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Shark Tank: Enter At Your Own Risk

20061106_wolf_0014If you have ever seen the ABC show “Shark Tank” then I am sure that you have noticed that sometimes the negotiations can get very tense. In certain cases the presenter sometimes gets overwhelmed or feels that they need to consult an advisor not in the room because the negotiations have not gone according to plan (when do they really ever?) Sometimes the sharks warn the entrepreneurs that if they leave the room the offer will be gone once they come back. However, something else to watch out for is collusion by the sharks. Leaving the room allows for the sharks to talk freely and it may lead to a monopsony where they bid the price down. In the shark tank the buyers usually have the power over the producer because the entrepreneurs are in a vulnerable position. The entrepreneurs must admit to the sharks why they need the investment and many times that is because their business is suffering. This gives the edge to the sharks in the negotiations.

At the same time by appearing on the television show the entrepreneurs on shark tank are effectively buying informative advertising space on a major network that reaches a broad range of viewers. It is a popular platform that relays qualitative information about their, usually, unique product. This is advertising that the small business would not have access to in any other way.

There are many valuable business lessons to be learned by watching or appearing on shark tank but it is also not true to life. Many venture capitalists do not like Shark Tank because they do not believe that these auction type situations are the best way to build a sustainable business. In this same way the Shark Tank is not reality; collusion may be illegal in real life but in the tank anything goes. Overall the Shark Tank is an interesting case study to observe venture capital business negotiations where there are not as many regulations as in the actual marketplace.

2 Comments

  1. grieve

    I have watched Shark Tank a few times before, and I think its an entertaining and interesting show. One thing I have been curious about, however, is the nature of the deals made on the show and whether or not they are binding. The fact that negotiations are on a strict time limit and usually both the Sharks and the Entrepreneurs need to make their decisions in under ten minutes seems a little stretched, even considering that most of the Sharks are billionaires and have expendable income. I would just love to know whether further negotiations take place behind closed doors after the show, or if it really is just a snap decision and a binding handshake.

    • strauss

      From what I found online, it seems that what we see on TV is fairly accurate. The pitches may be 30 minutes to 2.5 hours long and obviously must be edited for time, but Cuban says the negotiating process is real in an interview with Business Insider. He also said that he closes 60% to 70% of the deals he makes on the show, but those that don’t close seem to fail because of other information that comes up. Source- http://www.businessinsider.com/mark-cuban-what-shark-tank-is-like-behind-the-scenes-2014-3

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