DAVID RAUDALES

INVESTOR – MUSICIAN – FULL STACK DEVELOPER

Painful Lessons for Getting an Investment Deal on ‘Shark Tank’

June 22, 2020 5 min read

Opinions expressed by Entrepreneur contributors are their own.

There’s a Chinese proverb of one being honored by a single glance. It comes from an old story of a horse expert whose mere glance caused a horse’s value to rise significantly.  

Shark Tank‘s titular innovation-hunters have that power: A mere inquiry into a product persuades thousands of TV spectators to buy it. Overnight, an unknown venture’s chance of success and valuation rises significantly. The ABC series is in its 12th season, and its formula for televising brutal business truths still resonates with a national audience, continuing to accrue nearly five million viewers per episode. 

Above all, the show demonstrates the following crucial, if not painful, lessons for entrepreneurs who need financing, as well as for novices on how works. 

Related: What You Can Learn from ‘Shark Tank’ Contestants’ Successes (and Failures)

Know Thy Numbers

The Golden Rule is to know your KPIs. And rule No. 2 is to never, ever forget the Golden Rule. On Shark Tank, ignorance often means getting ridiculed out the door. Kevin O’Leary in particular doesn’t care for sob stories. At times, he seems to enjoy humiliating weeping solopreneurs about how their “tears don’t add value.”

Just remember that fire forges steel. Business owners must be extremely prepared so that investors believe their capital can multiply instead of burning in the flames of ineptitude or excuses. Sensitive viewers may think O’Leary is too unforgiving. He’s not. Financial expertise is why O’Leary has amassed an estimated $400 million fortune. The absence of it leaves delicate opinionators stuck daydreaming and eating bon-bons.

In the real world, solopreneurs must embrace hard lessons or get dinged by more painful consequences. Not understanding customer-acquisition costs, not knowing that one’s gross margins are too low or not maximizing sales price can bankrupt the business, not to mention ruin your retirement savings and burn investors’ money. That’s worse than an expert’s rebuke about not knowing thy numbers.

The Sharks hate snakes. and are known to invest in the entrepreneur herself, even though a product’s or service’s shortcomings are evident from the pitch. Greiner and Herjavec offer capital to driven people who are willing to fix business flaws, because they know that startups aren’t perfect, yet can potentially acquire tens of millions in sales with a great leader in charge. 

In fact, the Sharks (especially and Mark Cuban) get extremely suspicious of a polished, perfect pitch because it may harbor fraudulent claims by a snake-oil salesman.

The above lessons apply to creatives who sell unique propositions. “You are a small-business owner, and your art is the product,” says Jen Rudolph, CEO of The Actor’s Green Room and Creator of The 2% Signature System, which helps actors become part of the 2 percent who get called in and booked. “Actors must think like an entrepreneur, which means you’re in charge of marketing, branding, production, PR and finances.”

Rudolph says artists, like entrepreneurs, must define what makes them unique and make it impossible for a buying market to ignore special traits: “The market will always say what you need to know. If you’re not getting booked, it means your message is off and/or your product’s impact isn’t clear.”

Related: ‘Shark Tank’ Judges Say Successful Entrepreneurs Share These 5 Traits

Complexity Kills Interest

Confusion is the mother of excuses, arguments and poor execution — and litigation. Barbara Corcoran and Daymond John usually reject complicated deals. Sharks have many companies in their portfolio, therefore they’re attracted to simple, binary deal, such as common-sense products for the masses that the Sharks believe will fly off shelves at a Walmart or Walgreens. Convolution kills investor interest because if the pitch is murky, then future meetings will be complex, as will everything else about the partnership.

Blurry vision confuses employees. This means that operators who are integral to success won’t perform and get results. “After the entrepreneur’s pitch on Shark Tank, the first question the Sharks ask is, What are your sales?” reminds Rudolph. “They’re looking for proof of concept.”

The market speaks through the cash register: Either people want, or don’t want, your product. It’s that simple. “Pre-revenue business plan” and other fuzzy claims don’t represent the essence of what the marketplace is truly saying. Thus, they’re just noise that pisses off investors. 

If you’re ever confused about the market, check the cash register. Is it ringing? Is your bank account balance growing? A prototype and/or business plan that asks Sharks for a million-dollar valuation does not pay bills or payroll.

There’s another Chinese proverb about striving for success: Jade requires polishing to turn into a gem.