10 Lessons I’ve Learned From Shark Tank

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I just pitched a business reality show. I went to LA, pitched to nine networks. It went well.

The first business reality TV show I watched in my life was Shark Tank. I’ve watched every episode. I force my kids to watch it. I’ve studied every aspect of the show.

I’ve had many of the Sharks on my podcast: Mark Cuban, Kevin O’Leary, Barbara Corcoran, Daymond John, Robert Herjavec, and Kevin Harrington (a first season Shark).

I’ve also coached several entrepreneurs who have gone on Shark Tank, were terrified beforehand, I coached them, and they got their deals.

One time I was up all night with an entrepreneur, throwing potential difficult questions at her and working her through her responses. Mark Cuban ended up writing the check.

On Shark Tank: five investors sit on a stage, keeping them slightly higher than the supplicants who come in asking for money.

Then, one by one, aspiring entrepreneurs are led into the “Shark Tank” where they pitch their products. And the Sharks, right then and there, decide whether or not to give them money.

The entrepreneurs are often humiliated, laughed at, insulted, ask the stupidest questions I’ve ever heard, but occasionally get some good advice and even better, walk away with a check if one or more of the “Sharks” think their business is a good idea.

“The Sharks” as the show describes them, “are filthy rich” and invest their own money.

It’s not always the same sharks each show. Mark Cuban is often a shark. (See also, “How I Helped Mark Cuban Make a Billion Dollars“)

And the rest of the often rotating cast includes Barbara Corcoran of real estate fame, Kevin O’Leary who started and sold “The Learning Company” for $3.2 billion to Mattel, Robert Herjavec, who has sold “companies worth $350 million”, Daymond John who started Fubu and “has sold $6 billion worth of products”.

I’m never jealous of any of these people. Money doesn’t buy happiness but it certainly solves your money problems. It’s up to you after that to be happy or not. To not self sabotage at every opportunity.

I can tell you this: I am very good at making money but have often had a talent for self sabotage. A talent I have been hoping these past few years to suppress.

So I think highly of the people who have learned through experience not to sabotage their successes. I think very highly of all of the Sharks.

So what have I learned from the show? Some items are good for investors, some for entrepreneurs, some for me, and some for my kids.

1. Math

The first thing that happens when an entrepreneur enters is they say: “Hi, my name is ABC and I’m asking for $100,000 for a 10% stake in my company.”

At this point we would pause the show and I’d ask my kids how much the company is worth.

Any trader, investor, entrepreneur, does this math instantly and I wanted my kids to get good at it.

And they did. At first the answers (from either kid) would be a nervous, “I don’t know”. Then they’d start to figure it out but still be nervous “One… million?” And then finally, by the last episode, they were doing it in their head and blurting it out before I even hit pause.

But sometimes the entrepreneurs would present confusing numbers like, “I’m asking for $85,000 for 15% of my company.” And then they’d launch straight into their story.

To be honest, I can’t even do this accurately and quickly in my head. I always wondered if these entrepreneurs did this on purpose so that the sharks would focus more on the product than the specific valuation.

2. Not Everything is as it Appears 

This is a TV show. Not a venture capital firm (where, also, by the way, not everything is as it appears. In fact, in all of life, nothing is as it appears but this is never more true than a “reality” TV show).

When you see a three minute conversation on Shark Tank, that might have actually been a three hour conversation.

They edit it to create the greatest drama. That’s what they should do. It’s a TV show.

But you will lose in business if you think this is representative of negotiations and presentations.

My guidance for people who are going on the show, or for anyone who pitches any investor, is to carefully study every aspect of the background of the people you are pitching.

Heck, even do it before first dates! Ten years ago I was going on a date and I saw that the woman was interested in Kabbalah.

I didn’t know anything. But I spent the day reading everything I could. I was pitching myself. Did I marry her? No. But I still do this whenever I am pitching something.

3. Sell the Dream, not the Sales

Many of the entrepreneurs go in there and say, “I sold $11,000 of this product last year from my garage.”

These are the people that get either the worst deals or no deal at all.

Nobody cares about $11,000 in sales. Sometimes the Sharks didn’t even care about $1 million in sales over the last year. (A great example was games2u.com which I thought was an excellent company but walked away with no deal.)

And yet some companies with no sales walked away with a great deal.

Here’s what the Sharks, or any investor, want to really understand:

Do you have a great product? Do you know what the size of your market is? Do you have some sense of a business model?

The DREAM is what people buy. Perception is reality.

How do they know if you have a great product? They can tell by your background, they can tell by the technical expertise you needed to make the product, they can tell if you have a patent, and they can tell if you say, “I have three distributors about to send me purchase orders for the product.”

You might not have a dime of sales but if you show that people are interested and that your product is special, you’ll get an offer. If you also say, “And for the last three years I’ve had a total of $53,000 in sales even though I’ve had a full time job” then you will definitely not get a deal.

Sell the dream. Better not to have sales unless you are going to blow them away with your sales numbers.

4. Don’t Nickel and Dime

It’s not so bad to “nickel plus dime” and I’ll explain that in a moment.

But if you went in there and said, “I’d like $100 for 25% of my company” and you have no sales and one of the Sharks says, “I’ll give you $100 for 40% of your company” then just say yes.

What do you care about the percentage? As Cuban said in one of the episodes, “Better to have 20% of a $100 million company than 100% of nothing.”

With one successful company I sold I wanted my partner to take 10%. Instead they asked for 50%. I gave it to them and sold the company four months later. To them! Because with 50% they had to care. With 10% maybe they would not have cared.

However, you should nickel plus dime. If Mark Cuban offers you $100,000 for 30% of your company push forward and ask for a few more nickels.

In any negotiation, whoever has the bigger list WINS. Because then you can give up the nickels for the dimes.

Price is often the least important part of a negotiation. Ask him: Can you introduce me to Netflix, can you get me a promotional deal with the Dallas Mavericks, are there any distributors you can help me license my product to?

Get value out of every deal aside from the money.

Money won’t save or help your business for more than a short time. But the right deal and connections will make or break you.

So while they are playing around with the dimes, make sure you collect as many nickels that they may have left lying on the floor.

If you want a deal, then take a deal. Unless…

5. Don’t Take the ‘Hail Mary’ Deal

Kevin O’Leary is famous for this deal.

He waits for the other Sharks to say, “I’m Out” and then he knows he’s the only possibility left for the entrepreneur. So then it suddenly doesn’t matter at all what they are asking for. Let’s say the entrepreneur is growing, they have profits, they have $1 million in sales, etc. Kevin O’Leary doesn’t care at all.

Instead, he makes the Hail Mary offer. Let’s say they were asking for $500,000 for 10% of their company, valuing their company at $5 million. Even if the company could be reasonably valued at that, he doesn’t care.

He’ll say, “I’ll take 51% of your company for $500,000.”

It doesn’t matter to him if they say “yes” or “no”.

If they say “yes”, then it’s a great deal for him. He just bought control of a company he knows is worth a lot more. If they say “no” then no problem. One out of 10 will say “yes” and he just has to wait it out.

It’s the same concept as the story of the guy who wants to have sex so he stands on a street corner and asks every woman who passes him to have sex with him. Obviously every girl will say “no” to him. Except for maybe one out of 200. He’s just standing there waiting for that one. And he’ll get it. Unless it’s me. Then its one out of 3,000.

BUT here’s an important thing to note: If you are on his side of the table, with non-stop deals being shown you, then ALWAYS wait for a “Hail Mary” deal before you invest.

ALWAYS!

6. Be the Source

Kevin O’Leary has two other techniques as a Shark that I have to admire.

One technique Kevin does is he sits there while one or two of the Sharks make their offer.

Then he asks the entrepreneur to leave the room. Then he turns to the Sharks who made the offer and says, “Lets join forces and do this one together.”

Then the entrepreneur comes back and whereas before they had two or three competing offers (an auction environment is always what you want), now they have only one combined offer.

They have a minute to decide, and the offer is worse than the lowest offer they had before. Kevin takes charge of the auction, makes it an “all or nothing” deal and again places himself in a can’t-lose situation.

He REDUCES THE SUPPLY of offers. Then, simple supply and demand economics, the value goes in his favor. BOOM!

The other technique he uses is to be the Source for the entrepreneur.

ABS: Always Be the Source.

Three or four of the Sharks might make an offer and are competing. Kevin will then say, “Ok, to summarize, here are your four offers.”

So he’s being a source of information. He’s “the bank” all of a sudden, seemingly in control of all four offers, and he can spin them in any way he pleases and quiet the Sharks who protest because he behaves as if it’s a legitimate part of the show.

When you are the Bank, it gives you a slight edge over your competitors because the customer wants to do business with the Bank.

7. The Deal Doesn’t Close Until The Money Hits

Many times the entrepreneur will strike a great deal. He comes in asking for $100,000 for 10% of his company and he might get $300,000 for 5% of his company. At the end, the Shark who made the deal and the entrepreneur will smile and shake hands.

It’s all good. Then, in typical Mark Burnett reality show-style, there’s the post-session interview where the entrepreneur is whooping it up and saying, “Yeah! I just made a deal with the Shark Tank! Yeah!”

My guess is most of these deals don’t close. I only have anecdotal evidence.

But I looked up several of the companies afterwards and there’s no mention of their new co-investor. There’s only mention of, “See us on ABC’s Shark Tank this Tuesday!”

Any deal in life goes through several stages: sales, initial questions, the auction (if there is one), the accepted offer, the honeymoon period, due diligence, legal contracts, potential buyer/seller remorse, and then cash getting wired.

The TV show only takes us through “the accepted offer” but at any point there’s the chance the deal can fail. This is important to remember in any deal at all, including personal relationships.

8. Know What You Are Good At

When an entrepreneur first steps through the door, we would try to figure out which investor/Shark was good for the entrepreneur and we were usually right. If it was a clothing idea then if the FUBU guy didn’t like it, it was all over.

If a product looked like it would be ideal for an infomercial (a pushup machine that makes pushups easier) and the informercial expert didn’t like it then no deal. If it was an Internet play and Mark Cuban didn’t like it, then no deal.

This is useful to me as an investor. I am invested in over 30 companies. I’ve had many successful exits (“Buddy Media”’s $800 million sale to Salesforce and TicketFly’s $450 million sale to Pandora are two examples).

I don’t like to think very hard when I invest in private companies.

I like to know that expert investors who are experts in the space of the company are co-investing alongside of me.

In fact, another Kevin O’Leary trick: he would stay silent, but if he saw that the informercial king was investing, he’d try to get in on the action and partner with him because he knows the infomercial king would make an infomercial, get it on TV, and do all the hard work.

It’s also useful to entrepreneurs.

Pitch to the right guy. Don’t just throw it out there to Barbara Corcoran, the real estate queen, if you have a product that you are going to sell to fire stations.

Which leads me to…

9. Get Advice When You Can

Some of the pitching entrepreneurs simply had bad ideas.

If you’re selling a pair of jeans, for instance, and the FUBU guy doesn’t want to buy it, then that tells you right there that you probably have a bad idea.

But I only once on the show heard anyone ask, “What did I do wrong in this pitch?” asking for advice. And even then, when they gave him advice, he was defensive and insulting to them.

If you don’t get the deal, learn what you did wrong, and either modify your product, your approach, or just start a new business. This is not the end of your life if you don’t get some crappy deal on Shark Tank.

Always ask for advice. Keep “beginner’s mind”. Always be curious.

Finally…

10. Who Cares?

You just presented your product for 15 minutes on a nationally broadcasted TV show that will be re-aired at least two or three times and sell a ton of shows on iTunes. That sort of advertising would cost about a million dollars or more.

So who cares if you get a deal?

Don’t start the blame game. Don’t make excuses. Make opportunities.

Make sure your website is ready for publicity, for the onslaught of traffic and orders no matter how good or bad the product is, and be thankful for the free publicity. Some of these people were crying when they couldn’t get a deal.

An entrepreneur takes advantage of every situation and opportunity.

Setbacks are always opportunities. But the path might be different.

A million dollars worth of free advertising plus great advice from a bunch of billionaires is a great experience for you and your business. Make the most of it.


These 10 lessons are for my daughters because I told them at the end of our marathon Shark Tank session that if they don’t have an idea by next week that they can build into a business, then “No Christmas this year and no summer vacation!” Which would make my life infinitely easier.

That’s the way I roll. Take it or leave it.

The post 10 Lessons I’ve Learned From Shark Tank appeared first on James Altucher.


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