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I've spent years of studying entrepreneurship and am now involved in a new startup of my own. It might not be surprising, therefore, to learn that I'm addicted to the TV series Shark Tank.
Nearly 400 entrepreneurs have pitched the sharks since the show debuted in 2009. Recently, I set out to study almost every single one of them. I took an afternoon and poured every pitch from the show's first five seasons into a spreadsheet, tagged and analyzed them, and tried to draw some conclusions.
(This column might make more sense if you take a quick look at my chart onCafe.com, which highlights some of the preliminary results of my analysis of 377 pitches that have been made on Shark Tank over the past five years.)
Here's what I learned.
1. Your odds are as good as anyone's.
Let's start by establishing a baseline. Out of 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 percent success rate.
Of course, only a small percentage of entrepreneurs who apply for the show get picked to appear to begin with--0.4 percent, 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 percent of the pitches we tagged in this category were successful.
Granted, there were a number of pitches where the sharks held back because they were wary of getting into a big industry dominated by big players. However, where 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 percent 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 need 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 onShark Tank, with entrepreneurs getting a handshake deal 73 percent of the time. There have 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 percent success rate.
5. Don't be ridiculous.
There have been a fair number of pitches over the first five years that seem at first designed more for comic relief than for 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 percent 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.
7. It's hard to be trendy.
There's a lot of fool's gold in trends. Things move so quickly in business that by the time a new entrepreneur can identify a trend and think of a way to capitalize on it, the trend is often over. That said, while the sample size is small--only five pitches that were tagged primarily as "trendy" -- four of these entrepreneurs managed to leave the show with a handshake deal.
Despite that 80 percent success rate, I worry about people taking the wrong lesson. For every Buggy Beds (capitalizing on fear of bed bugs) with a $250,000 investment and a $1 million valuation, there's a pitch like Broccoli Wad (a money clip capitalizing on the popularity of The Sopranos) with a much smaller $50,000 investment and a $250,000 valuation.
8. Women are better customers than men.
At least when the sharks are involved, entrepreneurs who are seeking to sell primarily to women do better. Pitches that I tagged primarily as targeting women had a 56 percent success rate. Beyond that, products aimed at children did 59 percent and pitches that were tagged as "educational" had a phenomenal 73 percent success rate.
Combining the high success rates of products for women and children with the high success rate for clothing, however, might lead some entrepreneurs to an unfortunate conclusion. I found several instances in which entrepreneurs on Shark Tank wanted to sell maternity clothes. Not a single one was successful.
9. Know your numbers …
I've often found that you can predict whether a business is doomed to fail within about 60 seconds by asking two simple questions: What customer problem are you solving? Why are you the person to solve it?
That second question explains why there is no easier way to get eaten alive on Shark Tank than to walk into the studio looking for an investment of thousands or even millions of dollars, and not be able to articulate basic metrics about your business very quickly. This was a little bit harder to track, but anecdotally it came through time and again.
10. But don't nickel and dime.
Finally, this last lesson also goes back to being able to do simple math -- especially under pressure. Believe me, I understand working to get the best deal possible, and there are some times when an entrepreneur is better off leaving a lopsided deal on the table. (Case in point: Copa di Vino, which even ABC's website describes as the most successful pitch that didn't result in an investment.)
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 a 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.