Investments

How Does Shark Tank Make Money

By David Krug David Krug is the CEO & President of Bankovia. He's a lifelong expat who has lived in the Philippines, Mexico, Thailand, and Colombia. When he's not reading about cryptocurrencies, he's researching the latest personal finance software. 8 minute read

ABC’s “Shark Tank” features five multimillionaires and billionaires (the “sharks”) who listen to business owners’ pitches and occasionally compete for investment deals. It is possible for business owners to secure vital venture capital investment and secure strategic partners that will almost ensure the company’s success if they play their cards well.

In the event that they are weak, they will be sent away with minimal ceremony and much apologies.

At any one moment, I have approximately six episodes of “Shark Tank” recorded into my DVR, but it’s not just for fun. The show educates us all on important business topics including investing, royalties, and licensing.

I may not be an expert in venture capital, but I’ve picked up some useful knowledge from my favorite Friday night show. Imagine what valuable insights small company entrepreneurs may get! If you’re just starting out as an entrepreneur, it’s unlikely that you’ll ever strike a deal with Mark Cuban or Robert Herjavic. However, you can still learn a lot from their successes and failures.

Sharks’ Small Business Advice

  1. Ideas Are Not Companies

Having a marketable product or service alone is not enough to sustain a company. A successful business gets direction from a leader who is committed to the company’s growth and success. It’s true that many worthwhile items have been featured on “Shark Tank,” but the sharks won’t invest in a company they don’t think has potential.

You need to convince investors that your concept can succeed if you want to turn it into more than a side project. Create a thorough and comprehensive business strategy, and prepare to put it into action as soon as you have the required money.

  1. Go Exclusive or Go Home

Elephant Chat was a product pitched on an episode of “Shark Tank.” An “elephant in the room” is a topic that has to be discussed, and this is simply a stuffed elephant that a partner can exhibit at home. It’s a charming concept, but when the proprietors said they were going to sell it for $60, they were almost literally laughed out of the tank.

Why? Because a little toy elephant can’t possibly contain any secret information. Since it can’t be patented, anyone could go to the dollar shop, pick up a knockoff, and save themselves $58.

Having their designs and functions protected by patents is a priority for the sharks since it prevents competitors from copying them. Having exclusive rights to your idea not only improves your marketability, but also attracts backers who value novelty and innovation.

It’s not always possible to secure a patent for your creation, but you can establish credibility by doing all in your power to make your company the greatest at what it does. One further way to set yourself apart is to provide services that no one else does. For instance, the sharks heard a presentation from a photography firm that specialized in documenting proposals.

Paparazzi Proposals won $250,000 from Kevin and Lori thanks to their exclusive service, which is the first of its kind in the industry. However, another photographer may always provide the same expertise.

  1. Ask for what you want, and then stop when you get it.

At least ten times on the show, the business owner requested a certain sum of money, was offered that sum, and then hesitated to move on until the other sharks made offers. In most cases, the shark who first proposed a contract backs out, leaving the business owner holding the bag.

The takeaway is to be open about your needs and wants from the get-go. Never let greed be a detriment to your company’s success. If you don’t do the math and know how much money you’ll need and how you’ll spend it, you might wind up costing yourself the sale.

  1. Preparation Beyond the Pitch

In one segment, two doctors promoted a professional social network they dubbed Rolodoc. The first impression was that they were knowledgeable. In their opening remarks, they were full of energy and confidence, but as the sharks began asking questions, everything came crashing down, leading Mark Cuban to dub it “the worst pitch of all time.”

They backed out of a potential purchase because they lacked information about the company’s long-term goals, the site’s functionality, and its user base.

A compelling presentation is necessary, but not sufficient. If you want to gain the trust of potential investors, you need to familiarize yourself well with their business. The following are examples of some of the more frequent inquiries from potential backers:

  • What were your previous year’s sales?
  • How many clients do you have?
  • What are your marketing, production, packaging, shelf space, staff, warehouse space, and other expenditures that have an impact on your net revenue?
  • What are the sales forecasts for next year?
  • What is your marketing strategy?
  • What is your five-year strategy?

You won’t be able to sell your product or service even if you have the finest pitch in the world if you can’t address these fundamental questions.

  1. Numbers Do Not Indicate Everything

It might be uncomfortable to admit that your sales are below expectations, but ultimately, they are not everything. Million-dollar firms have left “Shark Tank” empty-handed, while start-ups with no income at all have closed agreements.

There is a major distinction based on the possibility for development. The sharks could pass on investing in a million-dollar firm that is losing steam but would likely put their money into a tiny business that is expanding quickly in a market with few rivals.

You can make a trade despite having a small amount of money in the bank if the opportunity is good enough. It’s not always simple to demonstrate promise, but solid data like sales growth and market estimates may generate considerable excitement.

  1. Be Open to Novel Solutions

Kevin O’Leary is well-known for coming up with novel approaches to investing and is sometimes referred to as “Mr. Wonderful.” He is more likely to make agreements based on royalties or contingent funding, such as the chance to license a product, than the other Sharks, who normally provide a set amount of funds in exchange for a stake in the firm.

The other sharks may laugh at O’Leary’s avarice, but there’s wisdom in his aggressive strategies.

An equity investment in exchange for financing may not be the greatest option for a startup or small firm. To get the necessary capital, it is often necessary to go outside the box and request a credit line or form a partnership with two investors. One alternative is to utilize crowdsourcing. You may get the word out about your firm and its fundraising objective via platforms like Indiegogo, Kickstarter, Crowdfunder, and Fundable.

  1. Exposure is as important as capital.

Some companies may exit a negotiation without an agreement, but that doesn’t mean they’ve gained nothing. Many of the businesses featured on “Shark Tank” have websites, social media marketing pages, and established marketing strategies, as can be seen by conducting a simple online search.

They usually capitalize on their visibility on the show by updating fans, displaying “As seen on ‘Shark Tank’ banners, and even connecting to footage of their participation on their websites.

The third season included an entrepreneur by the name of Scott Jordan who presented his firm without disclosing the exact estimates, which were actually highly promising. One may say that he was accused of being on the show for the sake of publicity after the fact.

In such a situation, the plan succeeded. More than ten million copies have been sold from his work.

Although Jordan was depicted negatively on the show, he demonstrated the importance of publicity over financial gain. He was unable to strike a deal, but his increased profile should boost business. Even if you don’t want to go on a reality show, it’s important to remember that asking for money isn’t the only way to get your business noticed.

  1. Consider Yourself as a Customer

If you shift your focus to the consumer, you’ll be more equipped to identify issues, provide solutions, and promote your firm. For instance, consider Edwin Heaven. He came up with the idea for Throx, a set of three socks that comes in a single container in case one is lost.
Immediately following his initial proposal, the sharks began attacking the idea that, while it addressed a widespread need, it did so insufficiently.

In addition, there are already enough options for consumers to choose from, and a set of three socks in a box is hardly a unique selling proposition. Heaven wasn’t approaching the situation like a buyer, so he left without a bargain.

  1. Concentrate on Connections

Scrub Daddy, a smiley-face sponge that otherwise looked like any other kitchen sponge, was the unsung hero and success story of season four. However, the Scrub Daddy’s material was shown to be flexible in warm water but rigid and durable in cold water during a demonstration.

It all came down to QVC queen Lori Greiner bidding double the original asking price for this brilliant invention. After debuting the Scrub Daddy on QVC the next day, she broke a QVC record by selling 70,000 sponges in just six minutes.

A company’s success or failure isn’t always determined by its financial resources, but rather by the quality of its connections. Greiner was an ideal business partner for Scrub Daddy since she was able to introduce the product to its target demographic and kickstart sales straight away.

You may never have the opportunity to do business with a billionaire shark, but never discount the value of a good relationship. Find a mentor, network on social media, join business groups; do whatever it takes to broaden your horizons.

  1. Get Real About Longevity

I’ve watched several startups get torn to bits by the big dogs for one simple reason: they couldn’t last. Even if a contestant presents a fantastic product and impressive financials on the program, no offer will be made if the firm itself doesn’t appear sustainable.

Recently, an innovator introduced a Star of David ornament for a Christmas tree, allowing Jewish families to participate in both celebrations if they so want. Due to their being only one product and no chance for resale, the sharks passed.

The most successful business owners are always brainstorming new products, accessories, and repeat-buy items (like disposable sponges) to raise their customers’ portion of their wallets. It may be time to start again if you don’t prioritize longevity and attracting loyal, repeat clients.

Bottom Line

Who claims that reality television doesn’t have any educational value? Any entrepreneur worth their salt should watch “Shark Tank.” While you may not be able to replicate the show’s participants’ sales, cash, or investments, you may still get valuable insight by watching and learning from their experiences.

You may boost your chances of success by applying what you’ve learned from watching “Shark Tank” when the time comes for you to pitch investors or create something from nothing.

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