and sometimes it can be very embarrassing. Don’t do it. Be 100% open and transparent.
25. Don’t stress.
Nobody in the world knows your business better than you. Never forget that this is your business. Your baby. There should be nobody in the world who knows it better than you. Therefore, there is absolutely no reason to stress about it before filming. If I were to tell you that you were going to film a show where you would be asked questions about your childhood, you probably would not stress because you know that you know that topic cold and that there is nothing about it you couldn’t answer. It should be the same way with your business. You know if better than anyone. The Sharks may not like everything about your business, and that is okay. It’s expected. Just be prepared to tell the facts, explain why you do the things you do, and know your numbers. If you do this, no matter what the outcome, you will be fine.
Let us know your thoughts in the comments.
Shark Tank Application -> http://abc.go.com/shows/shark-tank/applications