Shark Tank’s Robert Herjavec: Here’s How to Impress An Investor

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1:33There's no safe like SimpliSafe. From Entrepreneur Media, this is Problem Solvers, a show that solves entrepreneurs' toughest problems. I'm Jason Pfeiffer, Editor-in-Chief of Entrepreneur Magazine, and each week I take a problem that you're probably dealing with and get tactical solutions from people who have been there and solved that. So let's get solving. I have been watching Shark Tank for years and years. I don't even know how long. I watch every episode. And so it was really fun this past summer to interview Robert from Shark Tank, Robert Herjavec. He and I were on stage at a entrepreneur event called Level Up.

2:10Super fun. He was interesting and tactical, had a deep and passionate knowledge of sales and operations, but he was also inspirational and motivating. And when our conversation was done, Robert and I walked backstage and there waiting for us was Robert's fellow shark, Damon John, because Damon and I were going to go on stage and talk next. But before we did, Damon grabbed Robert and he said, Robert, I have never heard you talk like that. You don't talk like that on the show. I had no idea you could talk like that. And it was true really, as I thought about it because I also had no idea. On the show, Robert is friendly and warm and insightful, but he's not the tactical wizard that he is in real life.

2:56I guess there's just no time for that on the show. There's no space for him to dig into that kind of stuff. And the show, I realized, is only a small glimpse into what the sharks are truly capable of. And come to think of it, most people probably don't know all that much about Robert at all beyond that he is a famous investor. Because unlike Mark Cuban, who owned the Dallas Mavericks, or Damon John, who founded FUBU, Robert made his fortune doing something that most people consider boring. He built a huge cybersecurity firm. Then he was cast on a show called Dragon's Den, which was the Canadian predecessor to Shark Tank, and he actually nearly quit the show after one season.

3:41You'll find out more about that later. But anyway, the point is, people know Robert as a famous investor, but they almost didn't know him at all. And today, most people certainly don't know him as the true business tactician that he is. But if you spend even just a few minutes talking to him, you will. Trust me. Because everything he says is interesting. Like, for example, Robert and I spoke on stage, and then he flew back home to Australia. And we set up a time to talk by Zoom so that I could do a more focused interview with him for the cover of Entrepreneur Magazine. You can find that issue on Stans Now, by the way.

4:15So we hop on Zoom and somehow within like two minutes, we are having a conversation about what value is actually being sold when you sell something. Are you selling the perception of value or are you selling actual tactical value? and i said wait a second hold up i need to just start recording us and then well then we're in it okay so sorry so keep going so tangible yeah so we were yeah so i was talking to a couple of companies i'm working with them what we're talking about is the sales process and what is value and i always believe when customers say to you i don't get enough value it's really a bit of a cop-out because value is such a big word.

4:59You know, the analogy I use is, it reminded me so much of my high school days when I would ask somebody out and they would say, I'm washing my hair. You know, they weren't really washing their hair. It was just an easy way. So when a customer says to you, I don't see enough value, it's masking a deeper problem that you've got to dig into. And so we got into this discussion about tangible value and perceptive value. Intangible value is hard. It's something I can prove to you. Look at this versus that. Perceptive value is the Birkenback. It's the genius of Hermes creating demand for a perceived handbag where the cost of goods is very basic.

5:48So the question is, in the sales process at the beginning, what's more important? Perceptive value or tangible value? It's a fun and interesting question, isn't it? And I came up with an answer on the fly and shared it with Robert, who, of course, had fascinating things to say. And that was just the start. In this conversation, we dig into sales. We dig into investment. He details what he looks for when he's considering investing in a company and really, frankly, what all the sharks and what all investors are thinking and how to really appeal to them. And let us now undercut that idea, how possibly, perhaps even likely, you shouldn't even try.

6:33This is a really fun conversation. And I'm just giving it to you in this kind of raw, unfiltered way. I took this conversation and I wrote a profile of Robert, which you can find in the magazine. Again, just go find the Entrepreneur Magazine edition with Robert on the cover right now at newsstands. But you can also just hear what we talked about and how that conversation flowed and the wonderful, insightful, helpful things that he has to say for any entrepreneur. That is what's coming up today on Problem Solvers right after the break. all right we're back i am talking today with robert herjevic of shark tank and this is the conversation that led to the profile that i wrote of him in the current issue of the magazine but let's just jump back into it right before the break he had laid out this question of perceived value versus actual value what is being sold at the very beginning of a sales process and here was my answer to that question?

7:35That's such an interesting thought. I bet you have a really smart answer to it. I've had all of three seconds to think about it. So let me just take a stab and then see what you make of my answer. I want to tell you a few things. Number one is, as you were talking about the Birkin bag, I made a connection in my head that I had never done before, which is between perceptive value and network effects, which is to say, you know, like the network effect for a company, for those who don't know, is a product becomes more valuable the more people use it. Tinder is not very useful unless lots of people are using Tinder.

8:11It doesn't matter how good the UX is. If a lot of people aren't using it, it is useless. So the network effect has to be there. And there's something interesting about the network effect as you apply it to a physical good that has a perceptive value. Like a Birkin bag is not actually that impressive unless the kind of people that you want to be already have the Birkin bag. And so in that way, you almost need to approach it in a completely different kind of sales cycle to make the Birkin bag valuable is to not sell the Birkin bag originally, but actually just make sure that the right people have it.

8:50And then once the right people have it, the perceived value of it goes up. And then you can start to sell it to the right people, but you have to maintain a strict control over who gets it. Because if the wrong people get it, then the perceptive value goes down because the value is now tied to perception. Whereas tangible value is provable and has a completely different kind of sales pattern to it. that is about convincing people that it can provide the benefit that they're seeking. And I would imagine that is a easier thing to do upfront because you can do it for free or at a lower cost and just get it into people's hands.

9:35And at that point, it's not about restricting access to it. For tangible value, you don't want the right people to have access to it. You want as many people to have access to it as possible, which means that you don't actually have to be nearly as judicious about who has access to it. So anyway, that is a long way of saying that I think that tangible value is easier to sell than perceptive value. What do you think? So you said something which I hadn't thought of before, which has been that work effect. So I think the caveat, and I think this is what makes entrepreneurship so hard, great entrepreneurs are very comfortable living in gray.

10:11yeah you know i think most people that have never started a business see it very binary the answer is either black or white but i think the answer is it depends who you're selling to yeah if you're trying to create a product as you said to network effect then your tangible value has to be so clear that a consumer can clearly see it when i log on i clearly see the difference in your product versus a different product. The challenge, so I would say, if you're selling that kind of a product, an online content product, a feature set that you're selling online, tangible value has to be very hard, very demonstrable, and very easy to ascertain.

10:58Yeah. If you're doing enterprise sales or you're trying to call on customers, I think perceptive value is more important because of the noise effect, meaning all your competitors are going to say their value is just as great. You know, it's like I always just say to people is our competitors are not going to our customers and saying we suck. Go with that. Yeah. And so I think in that sales cycle, the first step is cutting through the noise. and for them to see your tangible value they actually have to want to listen to you and the first step when you call a customer in that environment is they don't want to listen to you they want to get off the phone right which then brings up the shock the narrative idea which i have to tell you is the number one thing that came out of those two days at vegas for me the phrase shock the narrative and the way in which you described it and that story that you told about the young sales guy and and how you had him change the way that he was connecting with like i have repeated that at dinners uh at least five times since we talked it was just a really sharp insight i completely forgot i said that that is so true it's so true though but if you about today how much input do we get right all kinds of sources and then it's like i tell people on shark tech like we're sitting there jason 12 hour days pitchers are coming in we're super excited to be there the first day by the second day we're more thinking about lunch than we are about who's coming in next and then you come in people always think that we are super excited to see you the reality subconsciously we're really not so it's your responsibility to get me to listen it's we had a i forget whether it was a lady or a man come in a few years ago and they said to us you're not listening to me and i think and i think we were probably a little rusty as Kevin says, and tired.

13:23And I said to him, hang on a second. It's not my responsibility to listen to you. It's your responsibility to make yourself heard. What an important distinction. It's so true. But don't you think most entrepreneurs, assuming that if you have a better feature set, the world is going to listen to you. You've got to make yourself be heard. the president of Reebok once told me this thing that that i think about so often which is that quality doesn't matter and that's not to say quality doesn't matter in that you can sell a crappy product but rather that quality by itself doesn't sell itself because quality has to be assumed the consumer assumes that everything is good he used a pair of scissors as an example he said, you can't market a pair of scissors as the sharpest scissors.

14:16Every pair of scissors is the sharpest scissors, you know? So like, it has to be something else. That is where storytelling, that is where connecting to your consumer, understanding your consumer, building a brand that people want to be a part of, like, that's where all that comes into play. And that is, and to me, Robert, I have internalized that in this way. I feel like every entrepreneur should walk around with a really healthy anxiety. I have this for myself, just a really healthy anxiety that nobody is paying attention and that people will be overlooking you constantly and that you need to be always making your case for relevancy, not waving your hands and just trying to grab those attention, but like making your case for relevancy.

15:04There's a, you know, Giorgio Armani he just passed away. And I was a huge fan, not necessarily of the clothes, which were beautiful. And I first came across him when he did that movie, American Gigolo with Richard Gere. And it was just this iconic, and I was a young kid and it was very aspirational to me, not to be a gigolo obviously, but just the clothes and the lifestyle and the beauty of it. And I was this geeky kid in high school and I'm like, wow. But there was an interview he did years ago and he said, I live in a constant state of anxiety and frustration because I see the world for what I could make it and what it could be and not for what it is.

15:48And I think it goes to what you just said is you have to have a certain level of anxiety, urgency, frustration, because if you wake up every day and everything is great, then what are you going to change? Right. What's the incentive to do anything right hey hey robert when you first started with shark tank did you have an idea of how the things that you had learned in building in cyber security could transfer to these completely random wide range of industries like the right the way in which you talk now is so fluent in business philosophy that could apply to everybody. But I'm curious if that was a transition for you coming in from one space, and then basically being asked to invest in like silly sweaters, which had to be so strange at first.

16:52So the answer is no. And when I first started. So Kevin and I started the same day and the show started in Canada and became a massive hit there. And then we brought it to the States and I did the show for one year. And you have to keep in mind, I'm an enterprise sales guy, right? That's my entire background since I'm 20 years old. I mean, we sell to multi-billion dollar companies. It's very serious cybersecurity stuff. i'm very very technical i do the show for a year and i'm thinking what am i doing here like like these people are pitching socks what do i know about socks yeah so i actually with the show after the first year no the canadian version or the canadian version oh my gosh 20 22 two years ago.

17:47And I said, you know, I don't know anything about these industries. And so, Kevin takes me out for dinner, and he says to me, there are two things I'm going to say to you, but let me start with saying, you're an idiot. The first thing he says is, this show is going to be huge. And I have to give him the credit, all the credit in the world, because nobody, including the producers at the time, thought that was going to be the case. The genius of Kevin was he realized we are not tapping into a business show. We're tapping into people's dreams and aspirations. The second thing he said to me is, you have to let go of the subject matter.

18:38You have to focus on the execution of the dream. And I thought about that and I realized in starting a business, there is certain execution steps that you do. You have to have an idea, you have to sell, you have to market, you have to raise money like none of those things are related necessarily to the subject matter you know somewhere along the way you have to be great at your craft but so much of what we do applies to so many businesses and then i became good at that but the guy who really changed it around for me was Mark Burnett. When we did the U.S. show, we weren't seeing many hardcore cybersecurity enterprise pitches.

19:32I'm not sure I've seen one of them. So I take Mark Burnett out for dinner and I said, Mark, I'm a serious business guy. Why aren't we seeing serious businesses? And Mark looks at me and says, Robert, you seem like a very nice guy, but what you do is really boring to the average American consumer. you're missing the point of the show. Shark Tank is a platform. We're an accelerant for great ideas and great businesses to reach a wider audience. So forget the cybersecurity stuff and focus on how you got there. And I really believe in that. I really think that in order to start a great business, the entrepreneur first has to work on themselves.

20:22you know, show me a small business that's in trouble. I'll show you an entrepreneur that's in trouble. Show me a great small business and I'll show you an entrepreneur that has their shit together. Right. And so I think all those things apply to any business. Let's take that insight and just flip the perspective a little bit because, okay, so you're this very serious business person knows enterprise sales. And now you're sitting down, you're listening to these pitches from all sorts of crazy, usually consumer facing industries, very small businesses. And at first you're thinking, this is not for me.

21:03And then you come to understand it. The flip side mismatch of that is that, and I feel like this is something that people don't really appreciate if they're coming from outside of business, which is that most of the people who are on Shark Tank outside of a television situation have absolutely no business pitching their businesses to the kinds of investors that you guys are, right? I mean, it's just not what happens in the real world. You don't generally make like a potato that you send to the mail and then bring it in front of these kinds of businesses. You just don't. So that, I think, number one, I'm curious to hear your thoughts on like the story that people should understand about what businesses actually require investment.

21:47Because Shark Tank, it's an amazing show, and it is a story about real dreams, but it is also a story about what it takes to build a company. And I worry that the world of entrepreneurs sometimes thinks they need investors when they don't. Wow. Jason, such a great point. A little bit of Shark Tank behind the scenes. In our second or third seasons, we had these great businesses come on, and Mark and I would look at them and we would say, hey man, you're on the right path. You don't need a shark. And so nobody would invest. And so two or three pitches go by and the producers are like, okay, time out.

22:32they send us down and they say okay sharks you're missing the point of the show people are coming to get an investment and that's what i always remind people is we are a tv show right the premise is you come on asking for money and we invest the only downside of shark tank The only downside is I sometimes worry, to your point, that's what we tell people. Right. Is you can't start a business without an investor. And it's so not true. If you have a great business, very few businesses need funding. Businesses don't fail because of lack of funding. Businesses typically fail because of lack of market acceptance.

23:26And so the idea of Shark Tank is every business needs an investor. And it's simply not true. Well, I think what we're trying to teach people is in order to get an investor, you have to be at a certain size. You have to have certain characteristics. And you're going to get asked these questions. So even if you're making a potato peeler toy or you're making a serious business, the investors are typically going to ask you the same set of questions. And that is the genius of Shark Tank. How many people in America get to be in the room when people like us are asking those questions? And I think before Shark Tank, nobody ever had access to that.

24:14What person starting a stock company would see how five sophisticated investors would value a product or value a business and what questions they would ask? So even though not all businesses may need the investment, there's a discipline in being able to answer the questions that investors are going to ask you. Can you unpack that a little bit more? Because the next thing that I was going to ask was what your guidance is for those entrepreneurs as they first seek that investment. The ones that, first of all, have done some kind of assessment, which maybe you have some guidance on about whether or not they are even a business that is ready for or appropriately should seek an investor.

25:00But what should they be ready to talk about? And how should they be communicating, to your point, businesses don't fail for lack of funding, they fail for lack of market acceptance, being able to communicate that market acceptance? Great question. I had a great piece of advice and I forget who said this to me. And, you know, my first business, the only word that can describe it is chaos. I had no idea what I was doing. I remember I thought about getting a loan from the bank and the bank manager said to me, come back tomorrow with a spreadsheet of your cashflow. And I was like, absolutely. And then went home and found out what a spreadsheet was.

25:44I'd never used Excel. And I stayed up till like three in the morning, creating a spreadsheet, and then shut the computer down. And at the time, there was no auto save feature. Yeah. Right. And so I lost it all. So the advice I got was, you should never start a business thinking you're going to sell it. but you should always start a business with the discipline of selling it and so if you think about that the buyer that's buying your business or the investor because when you get an investment what you're really doing is selling a piece of your business the most common mistake i see in entrepreneurs is they think the investor is their friend they think when they get an investment it's like we're partnering we're you know we're in this thing together and to a certain degree that's true but what you're also doing is selling a piece of your business and so that buyer what information do they want to see and so my next business i started day one with income statements on a monthly basis i started with balance sheets I had a rigor of reporting for my small business that none of my competitors had.

27:08So I had cash flow statements, I had income statements, I had a balance sheet. People trust and respect you, but they really respect the data. And the data, if it supports you, makes the investment easier. The worst thing is when you see an entrepreneur come into a room and they're great, and they tell a great story and it's fantastic. And then you say, oh my gosh, can you send me the data on your business? And then they send you chaos. So financial information and the way that you package it has to support the story that you're going to say. Then the second part is market growth. One of the biggest mistakes we see is people have projections for five to 10 years, and they're always rosy.

28:04As Kevin says, I've never seen a bad sales forecast. Sure, I care what you're going to do in five to 10 years. I really care what you're going to do in the next 12 months. And Cuban is great at that. People come in and say, oh my gosh, our sales were great for the last few years. And Mark will look at them and say, tell me your sales last month. And then tell me your sales the month before. So people focus too much on the long-term and not enough on the short-term. And in business, as you know, is you have to survive every step in order to get to participate in the next step. What you just said there reminded me of a conversation that I had a while ago with Mike Maples Jr., who pioneered in a way like hyper early stage investing.

28:56And he said to me that to him, investing is simply a matter of risk assessment and that it would be helpful for entrepreneurs to understand that whenever they are talking to an investor, that investor is basically making a risk assessment. And that's true whether or not it's a seasoned venture capitalist or it's like your mom and you're doing a family and friends round. Because either way, what they're thinking is essentially, what are the chances that I'll lose my money? What are the chances that this will make money? And what amount of potential return is worth whatever risk I'm being asked to take?

29:40and so what you're describing and i i say this to you because i i wonder if you have consciously think this way or maybe even just framing it like that brings up a thought but like what you're describing in the numbers and the reason why that matters is because ultimately great numbers and a entrepreneur who has their numbers together and the ability to communicate that is really just someone who is minimizing the risk so well said yeah why is america the bastion in the free world of entrepreneurs why has no other country ever been able to repeat that and i'm generalizing because obviously there's great entrepreneurs in canada australia everywhere around the world yeah but america is the gold standard and i've often thought about this because i'm canadian i brought my business to america then we bought a big company in london then we bought you know we had a big presence in india i live in australia part of the time i've done shark tank canada australia america and even egypt and there are certain characteristics that are common across the world.

30:59But there is something distinctly unique about American psyche. And it is exactly what you said. It is the appetite for risk. American appetite for risk is like no other place in the world. People will make an assessment and even in the face of great odds for potentially greater returns, they'll go down that road and i don't know whether it's the wild west or just the way that america was created but i think that's what makes it so unique in starting a business but i think it's not just investors it's also entrepreneurs like when you start a business you are making a conscious decision to leave your job you're making a conscious decision to raise money.

31:55You're putting yourself on the line. It's risk management in every way. I have a hypothesis for where that tolerance for risks comes from, which I'll share with you, because I'd be curious for your feedback. But then also, I would love to hear you talk about how you calculate risk in your own head as you're hearing from entrepreneurs, because I think that that's a valuable thing for entrepreneurs to hear as they approach their own investors. So, but first the hypothesis, which comes from a conversation that I had a long time ago with a pair of American investors who decided to open up a fund that focused specifically on Africa.

32:35And they told me that the greatest challenge that they've had in investing in African founders is that African founders are very hesitant to talk about failure. And the reason they hypothesize is just because there aren't enough years worth of stories of African founders who risked it all and were eating ramen in a garage and then built Apple. Like America is full of those stories. And Africa, because it's just, the economy is just developing in a way that America's developed a couple of decades ago. Like it just doesn't, it hasn't accrued that many stories yet. It will, but it hasn't yet. And so that means as a result that when an entrepreneur says to their parents and to their friends, you know what, I'm not going to take this job at a law firm.

33:33I ain't gonna start my own business. In America, somebody says that, and the parents and the friends start to cycle in their head through all of these stories that they know of people who did a version of that, or the famous people, the Steve Jobs and the Mark Zuckerbergs and the whoever who took some large risk and it paid off, and they say, ah, I understand the framework for the thing that you're doing, and that makes sense to me. But in Africa, you know, and not just Africa, but also developing nations throughout the world, like they just don't have that story as clearly in the culture. And so that inhibits people.