Lahman: 5 big lessons of 'Shark Tank'

On the ABC television show "Shark Tank" (9 p.m. Fridays WHAM-TV, Channel 13) entrepreneurs try to convince investors to take a stake in their business. The "sharks" are a panel of millionaires who've built their own businesses from the ground up, including internet mogul Mark Cuban and Daymond John, founder of the FUBU clothing empire.

It's a lot of fun to watch, but the show also provides some great business lessons that can help other entrepreneurs on their journey to success.

Learn how to pitch

In six seasons, more than 400 entrepreneurs have pitched the sharks, and I'm astonished at how many of them do a lousy job. You need to have an elevator speech, a short story you can tell someone in the time it takes for the elevator to reach the desired floor.

It's not just about being concise. If you can't explain the premise of your business clearly and simply, you probably don't understand it well enough to be successful. Communicating the value of a product is vital to getting investors as much as it is to getting customers.

Rochester's Tim Talley had a great pitch when he appeared on the show in March, convincing Cuban to invest $200,000 in his fashion company.

Know your weaknesses

You might convince yourself that your great idea has no flaws, and that there aren't any obstacles ahead. The sharks will poke holes in that thinking pretty quickly. The questions come rapid fire: How are you going to find customers? How are you going to scale as sales grow? How can you cut manufacturing costs? You may not have a solution to every problem, but you need to know that those challenges exist.

You also need to understand your own personal shortcomings. Maybe you're a great inventor but a lousy salesman. Or perhaps you're clueless when it comes to the day-to-day running of a business. The ability to solve problems, to get help when and where you need it, starts with an honest self-assessment.

Patents are valuable

Is there anything proprietary about what you're doing? That's a question the sharks ask every time, because the obvious concern is that someone else can simply copy your idea.

One entrepreneur pitched a smart phone app to the sharks, and Cuban asked "why would I be better off investing $100,000 with you rather than using that money to hire my own programmers to recreate what you've done?"

Patents are a valuable asset, not just because they can protect your intellectual property, but because they can be licensed to other companies. For investors, the fact that you've been granted a patent gives legitimacy to the claim that your idea is new and unique.

That was key when Farmington's Scott Smith and his partner pitched their water balloon tying gizmo on Shark Tank in May.

It's all about the Benjamins

Shark Kevin O'Leary is fond of telling entrepreneurs "you don't have a business, you have a hobby." When they're struggling to break even without drawing a salary, it's hard to convince an investor like O'Leary that he'll make money, let alone get his original investment back.

At its core, a business is not about selling widgets, it's about generating money. You put cash in at one end and more cash comes out at the other. Innovators are passionate about their ideas, but too often, entrepreneurs are more interested in having a business than making money. You see this when they show reluctance to give up control, to change their vision, or to entertain alternative business models.

The sharks aren't sentimental. They just want to make money.

Have an exit strategy

Many of the entrepreneurs on "Shark Tank" are so obsessed with getting off the ground that they haven't considered where they want to go.

One entrepreneur wanted hundreds of thousands of dollars to buy specialized manufacturing equipment. "That's ridiculous," Daymond John told him. "You need to outsource the manufacturing."

"Better yet," O'Leary interjected, "you license this to one of the four companies that control that market and sit home collecting a royalty check."

Sometimes the exit strategy is a growing, vibrant business. Sometimes it's a licensing deal. Sometimes it's cashing out altogether. A couple who landed a $150,000 investment from Cuban and O'Leary in January sold their company for $14.5 million a few weeks ago.

I love watching the show not because it's fun to watch the entrepreneurs squirm or to see the sharks get into bidding wars, but because its full of great lessons for people trying to start a business.

Sean Lahman's column appears in print on Sundays. Follow him on Twitter @SeanLahman, or reach him at (585) 258-2369.