Ten Lessons I Learned From Shark Tank
by James Altucher: How
To Increase Your Productivity 500%
I just gave
up all parenting responsibilities this weekend to Mark Cuban. Meaning,
my kids and I watched eight straight episodes of Shark Tank.
For the past
two years, people have been begging me to watch Shark Tank.
One friend of mine, who has co-invested with me on two deals, has
given me two pieces of advice in life. One is: you never know
what someone is worth until they declare bankruptcy. The point
is, we all speculate that someone is worth $100 million or a billion
or whatever, and the next day you read in the newspaper that they
declare bankruptcy. Now you know.
thing my friend and co-investor was always telling me was that James,
you need to watch Shark Tank. Now, after watching every
episode, I can say I agree with him.
For those of
you who dont know what Shark Tank is, its the
best reality TV show Ive seen. 5 investors sit on a stage,
keeping them slightly higher than the supplicants who come in asking
for money. Then, one by one, aspiring entrepreneurs are led into
the Shark Tank where they pitch their products and the
Sharks, right then and there, decide whether or not to give them
money. The entrepreneurs are often humiliated, laughed at, insulted,
ask the stupidest questions Ive ever heard, but occasionally
get some good advice and even better, walk away with a check if
one or more of the Sharks think their business is a
as the show describes them, are filthy rich and invest
their own money. Its not always the same sharks each show.
Mark Cuban is often a shark. (See also, How
I Helped Mark Cuban Make a Billion Dollars) And the rest
of the often rotating cast includes Barbara Corcoran, of real estate
fame, Kevin OLeary, who started and sold The Learning
Company for $3.2 billion to Mattel. Robert Herjavec, who I
had never heard of but hes sold companies worth $350
million, Daymond John who started Fubu and has sold
$6 billion worth of products and Jeff Foxworthy, the comedian
who has created an empire out of making fun of rednecks. Power to
him. God bless them all.
jealous of any of these people. Money doesnt buy happiness
but it certainly solves your money problems. Its up to you
after that to be happy or not. To not self sabotage at every opportunity.
I can tell you this: I am very good at making money but have often
had a talent for self sabotage. A talent I have been hoping these
past few years to suppress.
So I think
highly of the people who have learned through experience not to
sabotage their successes.
So what have
I learned from the show. Some items are good for investors, some
for entrepreneurs, some for me, and some for my kids.
The first thing that happens when an entrepreneur enters is: Hi,
my name is ABC and Im asking for a $100,000 for 10% stake
in my company. At this point we would pause the show and Id
ask my kids how much the company is worth. Any trader, investor,
entrepreneur, does this math instantly and I wanted my kids to get
good at it.
And they did.
At first the answers (from either kid) would be a nervous I
dont know. Then theyd start to figure it out but
still be nervous one
.million? And then finally,
by the last episode, they were doing it in their head and blurting
it out before I even hit pause.
the entrepreneurs would present confusing numbers like, Im
asking for $85,000 for 15% of my company. And then theyd
launch straight into their story. To be honest, I cant even
do this accurately and quickly in my head. I always wondered if
these entrepreneurs did this on purpose, so that the sharks would
focus more on the product than the specific valuation.
is as it appears. This is a TV show. Not a venture capital firm
(where, also, by the way, not everything is as it appears. In fact,
in all of life, nothing is as it appears but this is never more
true than a reality TV show.) For instance, in the beginning
intro the show says Barbara Corcoran took a $1,000 loan and
turned it into a real estate empire worth hundreds of millions.
Except she sold her hundreds of millions company for
60 million, which they dont say.
saying shes poor. Shes incredibly smart and successful.
But the TV show hypes it up. Theres subterfuge like that throughout
the show. Kevin OLeary, who plays it up as the most obnoxious
member of the Sharks, is described as someone who built a
software company in his garage and sold it for $3.7 billion.
Thats true. He built The Learning Company and sold it to Mattel.
What they dont say is how much he owned of it (so we can estimate
his worth). He clearly made some money on it. But he bought hundreds
of companies first. So each company, assuming it was bought in part
for stock, diluted his share. So his stake might have been tiny.
And then, Mattel
repeatedly missed their earnings estimates because of the acquisition
of his company. In fact, the acquisition has been described as one
of the worst acquisitions in history in various articles about
it. But, fair enough. Kevin turned this success into
having a role at a venture capital firm. I am guessing its
his firms money (rather than his personal money) which he
uses when writing checks on the show.
I went through
this exercise with each Shark and in every case it was
not how they described it on the show (except in the case of Mark
My only guidance
for the people who are going on the show, or for anyone who pitches
any investor, is to carefully study every aspect of the background
of the people you are pitching. There are many ways you can use
that to your advantage in the actual pitch. And because these guys,
in particular, have very public personas, there are a lot of venues
you can research their net worth, their successes, their failures,
their interests, their distastes, and so on.
the Dream, not the Sales. Many of the entrepreneurs go in there
and say, I sold $11,000 of this product last year from my
garage. These are the people that get either the worst deals
or no deal at all. Nobody cares about $11,000 in sales. Sometimes
the Sharks didnt even care about close to $1 million in sales
over the last year. (A great example was games2u.com
which I thought was an excellent company but walked away with no
And yet some
companies with no sales walked away with a great deal. Heres
what the Sharks, or any investor, want to really understand: Do
you have a great product? Do you know what the size of your market
is? Do you have some sense of a business model? And, in some cases,
do you have big breasts?
How do they
know if you have a great product? They can tell by your background,
they can tell by the technical expertise you needed to make the
product, they can tell if you have a patent, and they can tell if
you say, I have 3 distributors about to send me purchase orders
for the product. You might not have a dime of sales but if
you show that people are interested and that your product is special,
youll get an offer. If you also say, and for the last
three years Ive had a total of $53,000 in sales even though
Ive had a full time job then you will definitely
not get a deal.
Sell the dream.
Better not to have sales unless you are going to blow them away
with your sales numbers.
Nickel and Dime. Its not so bad to nickel plus dime
and Ill explain that in a moment. But if you went in there
and said, Id like $100 for 25% of my company and
you have no sales and one of the Sharks says, Ill give
you $100 for 40% of your company then just say yes. What do
you care about the percentage? As Cuban said in one of the episodes,
better to have 20% of a $100 million company than 100% of
one successful company I sold I wanted my partner to take 10%.
Instead they asked for 50%. I gave it to them and sold the company
4 months later. To them! Because with 50% they had to care. With
10% maybe they would not have cared.
should nickel plus dime. If Mark Cuban offers you $100k
for 30% of your company push forward and ask for a few more nickels.
Price is often the least important part of a negotiation. Ask him:
can you introduce me to Netflix, can you get me a promotional deal
with the Dallas Mavericks, are there any distributors you can help
me license my product to?
Get value out
of every deal aside from the money. Money wont save or help
your business for more than a short time. But the right deal and
connections will make or break you. So while they are playing around
with the dimes, make sure you collect as many nickels that they
may have left lying on the floor.
If you want
a deal, then take a deal. Unless
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© 2012 The
Best of James Altucher