Tuesday, March 17, 2015

Why Shark Tank is the Best Show Ever!

I love the show Shark Tank, an Emmy-nominated TV show where entrepreneurs pitch their business to 5 self-made millionaires/billionaires, including Mark Cuban and Kevin O'Leary (a/k/a Mr. Wonderful). I like how it's like a Harvard case study on steroids, jammed into 15 minutes for each company pitch that makes me think about what I would do.

In fact, this show helps a lot with my advisor and mentor work that I do with start-ups, including Geek Camp. I pick up lots of good tips from the savvy sharks who quickly assess business models, cost per acquisition, go-to-market strategies, and, of course, reasonable valuations. So many entrepreneurs lose a chance for a deal on the show by over-valuing their businesses or offering as little as 5% equity, which won't excite any shark to get up in the morning.

When colleagues or clients have asked me how can they learn to be more strategic or how to evaluate businesses, I don't tell them to read Michael Porter. I point them to Shark Tank.

There's no voting people off islands, bachelorettes crying, people backpacking around the world, or celebrity backstabbings. Instead, what you will see and learn to love about the show is that it covers the 4 Ps' and the 3 C's in an entertaining format that shows the American dream is alive and kickin'.

For hopeful entrepreneurs, I've summarized what you should be prepared to answer from the sharks based on watching every episode over the years:

3 C's:
  • Company - How did you come up with the idea? What are your sales so far and in the past 12 months? How much have you invested? How long have you been doing this? 
  • Customer - Who is this for? What's your customer acquisition cost? What's the average order volume? What is the repeat purchase or reorder rate?
  • Competition - Who else is out there with a similar product? What's different about your product? Sometimes when Mr. Wonderful thinks a company is asking too much, he'll ask "What's to stop me from hiring a bunch of folks to knock off your product myself?"
4 P's:
  • Product - Do you have a product or a company? Do you have a patent? Sharks love patents! And Mr. Wonderful loves it when he can license those patents!
  • Pricing - What does it cost to make? How much is wholesale? How much is retail?
  • Placement - Where are you selling this now? What kind of distribution do you have? Often a shark has a strategic relationship that can be brought to bear and each shark has their own set of strengths. For example, the tech guys are Mark Cuban and Robert Herjavec. Lori Greiner is the "Queen of QVC" and retail. Where are you selling this today? Have you tried calling the major distributors or retailers in your category? Warning: If you haven't done this or pounded the pavement, you will get a mouthful from the sharks that you are not hungry enough!
  • Promotion - How have you gotten the word out? Many say social media and Facebook. Some go to tradeshows.

Be forewarned - if you don't know your numbers, the sharks will take a huge bite out of you!

Over the years, there has been some awful and crazy ideas people have come up with:

Wake 'n' Bacon - This is a concept for a bacon-making alarm clock because the entrepreneur believed people loved waking up to the smell of bacon in the morning. Alas, the sharks thought it would be a fire hazard having an oven on the nightstand. Mark Cuban's closest thing to a compliment was "this is going to be a present for dad because it's so darn stupid."

Sullivan Generator - Seeking $1 million for a 10% equity stake, Mark Sullivan, an inventor of over 1000 products, claimed his generator could take salt water from the ocean to make electricity and one of the byproducts was gold ($96 billion worth apparently). Kevin O'Leary summarized it best when he asked "How long are you visiting us on Earth?"

On the other hand, Shark Tank recently had a company backed by sharks get acquired by a public company. GrooveBook was bought by Shutterfly for $14.5 million 11 months after making a deal with Mark Cuban and Kevin O'Leary.

Finally, what makes the sharks more than just VCs or angel investors, who can offer access to capital, strategic partnerships, and business connections, is the free PR from the show. Even those who walk away without a deal often times will see a huge spike in sales after appearing on Shark Tank. And even those who make an *ss of themselves on national television! To me, that means if you make a good product, people will buy it even if the founders are schmucks.

Catch it on Fridays at 9pm on ABC. It's a bad time slot so DVR it. It's well worth an hour of your time each week!


No comments:

Post a Comment