ABC’s mega-hit business reality show Shark Tank has returned for the eighth season. For fans, few events are as riveting on Friday nights as seeing whether entrepreneurs will hook a deal. Seven seasons have revealed how to both ace and bomb investment presentations. To be sure, the editors can make pitches look better or worse than they were during the taping by chopping an hour-long meeting into 10 minutes. Although exceptions exist, these 17 are among the most deadly mistakes that killed deals. Most of the time they could have been fixed before ever dipping a toe into the tank.
- Crying or being too emotional
If there’s no crying in baseball, there’s undoubtedly no crying in business or Shark Tank. A feminist mob raised pitchforks at Barbara Corcoran after she told a female entrepreneur “to give up this crying stuff” because it gives away her power. But fellow Sharks agree they have no confidence in entrepreneurs whose eyeballs sweat under pressure. They only want to hear cash registers ringing not sniffles and violins.
“I don’t find crying gives me confidence because you have to keep your emotions in check in business,” said fellow Shark Tank investor Kevin O’Leary in a phone interview. “The Shark Tank, frankly, is not as hard as the real world.”
- Not knowing the numbers
After seven seasons, fans know Sharks drool over numbers. Entrepreneurs should eat, sleep and drink spreadsheets. They must be able to rattle off the top of their heads production costs, profit margins, total sales, customer acquisition costs and any metrics measured in dollars and percentages.
“What I find is the most difficult moment is when it’s clear the person doesn’t know their numbers,” said O’Leary. “They’re not going to be a player in the business. They’re never going to get funded.”
“It’s demoralizing to see that someone doesn’t understand that,” he added. “The very fact that they don’t understand that tells you they’re not going to be successful as an entrepreneur.”
- Not explaining the deal clearly in 90 seconds or less
Iconic investor Warren Buffett preaches “Never invest in an idea you can’t illustrate with a crayon.” And “Never invest in a business you cannot understand.” A business pitch has to be stated merely in seconds, not minutes. Having too many products, complicated business models or a back story a la War and Peace lacks focus.
“If someone can’t come out on the carpet and explain the opportunity in 90 seconds or less, they’re going to fail,” said O’Leary. “I remember being 10 minutes into a presentation and still not understanding what they did. That’s a disaster.”
“In general, less is more,” said Josh Muccio, co-host, and creator of The Pitch, a Shark Tank-like podcast. “Say less stuff, and you’ll sound smarter, more refined and more confident. If you ramble on and on about your product, how amazing it is and how many features it has… well, you simply won’t be putting your best foot forward.”
- Not answering questions directly
Sharks covet entrepreneurs focused like heat-seeking missiles. Failing to answer directly or dodging questions saps confidence faster than a rocket launcher.
“After your presentation, whether it’s the most amazing thing ever or the worst thing that they have ever seen, they will ask you questions to poke tiny holes into your company, just to see how you react,” said Leonard Kim, founder of Influence Tree, a business training firm.
“If you can answer the questions quickly and with data and finesse, you will impress your investors and have a much higher opportunity of closing a deal,” Kim added. “In the real world, a due diligence process takes months, and an investor will comb through all of your financials, so make sure your business is on point.”
- Failing to prove the concept with sales
Pouring millions into product development without any sales along the way to confirm demand screams of reckless spending. Even if canned coffee is a $9.5 billion market in Japan, you can’t assume that it will be a successful product in the U.S. You must test your market and create awareness before investing huge sums in perfecting it, says Rachel Olsen. She is the author of Shark Tank MOMpreneurs Take A Bite Out of Publicity ~ How 5 Inventors Leveraged the Media to Build their Business and How You Can, Too and founder of Best Mom Products.
“I’ve worked with entrepreneurs and inventors for many years and have noticed similarities like the founders stuck in passion and perfection,” Olsen said. “No matter how perfect you get your product, that perfection is in your eyes only, not necessarily your customers. They will always have feedback on what can be better.”
You should expand according to revenue, O’Leary advises. “You have to be very careful about how much inventory you build, how much capital you tie up,” he says. “You’ve got to stay liquid. You have to have cash.”
- Overvaluing the business
Kevin O’Leary disparages entrepreneurs who overvalue their businesses as greedy pigs. People naturally tend to overvalue things merely because they own them — a phenomenon known as the endowment effect. To be fair, Sharks can also come off as greedy pigs in asking for more equity, thereby cutting down a business’s valuation. But the name of the game for them is finding unicorns selling for the price of chickens to compensate for the mammoth risk they’re taking. They know and accept that many of their investments will fail.
“When appearing on Shark Tank, it’s essential to create a reasonable valuation that’s a conservative multiple of sales or EBITDA (earnings before interest, taxes, depreciation, and amortization),” said Ben Kusin. The CEO of Reviver clothing wipes pitched in Season 6 and received an offer from QVC queen Lori Greiner of $150,000 for 15% equity. The brothers recently started a business consulting firm called Rent a Shark.
- Not having a niche target market
If you try to sell to everyone, you end up selling to no one. Sharks gag when they hear a product is geared toward everyone. It shows the company failed to determine their ideal customers.
“Even if everyone can use a product, no startup company can afford the kind of general brand marketing that kind of company requires,” said Jake Chapman, a seed-stage investor, and partner at Gelt Venture Capital. “Startups need to understand who the best customer is and how to market to that specific customer base most effectively. Once a company is on the road to runaway success, it can start to experiment with going after broader markets.”
Chapman added: “Imagine you’ve got a company selling head to toe swimsuits with high SPF. Technically everyone who wears clothes could use the product, but your marketing will be much more effective if you target people who are (1) slightly older, (2) more modest, (3) live in coastal areas, (4) have skin cancer concerns, (5) are lighter complexion and (6) have cultural or religious reasons to stay covered up.
“To advertise to everyone might cost you $100 for every swimsuit sold whereas to advertise to the much smaller target group might cost you $10 for every swimsuit sold. This can easily be the difference between a failed business and a successful one.”
- Having a lot of debt
A company swimming in debt is attractive as dating someone who lives with his or her parents. It’s not necessarily bad and may not be a dealbreaker. But investors worry their money would be paying down debt instead of growing the business.
“Often companies that have been struggling along for a couple of years accumulate debt to the founders, who have been lending to the company as they work to get it off the ground,” said Chapman.
If you’re heavily indebted and trying to raise money, consider converting the debt into more equity in the company, Chapman recommends.
“Another way to deal with this situation is to reach a written agreement with your investors outlining when you can pay yourself back. For example, maybe paying yourself back $X for every $10X revenue the company generates.”
- Having a lot of other investors
The Sharks tend to avoid businesses that have a lot of other investors like the plague because getting consensus from multiple people to make decisions is a huge pain. Less is more in this case. The fewer the investors you have, the more committed they’ll be to your business, said Chapman.
“Counter-intuitively, if you run into a problem, and you reach out to a pool of three investors you are much more likely to get a helping hand than if you fire off an email to a pool of 15 investors,” Chapman said. “If a $500 million venture fund invests $1 million into your company, the amount is insignificant, and if you run into problems, they may not have the time to help you out. Conversely, if a $5 million venture fund invests $250,000 in your business, they are deeply tied to your success and will be there when you hit a wall.”
- Making unproven claims about your product
If your electronic wristbands can zap people away from smoking, nail biting, and other sins, you better be able to prove it with scientific studies. Otherwise, you’re a moron who believes in the tooth fairy or worse.
“He’s a con artist,” Dallas Mavericks owner Mark Cuban said of Maneesh Sethi after he pitched Pavlok, habit-breaking wristbands, in the Season 7 finale.
Even though Pavlok claimed $800,000 in sales, the Sharks passed because the company had not conducted controlled studies to prove the product’s efficacy. Even if hundreds of overeaters swear electronic wrist slaps from your device helped them lose the tires around their waist, it could be the placebo effect.
- Being arrogant
The difference between arrogance and self-confidence is as difficult to describe as pornography. You can’t say exactly what it is, but you know it when you see it. The Sharks have developed a sixth sense when it comes to reading people.
“The Sharks have seen thousands of pitches, and they can see through people easily,” said Rachel Olsen of Best Mom Products. “I suggest that anyone who goes on the show practice and get drilled with questions for hours and hours like you are on trial and videotape it so you can see how you react both verbally and physically.”
- Saying your niche is multi-billion dollar market and you only need to get 1% to make money
This breaks one of the cardinal rules in the tank. All markets have significant potential. But it’s more critical for the sharks to see brains and a bullet-proof strategy for conquering it.
“A smart investor can easily figure out the numbers for themselves,” said Julie Busha, CEO of Slawsa, who pitched on Shark Tank in Season 5. “The investor might be under the impression you think obtaining that 1% market share will be a far easier task than it truly may be as if it is automatic.”
“Finally, do you want to show an investor that you’re okay settling for just 1% of an industry?” Busha added. “While 1% is a great goal to have, they want hungry entrepreneurs who have larger, achievable long-term vision with a clear plan to get there.”
- Telling a Shark straight up you don’t want to work him or her.
Maneesh Sethi of Pavlok sealed a place in Shark Tank history when he made Kevin O’Leary drop the F-bomb in the Season 7 finale. It was bleeped, and Mr. Wonderful’s mouth was digitally pixelated after Sethi replied to O’Leary’s investment offer: “I would take an offer from anybody besides Mr. Wonderful.”
“You always have to remember who you are talking to and being disrespectful is never going to earn you points in relationship building,” said Olsen of Best Mom Products. “People remember how they were treated. I promise you that Mr. Wonderful will always have something negative to say when Maneesh or his company name is brought up.
“Do you want to burn bridges with influencers? While that person may make for an entertaining TV character, it’s a liability in business.”
Olsen offers a more graceful, non-offensive way of breaking the bad news.
“Start with something genuine and positive first and then say you are not at a point where you feel comfortable making that commitment,” said Olsen. “For example, I’m so grateful to have this opportunity. I can see you’re passionate about what I’ve created and where the company is going. In going through this process, I’ve realized that I’m hesitant to commit. It’s not what I intended, but I need to re-evaluate what makes the most sense for my team and business.”
- Not putting your brand front and center
This is not deadly to a deal. But if you don’t wear a T-shirt or sweatshirt emblazoned with your company’s brand when pitching on Shark Tank, you’re wasting a monster opportunity to be a human billboard in front of millions of viewers, says Kusin of Reviver.
“Your shirt is the only item guaranteed to be seen by the audience in every shot,” said Kusin. “The product setup is not.”
- Offering too little equity
After seven seasons, the Sharks have made it clear they want at least 10% of a business. The more, the better. Entrepreneurs offering less are written off as gold diggers or opportunists using Shark Tank for publicity instead of funding.
“If you come present on a stage of any kind, if the format is to pitch for investment then you better be fundraising,” said Muccio of The Pitch. “Your reputation is too important to blow on an opportunity for publicity. Also, there is such a thing as bad PR. I don’t care what they say, ‘they’ are wrong.”
- Failing to solve a real consumer problem
The Sharks unanimously passed on No Phone, a chunk of plastic in the shape of a cell phone, deeming it most “stupid” product in Shark Tank history. Lori Greiner even urged the entrepreneurs not to spend any more money on the business. No Phone aspired to be the next pet rock and a solution to cell phone addiction. But the pitch showed it was nothing more than a gimmick.
“You could sell some maybe as gag gifts and the like. But it isn’t a solution to cell phone addiction, which admittedly is a real problem,” said Jake Chapman. “The thing is, with something as basic and asinine as the NoPhone, even if I were wrong about the product, the market and the team, this company still isn’t bankable. Any modicum of success would lead to an immediately flooded market of knockoffs at prices No Phone couldn’t hope to match.”
- Working part-time on the business
Running a business while you’re still in school or working at a day job puts Rosie the Riveter to shame. But you can’t give 110% when half of your time is devoted to another equally draining endeavor. Investors want to see all hands on deck all the time.
“You need someone there to run the business,” said O’Leary. “If they haven’t finished school or still in college, how are you going to run the business? If they’re in college, who is going to do the work? Is there a business or just an idea? You need infrastructure.”
He doesn’t invest in entrepreneurs who hold other jobs. Entrepreneurs by definition take risks and dive in 100%, O’Leary told Forbes in April.
This story was originally published in Forbes in September 2016.