Small Business & Entrepreneur Tips From “Shark Tank”
1. Ideas Are Not Businesses
Just because you have a great idea or product, it doesn’t mean you have a viable business. A thriving company has plans, goals, marketing techniques, an online presence, and, above all, a leader who is dedicated to success. While a number of good products have been showcased on “Shark Tank,” the sharks themselves don’t bite if they don’t believe in the business.
To make your idea more than just a hobby, you’ve got to prove to investors that it can go the distance. Develop a solid, well-researched, and well-rounded business plan, and make sure you’re capable of executing it the moment you get the necessary funding.
2. Go Proprietary or Bust
On one episode of “Shark Tank,” a product called Elephant Chat was pitched. It’s essentially a stuffed elephant that a spouse can display at home, suggesting there’s an “elephant in the room” that requires discussion. It’s a cute enough idea, but the owners were practically laughed out of the tank when they revealed their price point was set at $60.
Why? Because there’s nothing proprietary about a small stuffed elephant. It isn’t patentable, which means anyone could theoretically head to the dollar store, buy a cheaper one, and save $59.
The sharks prefer patented products because that kind of protection makes it illegal for a competitor to replicate design and functionality. Not only does a proprietary idea help your chances of success in the market, it entices investors who understand the importance of exclusivity.
While you can’t always patent a product, you can create a sense of propriety by taking steps to ensure your small business is the absolute best at what it does. Another option is to offer services unique to your company that can make it stand out. For example, a photography company that specializes in capturing proposals pitched the sharks. While another photographer could always offer the same specialty, Paparazzi Proposals closed the deal with a proprietary service that was the first on the market – they scored $250,000 from Kevin and Lori.
3. Ask for What You Want – and Stop When You Get It
I’ve seen at least 10 instances on the show in which a small business owner asked for a specific amount of money, got the offer, and then stalled to ask the other sharks to throw their hats in the ring. More often than not, the shark who offered the original deal ends up withdrawing the offer and the business owner walks away empty-handed.
The lesson is, ask for what you want right out of the gate. Don’t undercut your business by being greedy. Run the numbers and know exactly how much you need and how you intend to use every single dollar – or you could end up shooting yourself in the foot when it comes time to close the deal.
4. Prep Beyond the Pitch
In one episode, a pair of doctors pitched a social network for physicians called Rolodoc. At first glance, they knew their stuff. They spoke with a ton of enthusiasm and moxie, but as soon as the sharks started asking questions, they completely fell apart, prompting Mark Cuban to call it “the worst pitch of all time.” When they couldn’t explain their future plans, how the site worked, or who was using it, they walked away without a deal.
A great pitch is important, but it’s not enough. Potential investors know their business inside and out, and you have to do the same if you want to earn their faith. Some of the more common questions you can expect an investor to ask include the following:
- What are your past annual sales?
- How many customers do you have?
- What are your costs for marketing, production, packaging, shelf space, employees, warehouse space, and anything that affects your net revenue.
- What are next year’s sales projections?
- What is your marketing plan?
- What is your five-year plan?
If you can’t answer these basic questions, the best pitch in the world won’t sell your product or service.
5. Numbers Aren’t Everything
When your sales numbers aren’t where you want them to be, divulging that information can feel embarrassing – but numbers aren’t everything. “Shark Tank” has seen companies with millions of dollars in revenue walk away with nothing, and businesses that are barely breaking even close deals.
The difference usually boils down to growth potential. The sharks may balk at a million-dollar company that’s slowing down, and then jump at the chance to invest in a small venture that’s growing rapidly in a competitor-free market. Your bank account might be low, but if the potential is there you’ve got a shot at making a deal. Proving potential isn’t always easy, but well-researched projections, market analyses, and current sales growth can stir up some serious enthusiasm.
6. Be Open to Creative Solutions
Kevin O’Leary, affectionately known as “Mr. Wonderful,” is famous for his creative investment solutions. While other Sharks typically offer a specific amount of capital in exchange for a share in the business, he’s more prone to making royalty-based deals or offering money contingent on certain conditions, like the ability to license a product. Sometimes the other sharks jeer O’Leary for his greedy ways, but there is definitely something to be learned from his aggressive tactics.