This Guest Post is written by Dave Landry Jr. He also created the info-graphic, The Shark Tank Formula for Shark Tank Success, appearing at the end of this article. Dave is an entrepreneur and online journalist living in Southern California. When he's not busy catching up with his favorite TV shows, he often covers business communications, globalization, media marketing, and virtual technology in his writing. You can connect with him on Twitter here.
It's Shark Week on CNBC's #SharkTankNation
You might think something as serious and as complicated as asking people to invest in your start up or business idea might not be for television, but Shark Tank has given entrepreneurs the opportunity to pitch to and learn from some of the brightest minds in business. The entrepreneurs compete with each other on the show to secure investors' funding, simulating the intense business atmosphere in which they will be competing in once their idea or product hits the market.
Deal Or No Deal
The investors, or “sharks," have sat through 93 episodes and have heard 377 pitches from aspiring entrepreneurs. Together, they have invested over $20 million in 109 different companies. These entrepreneurs have managed to make 186 deals with the sharks, but only a third of the deals made on the show actually close. Why is this? 25% of startups fail in their first year, and an already volatile business climate even for the most successful businesses makes it risky for investors to put money into a start up, which has no track record to speak of yet.
A Start Up is like Building Rome
Aspiring entrepreneurs need to do three things: find something that consumers need, have the ability to sell it, and make a profit from selling it. Extensive knowledge of the market is needed to pull this off. Nowadays, consumers have more access to information about the products and services you and your competition will be providing. To top it off, they are very fickle and often bounce from one trend to the next. Entrepreneurs state that they wanted to capitalize on a business idea, but almost 50% fail due to incompetence. In addition, some ideas just come at the wrong place at the wrong time.
Numbers Don't Lie
Investors want to know the data. They want to know how much they'll be getting out of your product and service. For example, these contestants on the show stated how businesses having a self-waving sign can drastically cut costs (and prevent certain costs from even happening, such as legal costs should something happen to humans), stating it will pay for itself in a few weeks at an initial cost of $1,599.
Panelist Kevin O'Leary put it best: “Know your numbers. And if you aren't good with numbers, bring someone who is!" Your pitch to investors should include charts and graphs detailing the success of your product or service. Another panelist on the show, Barbara Corcoran, states that one can never be too prepared, and she has one of the highest deal rates on the show at over 80%.
It's More Important Than That
Bill Shankly, one of the most well-known and popular soccer (football) managers in the world during the 1960s and early 1970s, was once quoted as saying: “Football is not a matter of life and death. It's more important than that." The attitude Shankly had towards the sport can also be applied in the business world. Having this attitude about your product or service will make it more successful, just as Shankly's team, Liverpool F.C., was successful when he was the manager.
Investors want to see how much you are into what you're selling. It can be the greatest idea in human history, but it won't see any funding if you don't believe in it. You are in ultimate control of your product or service, and that means sticking with it through the good times and the bad. Of course, it also helps if one or more of the investors also shares your enthusiasm for your product or service.
Money In The Bank
Securing investors for your idea or product is a huge step forward. However, there are some things that money can't buy, such as insights that an aspiring entrepreneur may not have knowledge of going into the business world. In addition, these investors can also bring other things money can't buy—more checkbooks, and more insights. “Investors will put their money into a deal when they trust and believe in the CEO and know that the business can grow and distribute large profits," panelist Daymond John says.
Currently In Negotiations
You need to also bring your negotiating skills to the table—taking too long or asking for more than what your product or service is really worth will alienate you from investors. You need to know when to accept, back down, or walk away. As time and money are important especially to investors, it won't help if you waste either of those assets that investors have.
Time is of the essence, but moving too fast isn't a good idea, as only 2% of business deals occur during the first meeting. You need to build relationships with your investors. Another important figure to know is that only 8% of salespeople make 80% of sales. To join the 8%, you need to persevere—never accept no for an answer and get the wealthiest investors to hear your pitches.
From The Best
The Shark Tank panelists have years of experience in the business world, so hearing a no from them is usually accompanied with a good reason. One of the most well-known panelists on the show, Dallas Mavericks owner Mark Cuban, has this piece of advice to offer to entrepreneurs: “It's not about money or connections—it's the willingness to outwork and outlearn everyone…if it fails, you learn from what happened and do a better job next time."