Shark Tank investor and CEO of the Herjavec Group Robert Herjavec made most his fortune in cybersecurity. During his tenure with the ABC hit business reality show, Herjavec has proven he can help grow an array of tech and non-tech businesses from minnows into sharks.

In season 4 (Sept. 2012 – May 2013), he fashioned a $100,000 deal for 10% of ugly Christmas-sweater company Tipsy Elves. Entrepreneurs Evan Mendelsohn and Nick Morton went from $900,000 in annual sales before their 2013 appearance to $14 million in 2015, says Herjavec.

In season 6 (Sept. 2014 – May 2015), Herjavec grabbed 25% of The Natural Grip for $125,000. The Louisville, Ky. company, founded by a U.S. Army Corps of Engineers captain and her husband, makes hand grips for weightlifting and other fitness products. After appearing on the show in November 2014, sales blasted more than fivefold from $178,000 a year to $1 million in 2015, according to Success magazine.

Also in season 6, he bid $750,000 for 13% of Keen Home, posting one of the largest valuations in Shark Tank history. Founders Nayeem Hussain and Ryan Fant had already pre-sold 35,000 units to home-improvement retailer Lowe’s (LOW) when they appeared on the show in February 2015.

Herjavec talks about his biggest and most successful Shark Tank investments, what it takes to score a deal with him and much more.

Herjavec’s Biggest Shark Tank Deals

Ky Trang Ho: I did some research on your deals on Sharkalytics. It shows one of your biggest investments on the show was $5 million for 50% of Zero Pollution Motors (in season 6, May 2015). What happened with that deal?

Robert Herjavec: Well there were challenges in that deal. Unfortunately, we weren’t able to close that. The Zero Pollution Motors didn’t own the rights to the product across North America. They were a distributor, which isn’t a bad thing. But regarding the scale that we wanted to build, it was difficult to scale that out.

Ho: So that wasn’t revealed until after you do your due diligence?

Herjavec: What people don’t realize about the show is the show is very real. In truth, we know nothing about the pitchers, the potential investment until they come out there. And in an hour, which is typically how long the pitches take, sometimes not all the information comes out.

When you look at it afterward, you realize it’s not going to work. In some cases, it turns out to be different than you thought. You can still close the deal anyways and readjust it.

Ho: Another big one was SynDaver Labs in which you pledged $3 million for 25% (in season 6, March 2015). What happened with that?

Herjavec: We’re still working on that one. It’s challenging. But we like that one because there are a variety of different avenues for it. We’re not working with them right now. We’re trying to figure out the strategy there.

Most Profitable Shark Tank Investment

Ho: Which of your Shark Tank investments has been most profitable for you? How did you take it the next level?

Herjavec: The most recent one that we see a lot of positive traction and upside, is an investment called Keen Homes. This was from last season. They made a smart vent that allows you to change airflow in your house for better heating or air conditioning. And at first, when you think about it, it’s a vent.

But one of the things the company has been able to do very well is expanding it into the whole smart home area, where you can control these vents and integrate with them the Nest platform. And in fact, Keen is on the Nest website as a partner. And so we’ve been able to integrate it as part of a larger ecosystem regarding a smart home.

We’re excited about them. I was just in New York with them last week look at a variety of different ways. Another thing we’re doing with them now is we’re launching a retail strategy on a larger scale.

We went from sales of under $1 million before they got on the show. They finished the year at $5.8 million. This was really with minimal work with retail distribution. And now some of these other partnerships, working with Nest, getting into larger retailers is starting to take hold now.

And it’s not a vent company. It’s a software company that happens to make a hardware product that happens to be a vent. There’s so much intelligence that we’re putting into these vents. It’s crazy.

We see a tremendous amount of upside there.

The most profitable is still Tipsy Elves. The margins are fantastic, the cross-pollination of that product has been incredible. We’re now making sweaters for colleges. We’re making sweaters for other holidays. When they got on the show, they were an ugly Christmas sweater company. We now do July 4th sweaters.

We’ve turned that brand, Tipsy Elves, into something that stands for fun, edgy, cool clothing, as opposed to just ugly Christmas sweaters. And I think the latest numbers were $14 million in 2015.

Ho: That’s incredible. How did you help them grow sales?

Herjavec: It always helps when you have two smart guys or ladies running the business. So I don’t want to take all the credit. They’re great entrepreneurs. But what we’ve been able to do with them is help them expand the product line. It’s always good to have somebody who’s been there. All the mistakes that they were going to make, we sit down and go through it.

They were going to launch a t-shirt company in 2015 that was edgy. When my team looked at that, we said this isn’t really on brand or on point to what the brand stands for, and I don’t think we should do it, and we didn’t. It turned out to be a good thing. There were other products like jumpsuits for skiing that was a natural evolution.

Ho: What did you see in Tipsy Elves? It seems that could go either way.

Herjavec: Well said. Any business can go either way. I look at my business. And if you ask me

“Gee, how big am I going to be in three years?” I would give you this massive number. But between now and then is 10,000 little points of execution that have to happen for us to get there.

There is no guarantee of success in business. Just because you’re bigger, doesn’t mean you can’t fail. So failure is not always when you are small. Failure can happen when you’re big. You have to keep your eye on the ball.

We like the guys running the business. We like that team. We also like the fact that it could go wider in a very narrow niche.

Ho: But what led you to you believe that Americans would want to buy more ugly Christmas sweaters?

Herjavec: I was the most skeptical one on there because I looked at them and thought “how long can this last?”

I always believed if you can gain traction quickly and create a brand to have something. It’s what you do with that something. We always saw it as a cross holiday company that happens to start with Christmas. It’s turned out to be true.

Herjavec’s Biggest Losers

Ho: Which Shark Tank investment has been your biggest loser and why?

Herjavec: I never like to think anybody is a loser until you’re off life support. We have some challenging investments. Some are on life support. But I think eventually with the right amount of work; they’ll all make it.

We haven’t had an investment fail on us. Knock on wood.

Ho: Can you give me an example of one that’s on life support and tell me what’s going on there?

Herjavec: I don’t want to name anybody because they’ll read this and feel bad that I think they’re not doing well. I will tell you that the commonality with the ones that are struggling is first all it’s always execution. They don’t do the things that they’re supposed to do in the time frame they’re supposed to do them.

It’s difficult because when you’re running a business, you’re being thrown 50 things a day that has to be done. But the reality is you can only do five or 10. Great entrepreneurs can always decide, what are the five most critical things I have to do today to move the ball forward. The rest is noise.

I mean, as an entrepreneur, you never have enough time. There’s always too much to do. You have to figure out the critical points to move the ball forward. That’s the one thing where people struggle, with their time and their focus.

How Herjavec Manages It All

Ho: How do you keep track of all of the businesses and projects you’re involved with? You have a lot on your plate.

Herjavec: Oh my God! That’s so funny. I have so much on my plate. And my team goes from loving me some days to hating me some days. There are days when I come and say we got too much media Shark Tank going on; I need time. Other days I come in and say no we need more time with the Shark Tank stuff.

It’s such balance. It helps that I never sleep. It also helps that we are incredibly organized. My schedule is unbelievable. A friend of mine and I were going to go somewhere. He said: “Well I call you on a Monday to see what you’re going that week.” I said: “No, I can tell you want I am doing for the next three months.”

We’re really busy. I always look at it say it’s a privilege. I always say I get to do these things. I don’t have to do these things. I worked real hard in my life to be this busy.

How to Score a Deal With Herjavec

Ho: What are your investment criteria on Shark Tank?

Herjavec: No. 1: I got to believe in the owner/operator because stuff is going to go wrong. Things aren’t going to work. I got to believe that you can adjust.

No. 2: The money has to be able to accelerate the business. There are some businesses that putting in more money doesn’t get you to the finish line any faster. I like businesses when the money can add to scale, whether it’s manufacturing, lowering the price point, stuff like that.

The third thing I like is people who have an emotional brand.

The Keen Home people make a smart vent. People are passionate about this vent. They can control it. They can add software to it. They can upload things to it. It’s difficult to think of a vent with that level of emotion.

The Tipsy Elves guys make clothing and sweaters now that get you excited.

The Natural Grip people make a sports product that makes you better at your performance. These are all emotional tie-ins.

I like products that reach consumers on an emotional level because it’s hard to commoditize emotion. It’s easy to commoditize a product.

Ho: How do you determine fair value for a company on Shark Tank?

Herjavec: Whatever I am willing to pay. (chuckles) That’s where the art of negotiation is. Mark Cuban always has a great point. It doesn’t matter what value you invest in; it depends what you believe it can grow into.

Most of these investments are relatively small for all of us. What it comes down to is my time is more valuable than what we’re investing in these people. So the return and the scale has to be worth it.

Ho: Do you invest in small businesses outside of Shark Tank?

Herjavec: No. We have so many cycles. I always think one of the benefits of being on Shark Tank as an investor is that Shark Tank brings deals to me. Before Shark Tank, I had to go out and find deals to invest in.

Now we get to sit there, and this amazing show brings us deal flow. We had over 50,000 people applied to be on the show last year. That’s a lot of potential businesses. You’re going to get some really good ones out of that.

Ho: Definitely. And do you have any regrets about not investing in any companies that have come before you on Shark Tank?

Herjavec: No. As Kevin says, there’s always another deal around the corner.

Finding a Competitive Advantage

Ho: I have a question to ask on behalf of my friend, who also does what you do on a smaller level. How important is finding a sustainable competitive advantage in analyzing consumer products?

Herjavec: Wow. That’s a great question.That’s a great question. To find a sustainable competitive advantage is virtually impossible today because of the nature of how quickly the world moves. Your advantage, if it’s that great, will be stolen by somebody else.

I would ask the question differently. I would say it’s critical to find continuous competitive advantages that are constantly evolving. Whatever your advantage is today, if it’s not fundamentally different or better in a year, somebody is going to knock you off, make it cheaper, do it better. So you always got to be moving that bar up. And the way to do that is to have a passionate love for your customers.

Your customers are going to tell you where they want to go. Sometimes they know it. Sometimes you can see it by understanding what their pain points are. An advantage is just something that you have today. It’s a slice in time. A year from now, whatever makes you great today, will probably no work tomorrow.

Ho: Do your own kids want to start their own businesses?

Herjavec: Well, it’s the old “whatever my dad does isn’t’ that cool.” All of my kids are into business. One of them has a business degree. My daughter is in her second year of a business degree. And my younger just got into business school. I like to think I have some influence on that. But of course, none of them would agree to that.

Why So Many of Herjavec’s Deals Fall Through

Ho: According to Sharkalytics, you have invested in nearly 60 businesses on Shark Tank, and I notice that you feature 16 businesses on your website. One must conclude that most of the deals made on the show fell through. What were the biggest reasons those deals didn’t close?

Herjavec: It’s interesting when the show first started, the reasons the deal didn’t close, is because the investors, us, find something that’s wrong with them. The numbers aren’t right. The strategy isn’t correct.

One of the challenges now is when people come on the show; they decide they don’t want to close. They got the exposure. And for a variety of reasons, they change their minds. There’s nothing that we can do to force them to close.

Predominately, when a deal doesn’t close now because it’s such a big platform for people is because there’s something that falls apart in the negotiation that’s usually driven by the entrepreneur.

Ho: Is it because they don’t want to give up so much of their business?

Herjavec: Yeah, it’s a very challenging show. There’s a lot of pressure. There’s a lot of stuff going on.  They’re under tremendous stress. And it’s very real. That’s the thing that people don’t realize is that the show is very real. When they come on there, they have to say or do things that they wake up the next day under the light of day and say “wow was that the best thing for my business?”

What Herjavec Thinks About Shark Tank

Ho: What do you dislike most about Shark Tank?

Herjavec: The other Sharks.

Ho: Really!

Herjavec: No. I’m joking. It’s just time. I wish I had more time. I always think man if I didn’t have my core business and it wasn’t growing so quickly, and I could spend 100% of my time on Shark Tank, it would be great. It’s just time. It’s just juggling all that stuff that’s challenging as time goes on.

That’s the only thing. I don’t like about it. I love shooting the show. I love the other sharks. And most importantly I love inspiring other people who have thought about starting a business but never started a business.

And that’s the great thing about our show. You’ve got six sharks, who are not that smart, not that special and are all self-made. That’s one of the great things about America today is if you have a great idea and you’re willing to work hard, you can get there. Every Friday night, that’s what we show America. If we can do it, anybody can.

Ho: That is very inspiring. I am very inspired to develop a business after watching so many episodes.

Herjavec: I can’t tell you how many kids watch the show and say they were inspired. They started this, and they started that. It’s inspiring. I don’t mean 21-year-old or 22-year-old kids. I mean 7-year-old, 8-year-old, 12-year-old kids are watching the show. It’s amazing. When the show first started, no one saw that coming. It’s taken off.

Ho: Is there anything you’d like to tell people about the show or what you’re doing?

Herjavec: I would like to point out that we’re all taller and better looking in real life. Except for Mark Cuban, he can’t be taller than he is on TV.

Ho: What do you think about your reputation as being the nice shark?

Herjavec: Absolutely, not true. I often go to the dog pound and make fun of puppies. I think we’re all nice. We all have different moods. I am a very nice guy. I am very empathetic to people because I think it’s such a privilege to be up there. I have no problem in criticizing the idea. I have a hard time trying to criticize the people.  Some of the other sharks are comfortable in criticizing others. I am not.

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