Posted by: Contributing columnist, Clarion-Ledger, Business, June 9, 2016
Last week I talked about why ABC’s “Shark Tank” has brought investing in start-ups to the
public stage in a dramatic way, and I explored a few ways that the show is different from real-world entrepreneurship.
Among other things, I mentioned how many entrepreneurs want to be on the show because of the huge audience and not necessarily because of potential investment. I’ll continue the theme of differences between the show and real life next week. This week I want to focus on some very important similarities between the entrepreneurs and investors we work with at Innovate Mississippi and the ones on the show.
One key element of similarity to the real world that is very clear to anyone watching the show is how investors seem to gravitate toward areas of investment that they know well and generally avoid areas that are outside of their expertise and experience. Because each of the “sharks” on the show has a very different background, this becomes pretty obvious on the show, and frequent viewers have probably noticed that one or more of the investors on the show will immediately declare, “I’m out” while simply saying this isn’t an area they invest in.
Investors want to know what the pitching company’s “unfair advantage” is in the marketplace, so it completely makes sense that they gravitate toward industries they know well. That enables them to be able to validate the market from personal experience and not have to rely on outside information to demonstrate a market need, the advantages of the product or whatever strategic advantage the entrepreneur is pitching. This is a critical consideration for entrepreneurs so that they pitch to investors who invest in their industry and don’t waste their time or the time of the investors. There are a few investors who will invest in anything, but almost all of the successful ones stick to areas they know well. Entrepreneurs need to know the investors they are pitching to well enough to focus their efforts on those that fit.
TONY JEFF: ‘Shark Tank’ vs. real world entrepreneurship
Another, somewhat more subtle point is how entrepreneurs on “Shark Tank” often seem to be looking for just money but the investors are almost always looking for deals that they can assist through more than just money. The savvy entrepreneurs on the show don’t make this mistake, but just like in real life, many entrepreneurs pitching on the show seem to take the approach that all they need is money — from any source — and they are set. Meanwhile the investors often make their assistance and connections a part of the offer they make — with only the most sophisticated entrepreneurs realizing that this is probably worth more than the money offered.
Good real-world evidence of this comes from the occasional experiences we’ve had when a sophisticated investor picks a company in which to invest that leaves us scratching our heads. The company is a good company with good management and good ideas, but nothing that really stands out from half a dozen other companies. What becomes obvious pretty quickly, though, is that the investor made the investment in order to connect the company with the investor’s connections and experience.
TONY JEFF: Technology startup keys to success
The same thing happens on the show. Whether it’s Mark Cuban or Robert Herjavec for technology or Lori Greiner and Daymond John for retail, an investment from the right shark isn’t just about getting the money. It can also be the difference in getting connected or sitting on the outside looking in. There are lots of great products that never get the traction they need, and many of them wouldn’t get that traction even with lots of marketing. The right connections can make all the difference, though, so getting the right investor who also brings those connections is a huge opportunity for an entrepreneur. Savvy entrepreneurs focus on the value of these connections — whether on TV or not.
I mentioned before how “Shark Tank” has been valuable for would-be entrepreneurs and even would-be investors, so I hope that each of them is able to take value from the opportunity to see so many entrepreneurs making their pitches on the show. We’ll explore the last of the differences between “Shark Tank” and real-world entrepreneurship next week, so if you’re not familiar with the show, please check it out and come back for next week’s article.
Tony Jeff is the president and CEO of Innovate Mississippi. He can be reached at tjeff@innovate.ms.