The ABC show Shark Tank, currently midway it’s fourth season, is appointment viewing for anyone with an interest in small business, entrepreneurship, raising capital or investing. While the show’s primary goal is to entertain, there are still some important lessons to be gleaned every week. Even if you have only a passing interest in business—which is to say, you’re interested in turning the money in your bank account into more money—Shark Tank provides often-fascinating insight into the sometimes-murky world of investing.
In order to glean the right lessons from the show, however, it is important to recognize where the show aligns with the real world, and where it departs. For example, what are the sharks offering anyway?
An aspect of Shark Tank that seems unique to the show, but actually has important parallels in the real world, are the intangibles. First, there’s the built in audience for the show, providing fantastic promotional opportunity. Then, there’s the benefits offered by investor’s themselves. Almost always, when two or more investors compete for a buy, they will begin trumpeting these intangibles. Mark Cuban has his Dallas Mavericks opportunities, Lori Greiner has her QVC connections and Daymond John boasts his access to celebrity endorsements.
The difficulty for the owner is in knowing how seriously to consider these aspects of a deal, as they can be difficult to impossible to quantify. In some cases, like John’s investment in nightclub booking system EZ VIP, his ability to provide an endorsement from R&B singer Pitbull proved crucial to the deal’s success.
In others, it remains unclear whether the shark’s promises ever came to fruition, or if they were even included in the final terms of the deal. Of course, for business owners, the key is making the intangibles more tangible, by laying out the expectations clearly within the deal.
It’s business, and it’s also personal
Like all good TV shows, Shark Tank focuses on personalities: Big personalities, disruptive personalities, quirky personalities. In the real world, investors tend to avoid showing their own personalities as much s possible. Mr. Wonderful’s cutting barbs, Damon’s dismissive rejoinders, and Mark’s dramatic ultimatums make for exciting spectacle, but would never be tolerated without the cameras.
On the entrepreneur’s side, personality can certainly make a difference, but it needs to be backed up by a sound business model. The best example on the show was Mark Cuban’s decision to invest in a strange business called I Want to Draw A Cat For You.
In truth, Cuban was investing as much in oddball inventor Dan Steele as he was in his concept. Steele’s unfiltered geek sensibility attracted Cuban’s interest in working with him. Just as important, his sensibly low valuation of $30k made the whimsical investment palatable for Cuban. Because of the sensible valuation, Cuban was able and willing to take a flier and build a relationship with a young, interesting, if unconventional, entrepreneur. Nice find for Cuban, major win for Steele.
It’s Not a Deal Until All the Papers are Signed
Because the show carefully curates which investments it checks back on each episode (hint, it’s the successful ones) it neglects to show an important and surprisingly large group—all the ones that fell through once the cameras were off. The memorable Wine Balloon deal with Cuban and Lori Greiner never actually happened, nor did the You Smell Soap Deal with Robert Herjavec. In face, one of the largest and most impressive deals in the history of the show, Cuban’s $1.25 Million buyout (with a %7.5 royalty) in faucet connector HyConn fell apart after just four weeks.
In the real world, sometimes business owners can be fooled into believing they have a “verbal agreement”, causing them to perhaps miss an opportunity to secure another deal. While they would never admit it, this may be one of the show’s most important lessons. If even deals on a major network show built upon verbal agreements can fall through, anyone’s can.
While the most important part of securing a deal lies in the details of what you’re selling, the presentation can ertainly make a difference. The goal is to come across as incredibly compelling, extraordinarily prepared and perfectly natural. Add in the cameras, dramatic music and, gratuitous aquatic imagery and it is understandable why so many presenters on Shark Tank come across as stilted.
Usually, there is far more potential to torpedo a promising deal with a poor presentation than there is to overcome an otherwise “ ify” deal with a stellar presentation. There are a few presentation gimmicks that never seem to work, most notably celebrity endorsements. Unless they are actively involved in your company, the presence of a celebrity almost always indicates someone with poor presentation skills or a weak investment.
The most cringe worthy of all presentation faux pas is also the most basic—presenters who can’t answer simple questions about their business. It is truly amazing when owners feel that they can duck questions about their business. Even when the answers aren’t ideal, an honest answer always works better than an evasive one. Whether in the Shark Tank or in a real-life meeting, if you can’t answer every potential question about your business, you will never secure an investment.
Article by Jon Zimmerman