During its first five seasons, nearly 400 entrepreneurs have appeared on Shark Tank to pitch their ideas. In honor of the sixth season premiere, I analyzed every single one of them and found key lessons for anyone who wants to be successful.
- Your Odds Are As Good As Anyone’s.
Let’s start by establishing a baseline. Of the 377 pitches that I reviewed, 185 were successful–meaning that the entrepreneurs on the show reached a handshake deal with at least one Shark to invest in their company. That works out to a pretty amazing 49 per cent success rate.
Of course, only a small percentage of entrepreneurs who apply for the show get picked to appear to begin with–0.4 per cent, according to the show’s producers. Even after a deal appears to be struck, there is usually an intense due diligence process that kills many–maybe even a majority–of deals.
2. Bigger Markets Are Better.
I used seven categories to characterize each of the entrepreneur’s pitches, and the most consistent predictor of success was “mass market.” An amazing 78 per cent of the pitches we tagged in this category were successful.
Granted, there were a number of pitches that the Sharks rejected because they were wary of getting into a big industry dominated by big players. However, when all else is equal, the Sharks wanted to see massive potential for growth. If you don’t have a big potential market, that’s hard to demonstrate.
3. Don’t Get Too Far Ahead Of The Customer.
Wannabe entrepreneurs often make a common mistake: They try to come up with a product idea that is actually too far ahead of the competition. The problem is that by doing so, you can get too far ahead of your customer as well.
Another way to look at this is that contrary to stubborn perception, real entrepreneurs and investors don’t like risk. These kinds of risky pitches were often tagged as “niche” in my analysis, and they were successful only 23 per cent of the time.
4. Customer Needs Beat Customer Wants.
We’ve already seen that mass-market categories do best on Shark Tank, but it turns out that some specific mass-market categories do better than others. What do they have in common? The customer needs they help solve has more to do with an actual “need” than a mere “want.”
Case in point: clothing, which is one of the most consistently successful categories on Shark Tank, with entrepreneurs getting a handshake deal 73 per cent of the time. There has also been a heck of a lot of pitches for food, alcohol, and other related products–65 by my count. Those do better than average as well, with about a 55 per cent success rate.
5. Don’t Be Ridiculous.
There have been a fair number of pitches over the first five years that at first seem designed more for comic relief than as a serious attempt to get a Shark to invest. Unsurprisingly, they are rarely successful. Pitches whose primary tag was “just plain weird” were successful only 11 per cent of the time.
You can imagine that some of these pitches–things like the guy who wanted to surgically implant Bluetooth devices in people’s heads, or the entrepreneur who said he could generate energy by harnessing the earth’s rotation (while mining gold and producing fresh drinking water as byproducts)–seem like they got on the show because they’re fun television stunts.
However, if you don’t think there are many entrepreneurs out there trying to pitch similarly crazy ideas, let me give you a tour of my email inbox sometime.
6. Focus On The Customer, Not On Yourself.
It’s hard to overstate this. Sometimes, some of the Sharks can appear on the show to have soft hearts, especially when they see entrepreneurs who are incredibly passionate about their products and have already overcome long odds to keep their dreams afloat.
When it comes time to make a deal, however, an entrepreneur’s personal story is really only compelling if it demonstrates that he or she has a compelling insight into customer needs.
The show’s recent season premiere had a perfect example of this. An entrepreneur, named Michael Elliott, who had an incredibly compelling personal story–he’d been a ward of the state as a child, lived on the streets for a while, and ultimately became a successful magazine writer and screenwriter–,clearly earned the Sharks’ respect. However, when it came time to make a deal on his Hammer Nails “nail shop for guys,” there were no offers to be found.
The Bottom Line
That said, there are many instances in which negotiations on Shark Tank get caught up in a tense back-and-forth over what is really phantom equity–sometimes to the point of killing the deal on air. Moreover, you have to suspect that many of the deals that get killed after the show is over are the same ones in which the negotiations are toughest on air. Both on Shark Tank and in real life, a contentious tone during the deal can make working together later more difficult, too.