Shark Tank (TV Show)

Shark Tank
http://www.hulu.com/shark-tank

My General Thoughts on the Show

- I don't like how reality shows involve degrading a good number of the people who show up to compete on them. It definitely makes it provocative, though; the "act like a jerk" format seems to have worked very well for Simon Cowell and American Idol. Personally, I've been finding myself getting very stressed out and angry after watching the episodes, which I don't like; I think I may be identifying with the entrepreneurs more than the producers of the show expected.
- I've read the opinion of one VC who said that the behavior of the Sharks was often extremely unrealistic and exaggerated for the purpose of making exciting TV. It sounds like the same thing that Hollywood does with war to make it more entertaining: they give you a distorted view of what it's like. This is making me worry that it may be a waste of time to watch the show b/c I won't be able to separate the useful/realistic bits from the unrealistic bits.
- I'm worried that the bad behavior displayed on the show may rub off on me. I've had this problem in the past with movies/TV
- after taking a break from the show for a few months and reading some business autobiographies in the mean time, I really liked the episode I watched (Season 4 Week 11). It's a nice way to see connections to the VC discussions in the books I'm reading (like the Starbucks story). And Schultz mentions in the Starbucks book how hard it was to be told his idea was stupid over and over again by hundreds of people, so watching The Shark Tank seems like it could be a good way to prepare yourself for that kind of harsh treatment.


General Lessons From The Show:

- Traction! Traction! Traction! Traction is everything when dealing with VCs! AKA "What do your sales look like?" You'll do yourself a HUGE favor if you can show that your product actually sells. This was a major issue in the Starbucks book: the VCs were saying that fancy coffee was a Seattle thing that would never work outside of that market. Schultz put a store in Chicago near the beginning of his expansion solely to show VCs that Starbucks could work elsewhere, but it took the idea a few years to really catch on.
- Know the numbers! You need to know the core numbers re: your business like the back of your hand.
- Don't go on the show expecting these VCs to spend a lot of time with you if they invest. If the VC gets the feeling that they'd need to spend a lot of time to mentor / guide you, they won't want to do it.
- How do you keep out competition?
- before you shake hands over a deal, the Sharks all have an incentive to act like your idea is not likely to succeed. Take what they say with a grain of salt.
- on the other hand, actually listen to the problems they point out.
- If they point out something you haven't already considered, that's going to look bad.
- Remember that the Sharks are not only trying to get a sense of the business but are also trying to get a sense of YOU as a person. If you come off as crazy or not motivated, they aren't going to want to invest with you. This is just like in the Starbucks book: the doctor-friend of Howard Schultz invested in HOWARD, not the business. He knew Howard was competent and wouldn't likely chase after something with a low chance of success.
- it seems pretty common for the Sharks to try to knock down your price when they make an offer, and they present it as a kind of "take it or leave it" offer, so it may be a good idea to go in with an offer that is a little more aggressive than you would present a trusted business partner. On the other hand it seems the VCs can get insulted or question your judgment if your offer is too aggressive, so it may be a matter of balance.


Quora Questions re: Shark Tank
http://www.quora.com/Shark-Tank-TV-series

How do you get onto the Shark Tank?
What is Shark Tank like off camera and pre/post show?
How exactly are the investments on Shark Tank executed? Do the producers get a cut?
How is it decided which entrepreneurs/inventors are selected to pitch for VC on the Shark Tank show?
How much of the show Shark Tank is dramatized?


Misc links

2012.02.25 - TechCrunch - Ten Lessons I Learned from Shark Tank (James Altucher)
http://techcrunch.com/2012/02/25/ten-le ... hark-tank/






Season 3

Season 3 - Episode 1

This is the first episode I ever watched; I was really struck by Cuban's ability to negotiate. He manages to come off friendlier than everyone else while simultaneously being more intelligently-aggressive than anyone else. The FUBU guy doesn't seem as experienced at coming up with VC offers. I liked that seeing these super-successful people talk about stuff made them seem more human; when all you do is hear about such people in the news, you may be tempted to think that they make no mistakes and never make themselves look like idiots.

Notable quotes:
Cuban: (not an exact quote, just the gist:) "50% of a melon is more than 90% of a grape" I think this was to the nightclub guy.
Cuban: (not an exact quote, just the gist:) "You're thinking of holding out over 2% of the company; at your valuation that's $26,000 that you're ready to take instead of my advice and my contacts. You couldn't buy the kind of resources I have for $26,000." I think this was to the bottle guy.


Season 3 - Episode 2

Cuban invests with a guy whose idea seems very dumb ("I Want to Draw a Cat for You"); the guy also doesn't seem to have a lot of business experience. I'm not exactly sure what Cuban's thinking was on that. Maybe he was doing it for the good will from the viewers of the TV program?

Cuban criticizes the salespreneur guy for not taking his offer when he had the chance, instead waiting to hear from Barbara if she had a better deal; he says something like, "You made the #1 mistake in sales, which is to not shut up when the customer is ready to ink the deal; you kept trying to sell."

Cuban talking to the magician: "You pay the publicist, they'll tell you whatever you want to hear."
You could tell that the magician was prepared to take a lower offer but


Episode 3

Travis' guitar tab invention seems absolutely brilliant, and his numbers were extremely impressive. The fact that all the offers asked for 20% equity strikes me as clear evidence of collusion between the Sharks, especially compared to the previous two episodes. What I don't understand is why Cuban sat out; maybe he was afraid that it would become public that the Sharks were colluding and he was afraid of the potential backlash? When he was thinking, he may have been considering whether he was going to undercut the rest of the Sharks or go along with their scheme. I've definitely gotten the impression that Cuban is motivated by a need to bolster his public image; none of the other Sharks are public figures the way Cuban is.

I'm getting the impression that these Sharks are deliberately going hard on the 2nd guy to try to persuade him to give them a better valuation; it's like watching haggling in a 3rd world country's downtown market or something.

At 21:50 the second guy is asked by the woman, "How much money do you have left to put into this business?" And he responds, "Well, I really don't want to put any more in", and she responds, "So this is your big play here, you need to walk out of here with the cash", and he goes "Yeah, this is it". That was a huge mistake on his part; once he admitted that the Sharks knew they had way more leverage over him than if he could have continued on by himself or had other VCs bidding for it. That's what the acronym BATNA stands for: your Best Alternative To Negotiated Agreement. You never want to admit that you don't have any BATNA whatsoever.

The third guy (Travis, w/ the light-up patches) took a real verbal beating from all of the Sharks, who I thought all acted like total assholes, to the point where I got angry. I thought Travis took their abuse way better than I would have.

They acted way different with the blonde girl. I also doubt that much cleavage was a coincidence on her part. I find it hard to believe that her product was so different from the Money fragrance that it would be worth the difference in attention it got.

Season 3 - Episode 4



Season 4

Season 4 - Week 11

1. The Coop (indoor play area for kids)

After watching their intro video, but before watching negotiations:
- this is EXACTLY the kind of business that I think most people would be really, really happy to run: just hang out with your friends all day while you work. You need to make sure you try to keep the stress level of the business low, though, otherwise you may end up at each other's throat.
- I'm curious to know all the ways that this is different from a regular day-care. Is it just a better kind of day-care? That by itself could be good enough (eg Starbucks, McDonalds, Wal-Mart were all better versions of established products). [Later: It's not day-care; it's solely for parties]

While watching their in-person speech:
- asking $150k for a 15% share, so the valuation is $1 million
- they say they "cater to movie stars" and other rich people; they have a cappucino bar. So the target market is rich people.
- I think I noticed a table with a sharp corner in an image of their store, which made me wonder how "lawsuit-proof" their design is.
- They run 6-9 parties on a weekend, the prices range from $595 to $4000 for a two hour party for 15 kids. They said that was competitively priced for the LA market. They said they make $5000 _profit_ every weekend, "easily". They made $350,000 _profit_ (after paying themselves $100k for the two of them) the previous year. So why do they need the money? They broke their bottom line at $125-150k, and that includes paying themselves.
- To start up they got a business loan for $125,000. The Sharks seemed surprised at how little money it took them to get started, and they replied that they "did a lot of the work" themselves.
- Cuban asks why they don't just recycle the profits to create another store, and they said that they put so much of their time into running the first store that they'd prefer to franchise the business. It sounds like they like their day jobs and would prefer staying in their current environment as much as possible.
- Kevin O'Leary says they would need to have 5-15 stores before they could say with confidence that the model could be franchised out to 300 stores (like they were hoping to do). So he bails.
- Daymond John asks whether ALL they want is the money, which draws out the admission from them that they want the business expertise. John responds by saying that he couldn't add any value aside from the money, so he bails too.
- Robert Herjavec says stuff along the same lines as the other guys and bails
- Cuban mentions 2 problems:
1) that very personal businesses (where you need to have your stamp on everything) are hard to grow.
2) it'll be very hard to expand this kind of high-end business into middle America (implication: so how will they get to 300 stores?)
- Barbara Corcoran offers $150k for 15% and the guarantee that she'd get her investment back within 2 years. It seems to me that what the Coop women want is someone to do most/all the work of expanding the business in exchange for 15% of the company.


2. Second Company - Donna, Fat Ass Fudge

- 250k for 5% of the company
- she comes off as really energetic and eccentric
- sales of $60,000 in the past 12 months
- Kevin O'Leary says that she needs to have a partner who can responsibly grow the business. He says that these things often happen: someone creative will come up with a great product, and then they need someone with business experience to make it big. It reminds me a lot of the story of McDonalds and Starbucks.
- Barbara Corcoran says that the entrepreneur is already getting the attention etc. that she wants from it, so there's no real drive to get bigger.
- Daymond John bails because "this is not a _business_ for me", implying that Donna doesn't have the business ability to grow
- Robert Herjavec bails w/o explanation, prob. to avoid hurting her feelings


3. Third Company - Scott Martin, The Living Christmas Company

- asking $150,000 in exchange for a 30% stake, so a valuation of ~$450,000. If the company was making a PROFIT of $45,000 a year that would be a PE of ~10, but the company apparently isn't making any profit at the moment (see below).

- his business idea seems great: rent people christmas trees so they don't have to kill the tree.
- he started in 2008 by creating a website, and rented 100 trees, delivering them w/ his pickup truck. "Last year" (2011?) he rented 1300 trees.
- he rents the trees from $100 (average) up to $200
- sales were $150,000 (last year / 2011, I'm assuming), profit of $33,000 BEFORE having paid himself
- he needs the money to create "a nursery w/ an automatic irrigation system"
- Kevin O'Leary lists three problems: 1) the business is only 6 weeks out of the year, 2) the trees are more expensive than just buying them, so the market is limited to people who don't want to kill a tree, and 3) the tree is visually indistinguishable from a plastic tree
- Daymond John bails b/c he anticipates that the business will need a lot of money to stay running (gas prices, fertilizer, etc.)
- Robert Herjavec bails b/c he doesn't see the growth
- Barbara Corcoran bails b/c she doesn't think there's enough profit in the business
- Scott tries to respond by talking about how he's doing good
- Cuban lists the following problems: 1) the amount of money it'll take to keep the business running, 2) the fact that the price is higher than buying a tree or owning a plastic tree, 3) the fact that Scott has a "nice guy" attitude that may keep him from having the hard-headed attitude necessary to squeeze out a profit. Cuban offers $150k and support for 40% of the company.
- Once Scott agrees to Cuban's offer Cuban really turns around and is a lot more positive about the business, and offers ideas that he had presumably come up with while Scott was talking but didn't mention, eg they could put the stories of the veterans they employ and the stories of the trees on the website. Cuban says they'll need to talk a lot about how to scale it properly.
- Herjavec and Daymond John say they didn't see Cuban's offer coming; I was kind of surprised they said that, b/c Scott came off as both pragmatic and willing to put in the work necessary to expand it. He wasn't asking the Sharks to do the work for him (which was the vibe I got from the Coop women, even though they seemed really smart and capable of growing the business themselves if they were motivated to), and he was offering a good chunk of equity (unlike the Coop women).


4. Business Four - Jillian Tackard(sp?) and Connor Pastor(sp?), The Party Posh Group

- $100,000 investment for 20% of the company
- they're students at Loyola: she's a double-major in accouting and finance and connor is getting his MBA
- the idea is a little elastic wallet thing that a girl can have around her leg to carry her ID. Jillian said that women frequently put their IDs into their bras to avoid carrying a handbag.
- she doesn't seem to offer any reassurance that the product will sell; she just says "as a member of the target market I can assure you it will sell"
- Barbara Corcoran immediately asks about that, and Jill says they've sold 200 on their website, all over the country. Barbara asks how people found out about it, and Connor says they're "actively looking for a way to solve this problem". They sold for ~$17 each, but Jill says they experimented with the price and sold ~27 at $39. Connor says they do have a provisional patent.
- O'Leary immediately points out that their valuation is crazy, and Connor responds by saying that it's crazy to value a company "pre-revenue"
- Cuban puts down the other Sharks' skepticism and asks how much it costs to make these things, and Connor says a manufacturer quoted him at $4
- They reveal that they had previously sold 40% of the company for $50,000 when they had nothing more than the idea. They've since gotten a distributor and a designer.
- they go back and forth with the four sharks not including Cuban for a while and then they talk to Cuban and he says "ignore everything they've just said; they're a hundred percent wrong".
- Cuban says they remind him of himself when he was 21. Cuban finds out that they sold the 200 6 months ago and stopped because they ran out of inventory, and then just a month ago they got the $50,000 deal with everything else.
- Cuban bails on what seems to me to be a small issue: that when he asks them how they're going to get to 200,000 units, they seem flexible about how they do it, which I guess rubs off on Cuban like they haven't planned it out in excrutiating detail.
- Jillian and Connor were pretty cool, I liked them. But I think they came off as a little combative, unlike Scott the Christmas tree guy. I could see working with them being more stressful than working with Scott because of their higher-energy, higher-aggression style. Cuban and the other Sharks may have (subconsciously?) picked up on that and decided to stay away for that reason.


Season 6

Season 4 - Episode 16

First Company - Almond Water
- Ask: $200k for 20%
- O'Leary says the big problem they have on the show with drink ideas is the distribution: how are you going to get the big retailers to clear off shelf space for your product?
- They had $160k in sales the first year, $330k the second year.
- Make it for $0.60, sell it for $1.10, 45% margin.
- They invested about $250k of their savings into the business (wow). Mark Cuban: "That's all in!"
- They're in about 800 stores.
- Whole Foods isn't their target market b/c their drink has 15g of sugar w/ no vitamins.
- He stresses that they listened to their customers to come up with new flavors.
- Corcoran points out they're on track to do $280k their third year.
- Greiner says she likes their packaging. She says they need to get it into Whole Foods, and then bails (seems strange to me).
- Corcoran says she doesn't think the $200k they're asking for will even come close to what they'll need to get into the mainstream stores. She says she already tried it for 2 years with another drink company.
- Herjavec seems to come up with a BS excuse: "You seem to listen to your customer too much."
- O'Leary says his most valuable resource is his time, and he thinks he'd need to spend a lot of time with them to make it happen.
- O'Leary says their valuation is ridiculous ($200k for 20%).
- Cuban points out that the guy comes off as a little desperate. "There's a difference between being aggressive and being a great salesperson and saying 'yes' to every question that a potential investor asks."
- Cuban: "If you had walked in here with a zero-calorie, I'm all over it." [Nathan: But there's no way to do that and have it sweet without using artificial sweeteners.]

Second Company - GreenBox
- $300k for 10%
- The greenbox is a pizza box that folds easily to store 
- Herjavec: "Who are you going to sell it to?"
- "We have distributors around the country"
- They've sold over 10 million boxes
- $1.7 million in sales last year.
- Dominoes would pay a fraction of a penny more for their pizza box.
- O'Leary gives a really interesting anecdote of how he went to someone he knows with 650 pizza locations with a similar idea and the accountant said "Is this going to help me sell one more pizza?" and the entrepreneur said "People will feel better about the company" and the accountant said "Then I have to fund a campaign to raise awareness. I need something that saves me money, not increases my costs."
- They haven't had access to the right people at Dominoes.
- O'Leary: "You're never going to make a lot of money unless you can sell a hundred-million boxes."
- O'Leary makes an offer: 10% for $300k and he'll get them in front of the people at pizza chains.

Interlude:
- They profile two people who met with Kevin O'Leary and apparently sold their company to Shutterfly for $14.5 million.
- O'Leary says it's the largest deal in Shark Tank history.

Third Company - Tycoon Real Estate

- $50k for 5%
- A crowd-investing platform. It's basically Kickstarter for real estate.
- Herjavec's first Q: "How do I get my money back?" And Cuban goes, "Boom Boom Boom, give the guy a cigar!" (agreeing)
- The company would take 1.25% of the amount raised as a fee.
- They've had two proof-of-concept deals. The first was a $100k deal on part of a house.
- O'Leary asks, "Why not just invest in a REIT?" A: "REITs aren't sexy. Nobody brags about REITs." (terrible answer, Cuban shakes his head)
- Herjavec says real estate is almost all luck. He then says that if you hold onto the property for 10 years you may have a good outcome, but if you need liquidity at any time over that period, you can lose a lot of money.
- Cuban elaborates on why he immediately bailed: he's apparently seen a bunch of crowdfunding ideas, and he says the problem they have is that average people need liquidity and won't have it.
- Greiner says she just doesn't like the idea of doing it online with people she doesn't know.
- Corcoran (the biggest real estate pro there) says the Achilles heel is the lead investor
- Cuban says "Just look at the name! Tycoon! Tycoon! What does that say to a small investor?! It's a rip-off name."
- O'Leary says he'll give the $50k for 50% if they rebrand it as an O'Leary thing. The entrepreneur immediately says no, without hesitation.

Fourth Company - Phone Soap
- $300k for 7.5%
- It's a UV light and charger combo that kills bacteria
- Cuban: "Why not just use sanitizer?" A: It can damage the phone and void the warranty. Cuban: "Oh that is a horrible response."
- Sales: in the past 7(?) months, $537k
- They sell it for $59, it costs them $20 to make it.
- They sell it online and via Staples. They're in 400 stores.
- How they started: They're cousins, they were in college, one of them was doing cancer research and the other sent the article with the bacteria stat (more bacteria on phones than a public restroom). The cancer guy tested it and confirmed the results.
- Patents: they have two utility patents submitted.
- Herjavec: He thinks people are too lazy to care. Cuban: He thinks charging devices have also become portable and their invention is not.
- They spent about $80k in marketing that year.
- They already raised $800k for 60% of the company.
- One thing they've figured out is that there's a huge market in hospitals and schools. They've been approached by hospitals b/c they're using tablets.
- Cuban gets intrigued by the hospital possibility. He asks two questions: 1) what's the lowest they can make this thing for, and 2) can you get it so it cleans in under a minute.
- O'Leary says the selling process to hospitals is brutal (from experience), Cuban counters that he also has companies that sell to hospitals.
- Corcoran makes the point (I agree with) that trying to get people to adopt any new habit is a HUGE barrier (eg put the phone in the sanitizer)
- O'Leary: He 1) isn't convinced there are enough customers out there to make this pay off, and 2) he doesn't know what the CAC (customer acquisition cost) will be.
- O'Leary's deal: he gives $300k, he wants $6/unit until he gets the $300k back, then it's $3/unit until he gets $1.2 mill, then he goes away. Corcoran says she thinks it's a ripoff offer. O'Leary warns them the sales cycle for hospitals takes years.
- Cuban's offer: $300k for 20% contingent on them getting it to work in 30 seconds and being able to make it for $12.
- Greiner: She's sold millions in cell phone cases and sponge sanitizers. She'll do $300k for 15% and she'll put it on QVC. She thinks she'll sell hundreds of thousands of dollars like nothing.
- Cuban goes after Greiner's ability, saying she doesn't have the sales force to do it.
- The entrepreneurs say they came in asking for 7.5% and ask the Sharks to meet halfway. Greiner goes to 10% (even better than halfway).
- So these guys are going to own 100 - 60 - 10 = 30% of the profit.