February 27/March 6, 2017: Volume 31, Issue 19
By Lisbeth Calandrino
You can learn a lot about the art of negotiating by watching the TV show “Shark Tank.” If you’ve never watched the program, here’s a brief synopsis: Fledgling entrepreneurs pitch their business ideas to a panel of self-made millionaires or “sharks” on a reality TV show. The entrepreneurs negotiate with the sharks to obtain money in exchange for a piece of their new company. In addition to working capital, the business owner has access to the sharks’ valuable connections and insight.
Hard-hitting and serious, the sharks go in for the kill, asking numerous questions about the entrepreneur’s business. Questions range from estimated sales projections to net profit and start-up capital. Conflicts often ensue when the sharks ask pointed questions business owners can’t answer. (Why aren’t they better prepared?) Far too many entrepreneurs cave in, forgetting why they are on the show while being grilled. Most owners have an unrealistic value of their business, expect more cash than the business is really worth and don’t know their actual sales numbers.
The common denominator and part of the show’s appeal is both entrepreneurs and sharks want to make a deal. Each episode focuses on key questions such as: Who do you think is believable and why? How are power and influence expressed? What behaviors indicate strength and a true understanding of negotiation?
Each episode has an important lesson. Floor covering RSAs and business owners stand to gain insight from those probing questions and others, including: What is missing in the entrepreneur’s pitch? Do the entrepreneurs understand basic terms such as net profit vs. gross profit? Do they know if they’ve actually made any money?
Furthermore, what does body language, a powerful indicator, tell you about the presenters? Can they stand still during their presentation or are they fidgeting? Do they maintain eye contact? During a sales presentation it’s important to hold the attention of the buyer. What is inhibiting a successful outcome for the entrepreneur? How does it relate to your personal presentations?
Other questions: How important is likeability in the negotiation? Do likeable entrepreneurs get more offers? Is likeability more important than expertise? Does it get you a better shot at closing the deal?
Is the seller being greedy? The seller often walks away after he decides he’s giving too much away. Is it better to hold on to 100% of something going nowhere, or 80% of something with an influx of needed working capital and a good possibility of getting to the marketplace? Or perhaps it is better to take the deal and get to market before someone knocks off your product and you’re left with nothing.
Is the seller hard to work with? In the end, many of the deals are ditched by the sharks because the owner is difficult, and it’s clear they won’t take direction from the investor. The investors have solid track records, but if the entrepreneur isn’t willing to listen then what’s the point? Who wants to invest substantial sums of cash with someone who won’t listen? The expertise of the sharks is a least as valuable as the investment.
The show demonstrates why it’s so important to remain cool during the negotiation process. It’s easy to get rattled when faced with sharks.
For those contestants who don’t win the sale, there are still valuable takeaways. For example, where did the negotiation go wrong? Was it the right deal for both parties? More importantly, what do you think could have been improved to achieve the desired outcome?