Rohit Bhargava of the Influential Marketing Blog has come up with a few tips for dealing with the Sharks:
Here are just a few of the essential business lessons that I noted after watching just one episode:
1. Know what your business is worth. The most important thing any contestant on the show can do is to have a clear idea of what their business and market is worth. Valuing your company wrong (either over or under estimating) is mistake most of the early contestants seem to be making – and mirrors a mistake many entrepreneurs make in real life.
2. Make an offer to establish your position. There are different points of view on how best to negotiate, but the format of the show that I find myself liking is that contestants must state as soon as they walk in the door what offer they are making, how much they want and what equity they will give. If only real business worked this smoothly.
3. Focus on what’s in it for the other guy. When you walk into a situation to ask for money, it’s obvious that the person you are asking can help you. But what is in it for them? The better the answer to this question, the more likely a contestant on the show is to get the funding he or she is seeking.
4. Decide what you are willing to accept. There is a difference between what you ask for and what you are willing to take. Knowing what you really want and what you can live with is crucial to any negotiation and is proving to be an important lesson that the contestants on the show are forgetting with surprising regularity.
5. Prove the value instead of describing it. Similar to a point I made about infomercials in an earlier blog post, the power of a product is often best unlocked through a live demonstration. Most of the contestants were asked to illustrate what their product could do, and the value of it was directly related to whether or not they could do it.
6. Create a bidding war. The last important point I took away from the show is that if you have something really valuable, it helps to create a bidding war. Too many times, businesses go for the first offer they can get, which can be a major limiting mistake.
Keep these tips in mind if you ever decided to swim with the sharks.
Shark Tank episode 2 started out with Craig French from Long Island NY and his company Crooked Jaw. Crooked Jaw is a clothing company that targets fans of extreme sports and Mix Martial Arts. Craig started the company after he broke his jaw playing rugby freshmen year of college. Craig wanted $200k for a 20% investment in his company. CJ is being sold in 10 mom and pop shops in Long Island, after attending a tradeshow they received no orders. Daymond (the founder of Fubu) said he was one in ten thousand (nothing new) although he had great energy and passion he was not willing to invest. All the sharks were out.
Robert Allison was next into the Shark Tank. Lifebelt is a device that would not allow cars to start without the seatbelt being buckled up. Traffic accidents are the number one killer in the country. Lifebelt cost around $229 installed. Robert wanted $500k for a 10% stake in the company. The sharks were wondering why he was even bothering with creating a product since he owned the patent he could just enter a licensing deal with a major car company. He was worried that it would take to long, he believed his major problem was that no one knew his product existed. Kevin H, Daymond and Barbara were all out. Kevin O offered $500k for 100% ownership of the patent, Robert countered for $1 million but for the same percentage. He turned both offers down. Personally I would have tried to negotiate for a royalty deal, but it’s not my business.
Susan Knapp was the next entrepreneur to take a dip in the tank. She was looking for $500k for a 15% stake in her company, A Perfect Pear. Her company sold gourmet food products such as jam’s. A Perfect Pear was sold in 650 stores and had sales of $700k with $100k in orders that she was not able to fill. Banks were unable to lend her the money to fill the orders because of the credit crunch. Kevin O offered $500k for 70% then Daymond offered $500k for 51%. Kevin H and Robert offered the full amount for 50%. Susan counted with 49% but The Sharks would not accept, so she accepted Robert and Kevin H’s deal. Although she gave up more than she wanted, she gained a huge amount of business experience which should help her company get to the next level.
Mary Ellen Simonsen pitched her odd product Sticky Note Holder (great name). She was looking for $100K for 20% equity in her company. Sticky Note Holder was basically a larger sticky note that other sticky notes could be posted on the side of a laptop. She was hoping to sell them for $10 each, she had no patent and had only spent $1k on the product so far. The male sharks thought the idea was useless and were all out. Barbara said it would sell on a QVC type show, but was not willing to invest. This was not a real product, it was an idea… and a useless one at that.
The last in front of The Sharks was Marc Furigay and his product Classroom Jams. Classroom Jams is an educational record label and publishing house. He was looking for $250k for 10% equity in his company. Marc is a teacher who was having a hard time relating Shakespeare to his class. He composed songs that helped his class relate to Shakespeare. The song was actually pretty good, a class set with 30 CD’s and a teachers guide would sell for $499. Shakespeare is the most taught playwright in the English language but Marc had plans to expend to different subjects. The Sharks talked about the deal together, and offered $250k and 5% royalties, but he would have to give up 100% of his company. Marc wanted to be one of the partners. Robert then offered $250k for 100% with an option to buy 49% back with the profits from the business, but there would be no royalties. Marc still wanted to have a deal with all five sharks so Robert sweetened the deal for the same price but this time lowered what he wanted to 51%. Marc rejected Roberts deal and wanted the royalties from the first deal increased to 8.5%, The Sharks said no but agreed to let him use his royalties to buy into the company and become a partner with The Sharks. This was one of the best deals of the season, I have no dough this company will be a success.
Next week:
“Episode 103″ — An entrepreneurial newbie comes to the Shark Tank with high hopes for her kitchen accessory, but her presentation is less than stellar. Will the Sharks shred her vision to pieces or will there be a Shark fight to get a piece of the idea? A passionate stay-at-home mom (Lori Lite from Marietta, Georgia) with her own line of self-published children’s books seeks much-needed funds to grow her business. Also, a father and son business team impress the Sharks with a revolutionary new musical product, but their need to control could derail the opportunity to make a fortune, on “Shark Tank,” SUNDAY, AUGUST 23 (9:00-10:00 p.m., ET) on the ABC Television Network.
Google the online search giant has launched Google Ventures, a new venture capitalist fund. The fund reportedly will start with $100 million in financing. Google is looking to fund start-ups in industries including consumer Internet, software, hardware, clean-tech, bio-tech, health care and other areas we haven’t thought of yet.
Google Ventures will be headed up by Rich Miner and Bill Maris. Rich joined Google through the acquisition of Android, a mobile platforms company that he co-founded. “This is Google’s effort to take advantage of our resources to support innovation and encourage promising new technology companies. By borrowing the best practices of top-tier, financially focused venture capital firms and bringing to bear Google’s unique technical expertise and brand, we think we can find young companies with truly awesome potential and encourage their development into successful businesses,” said Rich and Bill
Google’s investment will depend on what stage your company is at. Anywhere from seed funding to millions.
“Economically, times are tough, but great ideas come when they will. If anything, we think the current downturn is an ideal time to invest in nascent companies that have the chance to be the “next big thing,” and we’ll be working hard to find them.” Said Rich and Bill
I find it amazing that a little over ten years ago Google got a $100,000 investment, and now it is offering $100 million to fund other startups. If you would like to be considered for funding email ventures@google.com. They are looking for no more than 20 slides or three type-written pages.
