Business Lessons from Shark Tank

There were numerous business lessons to glean from last night’s episode of Shark Tank. The episode was was exciting featuring opportunities with live puppies, hard bodies and algae and a fishing tool for The Sharks. View the episode online >>>

If you are not in the know about ABC’s Shark Tank, here is a description by Business 2 Community

Subscription Model Business Lessons

Mister Wonderful questioned the $2.5 million valuation of the monthy-subscription puppy box enterprise, but still put in an offer. Mark Cuban said he does not like the subscription model, giving no explanation why, but he was out. Despite, the remaining sharks enter into a competitive frenzy ending up with a lone shark, Kevin getting up, removing himself from the frenzy and putting himself in the winner’s circle, sealing the deal with PupBox.

• How do you calculate a valuation? The valuation is a function of the amount money requested and the percentage interest in the company.  A $100,000 request for money with a 10% ownership in the company means the valuation is $100,000.
• Subscription business models are touted to be very successful online so diligence is needed here if you are considering that model. None the less Mark knows his boundaries, has a plan and he works his plan.
• Sometimes the winner has to stake their claim. The deal was here for the making. The entrepreneurs were confused or entertained but none the less distracted and not in a power position of making decisions so Kevin stepped up and made it. His gesture won him the deal because he stood out by going the extra step.

Brand and Advertising Business Lessons

All The Sharks were delighted by the enthusiasm and energy of the dynamic lady who branded green algae as EnergyBits.  Kevin liked the taste and the others were less enthusiastic even saying that it tasted like pond scum. However, they are meant to be swallowed! One product was labeled SkinnyBits. Lori inquired about the weight loss implication by the name and the business owner stated they make no claims as such. This disparity was distasteful to Lori. This venture did not get funded.

• A point made by the EnergyBits owner was that people buy things with a brand was affirmed by The Sharks.
• With respect to this being a competitive edge for EnergyBits, not so according to The Sharks. This packaged algae had a brand attached to it, true but it is exactly the same algae that is in other products that have been around for years!
• The business lesson here is that even though there is a brand. There was nothing proprietary, nothing to protect from copying and hence nothing to invest in.
• A brand is valuable only if it has a successful proprietary product that is protected from knock offs.
• Product names and packaging can be misleading and is not good business.

Lessons about  the Clothing Business

The “American Made Athletic Fit Denim” jeans Barbells are a compelling product. Despite the skepticisms about its valuation, the lively rally of inquiries from the entertained Sharks ensued.

Cuban says “it’s not the multiple that matters, but the growth”- Barbells is “averaging 100 percent year-over-year growth rate with online sales”.  And the proven customer interest was demonstrated by their incredibly successful Kickstarter campaign. They reach their goal in just “40 minutes!” They ultimately “cleared over $700,000”.

Daymond revealed a business lesson when he said he does not invest in denim. Why? it is too durable and gets better with age and he likes to invest in things that people need to replace every 3 months such as yoga wear. In other words, lycra wears out.

• While durability is great for a customer, it is not necessarily a product characteristic that will be attractive to an investor.
• There is big competition in the clothing industry.
• Having a brand and demand is a good start, likely a great small business but may not be investment worthy.

Hobby Turns a Big Business Idea

A truly impressive story that demonstrates what entrepreneurship is made of, is the story of LineCutterz. The innovator, a lifelong fisherman, turned his understanding of the needs of fishermen into a product that is simple, sexy and successful!  The product is essentially function “fishing jewerlry” that is a very simple to use and effective line cutter! He got funded and he got an incredible Shark for a partner, Daymond, who really believed in the product and return on investment potential.

• A hobby can be a  fertile niche for inventive produce – solution ideas.
• The LineCutterz solves a problem / satisfies a need.
• This entrepreneur (and his family) put everything they had (sold their home and moved into parents house) into the product and business. This can be what is takes for success. This as a demonstration of faith in your dream is appealing to an investor rather just trying to get someone else to believe in it.
• Choosing independent retail with a product versus selling out to big box stores is a big decision to make. One Shark, Cuban, praised him for his loyalty and fair play in the commercial game. Mr Wonderful had experience behind his point that bigger players in the retail game, like Walmart, might have market information to support dropping the sale price and going for volume sales.

Get Hooked on Shark Tank

The Shark tank is an educational and fun show for “wantrepreneurs” and entrepreneurs alike. Valuable business lessons can be gleaned from the negotiations. Some have fun, some become chum, just like in the game of business.