So, I’m sure you can imagine that Stephan and I are a little obsessed with the show Shark Tank, because we are just that kind of ambitious entrepreneur-type people, and also, we like to admire the products that are truly innovative, and mock the ones that are just plain dumb. I’ve found that we say the same things so often while watching this show, I decided to write them down into a semi-serious guide for people who are thinking of trying to get on it.
If you have an awesome product and you feel like you’re ready to face the sharks, here is the casting information. http://abc.go.com/shows/shark-tank/casting However, I would STRONGLY recommend that you at least skim the following guide, lest you be eaten by the sharks in a feeding frenzy because you went on there with a product idea but no sales. DON’T GO ON SHARK TANK WITH NO SALES, dudes.
Here is the kind of entrepreneur who usually gets a deal on Shark Tank:
Joe Business has a good idea. He does a proof of concept, sells a decent amount of product (say, $10,000 worth of product per month for six months). He has a decent margin (meaning, he makes his product for $1 and sell it for $7). He has no debt on the company, his operations are in order, he has more than one product (or at leaset ideas for other products), and so on. Basically, Joe Business has set up and tested a structure, and now all he needs is, say, an infusion of cash to lower his margins even more, or to partner with one of the sharks for distribution and industry contact purposes. That is to say, they already have their sh%t together, and bringing in one or more of the sharks is going to be a slam dunk and a win for all concerned. What’s even better is if you already have $1 million or more in sales, meaning that you are already totally kicking ass with your business structure. If you added in the factor of one of the sharks with their money and connections, you would have exponential growth and success, and in fact, this is what happens.
Also, it is very helpful if you do not over-value your company, because this pisses the sharks off and makes them look for ways to not help you.
If you are this “Joe Business” type, please do go over to http://abc.go.com/shows/shark-tank/casting and apply. That is a great show and it is totally inspirational to watch the American Dream come to life like that. Some of the Shark Tank success stories can be found right here, in case you’re curious:
Buggy Beds (bedbug early detection and control system—freaking genius! http://www.buggybeds.com)
Simple Sugars—this girl is 18 years old and has her own beauty products company. Do you feel like a slacker? I do. http://simplesugars.myshopify.com
Chord Buddy: Nifty gadget that goes on your guitar and helps you learn to play in steps. What’s cool about this is that you can play actual songs on your very first try (I was so impressed with this, I actually bought one!)
And so on. As you can see, these people were already organized and had successful businesses, and partnering with one or more of the sharks made them more successful. This is the kind of thing that investors like to do.
Everyone who gets a deal on Shark Tank has one or more of the qualities listed in the above scenario, but really, success stories come in all shapes and sizes, which of course is what makes America great and makes Shark Tank hilarious. With that in mind, I’m going to just go over some of the things that will probably cause you NOT to get a deal, so you can plan accordingly.
Here are some “red flags,” or things that will make the sharks become sharky and possibly eat you.
1. You are WAY overvaluing your company. Bear in mind that if you come in saying “I want 500,000 for 20% equity in my company,” you have just placed a valuation on that company of $10 million. Each and every one of the sharks knows how to do math, and now you are going to be on the hot seat, justifying where you got that number, why you have flagrantly overvalued that much, and also, who do you think you are with your $1,000 worth of sales? Overvaluation is a reflection of your ego, and it is probably the thing that makes the most entrepreneurs leave the tank without a deal.
2. You are thinking of the shark tank like a bank. If you have not made any sales, you can’t really go in asking for $75,000 to “get your distribution costs down.” You are essentially asking for a bank loan, when Shark Tank is more about equity partnerships. No one is going to loan you money for a concept that has not been proven. One indicator of this is if you’re about to say “The X industry is a multi-billion dollar industry,” which basically indicates that there is a market for what you’re making, but you haven’t participated in it yet.
3. You want the sharks to perform a miracle and bring your product back from the dead. This happens once every couple of episodes—a person comes on, their product or company has hit a wall for whatever reason (like they got screwed by a business partner, got a big order they couldn't fill, or mis-managed their money the first time around). These are people that have thrown up their hands and want the sharks to perform some kind of miracle. The key indicator of this is: “I’ve had X amount of sales over the past 8 years,” 8 years being the red flag part of the statement. No one measures their sales in years, and if you are, that means you’re trying to inflate your number because your last year has not been that impressive. This is a “blood in the water” moment. The sharks will make you tell the truth, people! Don’t hide things from them!
4. You are in some kind of trouble (like legal or financial), and you want the sharks to bail you out. This is kind of like # 3, but the indicator is a little different. For this one, you can tell there is a # 4 coming when the person in question has, for instance, $1 million worth of sales per year, but of that, they are only making $10,000. This is a fishy situation that makes the sharks go “Where is all that money going?” You will then have to respond with the truth, which is that you are $800,000 in the hole over some manufacturing equipment that you absolutely had to have, or you got into some legal trouble with your patent and now you have some huge debt to pay off. Daymond John is the shark who is most likely to be “out” right after you say this, because he does not like to take on other people’s problems.
5. This one is almost universally true: the one thing that seems to bug all the sharks equally is when entrepreneurs start paying themselves a “back salary” for all the years they worked on the product or business before it actually took off. That’s not to say they don’t want you to pay yourself. It actually is better if your business is profitable AND you’re taking a salary. The thing they hate is when your business is not as profitable as it could be because you are paying yourself back for the eight years of trial and error before you hit upon a success. Just my opinion, but it seems like they feel like this is you cannibalizing your own company just as it is becoming profitable, plus they don’t seem to like it when you are valuing your time but not theirs.
6. You are weird, and why would the sharks want to start up an ongoing business relationship with a person who is weird and possibly flaky? I’m looking at you, freaker with a lower-case f, Vermont guy who wears only tie-die, or single-serving wine glass guy. You have to be together for the sharks to want to work with you!
Generally speaking, if one of the sharks makes you an offer for a distribution or licensing deal, YOU SHOULD TAKE THAT DEAL, even if the upfront money isn’t great. You cannot put a value on that kind of access, and that is why you went on the Shark Tank in the first place, so don’t get all precious and try to nickel-and-dime with some weird counter-offer that is going to make them mad. DO NOT TURN DOWN A DISTRUBTION DEAL, especially with Mark Cuban, Daymond John, or Lori Grenier.
Also, generally speaking, Kevin O'Leary (Mr. Wonderful) is probably the shark you want to make a deal with the least. He performs more of a straight-up venture capital role, and usually makes deals that involve him getting a share of everything you sale, either until he gets his investment back or in perpetuity, and who knows if you can ever get that guy on the phone if you need advice (or if you would even want to). His deals almost always seem like you could do better if you just want to a bank, in my opinion.
So, do you have an awesome product, and can you confidently say that you’re not going to do any of the 6 things I’ve outlined above that will make the sharks not like you? Then by all means, go on over to http://abc.go.com/shows/shark-tank/casting . We will be watching for you!