Top 20 Shark Tank Tips

I spent the better part of the last few weeks watching episodes of Shark Tank and noticed some interesting patterns that might help aspiring show participants. Keep in mind that these tips are intended for people who actually want to make a deal and are not on the show purely for publicity.

  1. Know your numbers:
    1. Your valuation and how you have arrived at that number (hint: some industries have established sales multiples to determine valuation; it’s worth doing some research to make sure your valuation is credible)
    2. Customer acquisition costs
    3. How much funding you have already raised
    4. Gross revenue and profit (and whether or not you took a salary/distribution, and how much)
    5. Cost to produce and your margin
    6. Cost to retailers and consumers
    7. The average $ amount of your purchase orders
    8. How long you’ve been in business / when the major milestones occurred (first prototype, first product sale, first online sale)
    9. How many partners you have, what % of the business they own (hint: successfully raising money doesn’t necessarily mean you have a solid product or company; you still have to prove your business model)
    10. How much inventory you have (hint: It’s not good to have a ton of inventory before you have purchase orders)
    11. The sales % distribution between online and retail
    12. Sales projections for the next two years
  2. Don’t get emotional or argue with the Sharks! Educate them with data and fill in the business details they may be missing. Before your appearance on the show, develop rebuttals to anticipated objections, but in the form of educating the Sharks. For example, if the Sharks tell you that making an expensive infomercial or going into big-box stores is a bad idea, don’t tell them they’re wrong if you still want a deal.
  3. “Passion” and being a “hard worker” are not good reasons for the Sharks to invest in your product.
  4. You have to have strong sales numbers (at least in the low $100k annually for first year or two) in addition to a great product. If you have a great product but no/low sales, any deal will require giving away more than 50% equity.
  5. Have a clear business model / strategy: Online, retail, licensing, franchising, consumer/commercial… etc. On many occasions, business decisions made by the entrepreneur which they cannot explain or defend results in Sharks withdrawing from negotiation due to lack of trust in the entrepreneur’s judgement. Bonus tip: if you have found a model which is cash flow positive for your business, don’t come into the Shark Tank proposing to completely change the business model…
  6. Have a clear marketing plan if you are selling to consumers and know how you will scale if your customer base grows as a result of that plan.
  7. Don’t negotiate over a few percentage points or a few thousand dollars with the Sharks unless you have a huge valuation that the Sharks are bought into. As Daymond John says, “Don’t step over dollars to pick up pennies!”
  8. Don’t paint an exaggerated positive picture of the business outlook (e.g. “This will revolutionize the X industry!” or “We are building a billion dollar brand!”; the Sharks will view you as delusional or unprofessional. Sales tell the entire story.
  9. Admit your mistakes while building the business, but also know the specific impact it had, what you learned, what you are doing differently now and what the impact of the changes has been.
  10. Any novel product must have intellectual property protection; patent pending isn’t usually good enough.
  11. If you get a great offer but other Sharks are still in, take the offer! The Sharks have fragile egos and are likely to withdraw their offer if they feel your attention drift elsewhere on the panel. Also, once you get a great offer, don’t continue to sell – accept the offer!!
  12. Listen to the Sharks and answer their questions directly.
  13. When a Shark goes out, don’t argue with them to try to bring them back in. Say “thank you for your consideration” and focus on the people who are in.
  14. Know the Sharks’ bios and tailor your pitch to the two or three sharks who are likely to know your space the best. Think about what value they can offer. Not every product or company needs investors, and not every big investor is right for every business.
  15. Have authority from your other business partners/shareholders to make a decision before you appear on the show. Making phone calls or discussing deals with a business partner while the Sharks are waiting typically results in a lost deal or a lower valuation. Decide, realistically, on the type of deal (equity, dollars, structure) that you will accept and be prepared to say yes when you get that offer.
  16. Educate yourself on various deal structures before your appearance on the show, e.g. venture debt, loans, royalties, licensing, 51% equity vs. 50% equity vs. <50% equity, cash, contingencies, etc…
  17. Know your industry (but don’t say that you are tapping into a “billion dollar industry!”; as Mark Cuban says, “0% of $1 billion is still 0”), know your competition and their market share, and know your competitive advantage in the marketplace. Also, consider whether someone with money can come into your space and emulate your business model without any barriers (proprietary issues, exclusive deals, etc.). If there’s nothing stopping them, your business is weak in the eyes of the Sharks.
  18. Don’t appear on the show (yet) if you don’t have a good number of the following:
    1. Strong initial sales (some people go to “the Tank” with a hobby idea which has little chance of growing into a company. Example: Making soap in your kitchen and selling it at the local farmer’s market. There’s not much chance of a Shark making their money back and probably not a smart way to spend investor capital in such a scenario, anyhow. Some business will stay small and create income, but will not grow for a variety of reasons.)
    2. Market research / testing (proof of concep)
    3. A patent
    4. A very strong product which solves a problem
    5. Professional-level production facilities
  19. Know your segments: Who are you selling to? Consider the case of a t-shirt entrepreneur who sold pregnancy-related shirts to pregnant women: As Kevin O’Leary says, “You’re targeting a subset of a subset.”
  20. Don’t ask the Sharks to run your business for you unless you are willing to give up at least 51% equity. You have to have the passion and the ability to execute; it can’t be outsourced if you want to retain a controlling interest in your company. Furthermore, the Sharks’ time is valuable and they aren’t likely to take on a controlling interest in your company unless they feel that the idea/product is extremely strong (and they feel that you add little value as a business partner). They would rather take a calculated risk on a business which already has strong sales and a solid business leader.

By the way, there are a lot of interesting articles which dive into the statistics of Shark Tank pitches and deals you can also check out:

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