As a serial entrepreneur, investor, and executive coach, I have found that Shark Tank is great theatre and quite useful in demonstrating many aspects of executive coaching to small businesses, young entrepreneurs, and even my children. So, what lessons can be learned from Shark Tank? Here are ten teaching tales from the Sharks.
You never get a second chance to make a great first impression Never go unprepared into a capital raise meeting with investors. Practice, practice, practice. Know your elevator pitch up-and-down and understand all aspects of your business, product, market, pricing, and competition. Winging it during any private equity (PE), venture capital (VC), or Angel Investor meeting will surely get you a non-respected look and boot out of their tank.
Know yourself Are you an inventor, first-time entrepreneur, or serial successful entrepreneur? Some people come up with great ideas and should not be the ones implementing them. Knowing who you are, your strengths, and your weaknesses are imperative to striking your best deal. Hint: if you have more than 100 patents, you are not an entrepreneur. You are an inventor, and someone should help you license your intellectual knowledge. If you're an inventor, take a periodic royalty pay-day and keep inventing.
Know your competition and your place in the marketplace Do not assume that you are the only inventor or business out there. Do your homework, conduct your 'deep dive', and find yourself the bluest of oceans for your venture. If you truly have no competition, you likely have no market either. Your understanding of the competition will help you maneuver around your competitors with a fine strategy scalpel.
Understand what is valuable about your business Identify the key drivers of your business and what causes sales. I recall with hilarity the wine-by-the-glass vineyard owner who was blinded by his own vintage and failed to see the much higher revenue opportunity in licensing his packaging technology to the industry. Foolish, foolish.
Protect your markets early Understand early-on the USPO and international Patent requirements. If you go to market with your invention, product, or service before gaining proper protection of your intellectual property, you have just devalued your deal. Further, patent-pending, provisional patents, and trade secrets are all nice; however, an awarded utility patent is much better.
Know your own enterprise value and worth Recognize your worth in terms of comparables, market valuations, earnings—before and after a prospective Shark investment. It's crazy to me (and partly the fun of the show to watch) the extreme values, both high and low, placed by entrepreneurs in the Shark Tank. When you know your true value, investors will respect you. And yes, it is quite ok to give a discount to get smart money in the door if they can make you pots of gold.
Do not be too quick to diversify Avoid waffling about, or going to investors with one concept, then changing your investment tune or strategy within the meeting. Identify market niches and mine deep for gold there. Better to be a mile deep than a mile wide and only an inch deep. Do not be too quick to diversify or stray from the deep veins of gold found in your original concept.
Have a sufficient operating margin Understand that you must have sufficient operating margin for partners and distributors to assist you. Set your margins too thin and you have nothing to offer partners. There are many industry metrics readily available to guide the entrepreneur, you just have to do your research.
Be self-aware, sufficiently humble, teachable, and confident Remember these words, "I cannot hear your words because your actions speak so loudly." Remember, from the moment of entry into the Shark Tank until you walk out the door, you are on constant observation. They are watching your behavioral cues, quarks, and eccentricities. It does not matter how bright you are. If you are not self-aware, sufficiently humble, teachable, confident, passionate, talented, and emotionally intelligent, you are unlikely to get a deal. Investors want to invest in great people, businesses, and business models. That is, unless they plan to take your business from you; and sadly, there are a few investors like that out there.
Acknowledge the long-tail consequences of all types of investments Kevin's frequent pitch of capital investments tied to capital repayment and royalties is increasingly the norm. Better for entrepreneurs and inventors to understand the long-tail consequences of these types of investment decisions before entering the tank.
Obviously, excepting a few cases where the deal opportunity is so hot that a Shark actually writes a check during the show, all of the due diligence for investment comes following the show. The show is truly much more about getting a verbal Letter of Intent (LOI), and that's a lesson for another day.
All in all, there is great entertainment and educational value in Shark Tank. I hope someday the show producer authorizes a book on 'Tales from the Shark Tank' as I would encourage it as required reading for all entrepreneurs and investors seeking capital.