Negotiation

5 Important Lessons Shark Tank Teaches Us About Negotiation

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Dictionary.com defines negotiation as “mutual discussion and arrangement of the terms of a transaction or agreement."

As a CEO, I negotiate day in and day out. Whether the topic is a business deal or employment terms, negotiation is a process. It's a way to ensure things get done and goals are met. I’ve read countless tips on how to negotiate more effectively.

"Shark Tank" is one of the few shows I watch, and in my humble opinion, many entrepreneurs on the program need to do a better job negotiating with the “sharks.” Sometimes the very savvy investors -- seasoned in the skill of negotiation -- take advantage of the guest business owners. 

Here are five key lessons from past episodes.

1. You’ll never walk away with nothing.

You can learn something new from each negotiation, and meetings with investors are never a waste of time -- even you don’t arrive at a deal. Investors ask thoughtful questions and often challenge you to think about your business beyond the scope you've already defined. These insights and new ways of thinking can be as valuable to growing your business as the negotiation process itself.

It's a mistake to walk into a negotiation with the sole purpose of securing an investment. Keep an open mind, ask questions, and be present to learn. Internalize what the investors have to say, and apply their advice as it makes sense for your business.

When I was fundraising, I left each meeting with plenty of notes to reflect and follow up on. The best investors ask insightful questions that force you to think even harder about your business. Peter Lee, managing partner of Baroda Ventures, grilled me on our product-market fit for a good month before he invested in my company Retention Science. It was worth it. I didn't walk away with a check the first time, but the back-and-forth discussion eventually resulted in a $500,000 check. 

Most entrepreneurs featured on "Shark Tank" fail to land a deal, but putting into action the advice they receive can help them building a stronger and better business. Remember: Even when you secure the investment, you don't leave empty-handed. You always can obtain new ideas to help you grow.

Related: Hustling 101: These 5 Entrepreneurs Negotiated Big Value for Small Money

2. Know your limit.

Before each negotiation, determine how much company equity you're willing to give up. This helps you make decisions and counter offers based on numbers, not emotions. As "Shark Tank" reveals, negotiating can be a very emotional process. Many entrepreneurs get personal and teary-eyed on the show. At the end of the day, knowing your bottom limit can help you avoid the emotional roller coaster.

I shake my head whenever I see entrepreneurs step out of the tank for a few minutes to think about deals on the table -- only to come back and find the sharks either have restructured their offers or withdrawn them altogether. Knowing the lowest possible offer you’ll accept gives you a toehold during a negotiation and can keep you from giving away too much of your company. 

3. Don't get so greedy you ignore a reasonable offer.

It happens quite a bit on "Shark Tank." And when a shark offers a reasonable offer (or even the exact deal the entrepreneur asked for), it doesn’t help to hesitate or shop around. Likewise, you can offend your potential investor and hurt your chances of closing a deal.

This isn’t to say  you should jump at the first offer you receive. But if you've a perfectly good one in hand and you can see yourself working closely with this investor, you should seriously consider it. 

In Season Five, Solomon Fallas of 180Cup asked for $150,000 thousand for 15 percent ownership of his company. Daymond John made an offer right away, asking for 20 percent equity. Instead of taking it, Solomon said he first wanted to hear what the other sharks had to say.

Big mistake. After Solomon's spiel, all the other sharks told him they were out. Solomon had to appeal to Daymond to put a deal back on the table. By this time, Daymond already had revised his offer -- and took an additional 5 percent equity. Solomon had no choice but to accept $150,000 and 25 percent equity. 

It's probably the fastest 5 percent of company ownership Solomon ever has lost. As an entrepreneur, I felt his pain. 

Related: Instead of Always Aiming to Win, Agree to Agree

4. Investors back people, not just companies. 

It's an obvious but often forgotten fact: You're not pitching only a business, you're pitching yourself. You might have a great product, but if you appear difficult to work with, you’ll be hard-pressed to find an investor willing to make an offer.

Be authentic and genuine. Show investors your best qualities. Convince them you’re worth the money. That’s exactly what Kim Nelson of Daisy Cakes did. Nelson said she had the best cakes the sharks had ever tasted, and she was right. Each one of them gobbled up her product. Unfortunately, she couldn’t convince them her business was worth the investment. Everyone except Barbara Corcoran passed, saying Daisy Cakes just wasn’t a big enough business for them.

Corcoran had the same reservation, but made an offer anyway. She believed in product, and more import, she believed in Nelson. The other sharks thought she was nuts. One went so far as to call her a "crazy chick." Corcoran didn't blink. "Not at all," she replied. "I'm going to get my money back. This girl's a hustler."

Corcoran was right. Not only did she recover her capital in three weeks, Daisy Cakes went on to become one of her best investments.

Related: Personal Styles of 10 Successful Entrepreneurs

5. Keep your cool.

It’s very common to disagree during a negotiation. And while there’s nothing wrong with standing your ground, getting hotheaded is a different story. Stick to you guns -- with respect. Many entrepreneurs on "Shark Tank" take offense when they're challenged by tough questions about market size, pricing strategies or other specifics. Others lost their cool when sharks disagreed with their vision. 

Consider what happened to Scott Jordan of TEC (Technology Enabled Clothing). Jordan already had built a successful business that caught the sharks' attention. But he got into a heated argument about patents and licensing, ultimately telling the sharks, "You're out!" Needless to say, he didn’t close the deal.