Shark Tank: Lessons for Entrepreneurs

Shark Tank: Lessons for Entrepreneurs

Shark Tank: Lessons for Entrepreneurs

The Shark Tank is an ABC series in which entrepreneurs present their ideas to a panel of investors for on-the-spot discussion, deliberation and investment. Of course it’s over-dramatised and produced to appeal to a mass market, but often there are lessons in the least likely places.

The “sharks” in the Shark Tank television show are bone fide entrepreneurs. They’ve made millions and billions building and exiting successful companies. So no matter what you think about reality TV shows, at least this part is legitimate. But the really interesting part of the show is its fast pace. A handful of entrepreneurs enter the Shark Tank per show, so the advice, guidance and investment decision are made in rapid fire. This lends itself to very succinct and concise advice.

As a private equiteer, you meet investees that are often very similar to the fledgling entrepreneurs on the Shark Tank. Even though in our case the entrepreneurs have businesses grossing millions of dollars, there preconceptions, mistakes and emotions are the same. So with that said, here are my favourite lessons to entrepreneurs from the Shark Tank.

1. Your business is worth its earnings only

Too many business on the Shark Tank and in real life ascribe additional value to patents, goodwill, property, machinery, people and more. They add this value to a multiple of revenue or earnings as if they aren’t needed to produce those earnings. The sharks, and private equity pros, spend day after day telling entrepreneurs that if it takes a patent or good will or machinery to generate the revenue, then the value of them is implicit in the multiple valuation. You can only add to a valuation if there is something of value that’s not used to generate those earnings, such as cash outside of working capital.

2. You must have Traction with Customers in terms of Revenue

In my capacity working with venture capitalists and angle investors, I often come across entrepreneurs with a supposed great idea, but with no sales and sometimes no customers at all. This often occurs on Shark Tank too. They’re usually the same people to tell me that their idea is different and revolutionary and so I should excuse the absence of sales. But, of course, if their idea is so great, why don’t they have any customers or sales? They tell the sharks that they just ned an investment to make their first money. But that’s about the best indicator that you’re not talking to a real entrepreneur. A great entrepreneur is first and foremost very resourceful and has great hustle. And traction with customers is about your only evidence of either.

3. Don’t try to Sell a New Division of an Existing Successful Business

On the Shark Tank, the funniest moments are when someone already has a very successful business, but they try to break out a new division or marketing strategy, as if it’s a completely different business, and get the sharks to invest on in this new risky venture. Technically, there’s nothing wrong with that, because you’re giving the investor the chance to invest in something risky upfront. But investors really don’t like it. And if you aren’t upfront about the other business, then forget it. Investing is all about trust and confidence in the people, and any early sign of deceptiveness doesn’t go down well in the Shark Tank or real life.

4. Contracts with Large Corporate Customers are Gold

Often on the Shark Tank you’ll see an entrepreneur come out with a seemingly useless product and if you were watching the television with no sound, you’d be amazed to see the sharks bid against each other to a much higher valuation than the entrepreneur asked for. Of course if the volume of the TV were up high, you’d hear that the entrepreneur has likely secured a large contract with a very large customer. This is an example of an entrepreneur’s hustle. Even though they’re new and unproven, they’ve managed to get a big committed customer onboard, and that contrat is worth much more than its weight in gold.

5. Licensing a Product is Valid, Possible and Often the Best Option

Many Shark Tank entrepreneurs have visions of running an empire with their new product. They are blinkered in thinking that they must design, manufacture, pack and market their product all by themselves. Often this view gets them into hot water on the Shark Tank because often, the sharks think the easiest road to success is to license the product to a much bigger company. That way, they do everything, you do nothing, but you get paid a perpetual royalty. Most entrepreneurs think that by approaching the big guys, their idea will be stolen or they won’t even get a look-in. Both are possible, but again, an entrepreneur with hustle will at least give it a shot and have some success if they try often enough.

Shark Tank: Lessons for Entrepreneurs

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Shark Tank: Lessons for Entrepreneurs

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