For the past 10 years I’ve been watching “Shark Tank.” Along with The Profit, it’s one of my favorite shows. I’ve even tried to watch some of the international versions (which are unwatchable.) After 10 years of episodes and together with my experiences as an investor and startup advisor, judge of business plan competitions and my own entrepreneur experiences since 1997, I see entrepreneurs making the same mistakes over and over. Many of which I’ve made myself. Mistakes that either kill their chance at funding or outright kill the business.
Here’s my list of common startup mistakes we see on Shark Tank. Add yours in the comments section at the bottom.
Unrealistically valuing the business
Every entrepreneur falls in love with their business. It’s natural and expected. It’s their creation. It’s also the reason that startup founders over value their businesses.
One of the reasons for over valuation is that many founders confuse cost with value. We see it all the time. A founder says something like, “I’ve spent 6 years and $500,000 working on this idea, so I know it’s worth at least $500,000.” In the meantime, they have no sales and their product is completely stupid. Development may have cost $500,000, but that doesn’t mean it’s worth that much. (It also means Karl Marx’s Labor Theory of Value is flawed.) It just mean they wasted that money by not properly testing the product in the market or by developing an Minimum Valuable Product (MVP). (See: Will anyone buy your new product?)
Or as Warren Buffett would put it:
“Price is what you pay. Value is what you get.”
Having an unrealistic idea of valuation prevents a lot of sharks from doing a deal. I believe it’s partly because their investment would actually be worth a lot less than the founder estimates, but also because it reduces the founder’s credibility. Being able to look at your company objectively, can put you miles ahead of everyone else.
If he or she doesn’t have a realistic view of their business valuation, what else are they delusional about?
Not knowing the numbers
Second to valuation, is not knowing your numbers. A startup founder who doesn’t know their numbers is seen to not have a good handle on the rest of their business. If you don’t know what’s happening in all areas of your business, that means you’re not as involved in the details as you need to be. Even if you have a great team, it’s important to know what’s happening in the business. Not knowing your numbers shows that you don’t pay attention.
As famed management consultant Peter Drucker put it, “What gets measured, get managed.” If you aren’t measuring it or paying attention to the numbers, then it’s difficult to effectively manage it.
Underestimating the competition
As a judge in business plan competitions for MBA students I get to see all sorts of ideas, some good and most bad. A few years ago a team of students had an idea of software that would compete with Google and put them out of business in a few short years. What was their genius idea? Well, they were going to do pretty much the same thing that Google does, but do it better.
While I applaud their audacity, it’s ridiculous and dangerous to severely underestimate your competition like that. Being self-aware enough to check yourself and be realistic about your available resources is an important trait for an entrepreneur. I’m all for disruption, but the best disruptors are the ones who are realistic about what can be done and focus on their strengths and the opportunities in the market.
Lack of focus
In a video called The Entrepreneur’s Curse, I talk about the downsides of always having a lot of ideas. Lacking focus can be a serious drag in a business. The myth of multitasking has been widely debunked and research shows that focusing on one or two tasks or projects is much more effective than trying to do everything and being all things to all people. More often than not, having fewer options is the best option, as I explored in Overwhelm: Why having fewer options is better for everyone.
Not taking the deal
If you had the opportunity to work with a highly successful mentor, who was also willing to invest in you, would you do it? What if that mentor was also a famous billionaire who has contacts and reach beyond what you can even imagine?
Naw. I’m good. I sold $200,000 of product when my video went viral by chance. I’ve got this.
That’s the tone of the entrepreneurs who drive me nuts on Shark Tank. Often when I’m watching the show, I find myself mumbling to myself, “If he doesn’t take this deal, he’s a moron.” Even if the terms are steep, the opportunities that potentially open up working with one of the Sharks is well worth the price, in my opinion. Even if it tanks, you’ve made some very valuable contacts for your next venture.
Once upon a time, I gave some advice to a startup founder who was planning to take on 3 major industries and 3 billion dollar corporations all at once, nationwide. I advised him to focus on a small niche in his local area and conquer that first. Then, once he has some traction, he could expand geographically and into different areas.
He declined to take my advice. So where’s his company now? It never got off the ground.
He had a lot of confidence, but not enough experience to back up that confidence. Being an entrepreneur takes humility. Having some humility to know that you shouldn’t take on the world all at once or you’ll get squashed, is something lacking in modern entrepreneurship. We’re all taught that we can be anything we want when we grow up. That’s partially true. We can be some of the things we want. Even legendary startup founders started out small and gradually built their companies over years and decades, many small victories at a time.
So there are some of the things that frustrate me about entrepreneurs on Shark Tank. I feel better after venting. What are some of the things that drive you crazy about the show? Share your comments and vent in the comments section below.
For more articles about entrepreneurship, go to the Startup section.