Part II: Top 5 'Shark Tank' Questions and How to Ace Them
Introduction
Pitching to investors, whether on "Shark Tank" or in the boardroom, demands not just an understanding of your business but the ability to communicate its value compellingly. Here’s the next 5 questions (from a full list of 10) on how to tackle questions from the Sharks (and investors) with detailed, data-driven responses designed to impress and persuade.
1. "What Are Your Future Plans for the Business?"
Reason for asking: Sharks (and investors) ask this to gauge the entrepreneur's vision and strategy for long-term growth and sustainability. Investors want to understand the business's direction, potential for scalability, and how the entrepreneur plans to tackle future challenges and opportunities. A well-defined future plan indicates the entrepreneur's commitment, foresight, and ability to steer the business towards continued success.
Answer: "Our vision for the future is strategic and ambitious. In the short term, we're expanding our product line to include two new innovative offerings that complement our current range, expected to increase our market share by 20%. We also plan to enter two new major markets in the next two years, leveraging our proven go-to-market strategy, which has already yielded successful results in our current operations. Long-term, we're looking at strategic partnerships to broaden our distribution channels, aiming for a 50% increase in global reach. This plan not only expands our footprint but also diversifies our revenue streams, ensuring sustainable growth."
This response works well as it outlines a clear, multi-tiered strategy for growth, showing the Sharks that there is a thoughtful plan in place for both short-term and long-term expansion. It combines specific, achievable goals with broader strategic initiatives, demonstrating both ambition and practicality.
2. "What is your exit strategy?"
Reason for asking: This is a common follow-up question to the above. It gives some insight and context on how they will eventually realize a return on their investment. An exit strategy could involve selling the company (acquisition by a larger entity), going public through an Initial Public Offering (IPO), or other means. Knowing the exit strategy helps investors assess the potential for financial returns and the long-term viability of their investment in the company. It also indicates the entrepreneur's foresight and planning regarding the future of the business.
Answer: "Our exit strategy is multifaceted to maximize investor returns. Firstly, we aim for an acquisition within the next five years, given our unique position in the market and interest from larger companies. Secondly, we are preparing for a potential IPO as an alternative, building a strong financial foundation to appeal to public market investors. This dual-path strategy provides flexibility and ensures we can capitalize on the best opportunity to deliver a substantial return on investment."
This response is effective because it demonstrates a well-thought-out plan, offering flexibility and awareness of market opportunities. It reassures investors of a clear path to monetizing their investment while showing the entrepreneur's commitment to maximizing shareholder value.
3. "What Makes Your Product/Service Unique?"
Reason for asking: Sharks (investors) are looking for a competitive advantage in the marketplace. They also are assessing its potential for creating a lasting impact or disruption in the market. They are interested not just in immediate competitive advantages but also in the product's capacity to evolve and maintain its relevance, securing a long-term profitable investment.
Answer: "Our product's unique selling point is its AI-driven personalization system. Unlike standard solutions in the market, our AI technology dynamically adapts to each user's behavior and preferences, offering a tailored experience. This personalization not only enhances user engagement and satisfaction but also generates valuable data for continuous product improvement. By leveraging advanced algorithms, our product delivers performance and adaptability that our competitors currently cannot match. Additionally, this technology has allowed us to secure a patent, further solidifying our competitive position in the market."
Answering in detail is vital because it underscores the innovative aspects of the product and highlights how these features create a competitive advantage. Adding assurance to the investors confidence of the product's potential to capture and retain a significant market share, making it a lucrative investment opportunity.
4. "Do You Have a Patent or Intellectual Property?"
Reason for asking: Sharks and investors alike want to have Protection Against Competition. A patent can prevent competitors from copying the innovation, ensuring the company retains its unique market position. Also, Intellectual property rights can secure the company's long-term market relevance and profitability which can come through revenue through licensing deals, partnerships and more.
Answer: "Yes, our company's commitment to innovation is solidified by our robust intellectual property portfolio. We hold a patent (US Patent No. 9876543) for our unique filtration process, which combines advanced nanotechnology with eco-friendly practices. This patented technology significantly enhances efficiency and reduces costs, giving us a formidable edge in the industry. Also, not only does it protect us from competition but also opens potential revenue streams through licensing. Additionally, our product and brand names are trademarked (Trademark No. 12345), ensuring market identity exclusivity. These intellectual properties validate our innovation, enhance our credibility, and are pivotal in maintaining our long-term market viability and profitability."
Emphasize the significant value of the company's intellectual property. The mention of a specific patent number for a unique filtration process demonstrates technological innovation and market differentiation. Additionally, referencing trademark registration for brand and product names underlines the company's dedication to protecting its brand identity. It's important to highlight the company's strategic efforts in safeguarding its innovations and market position.
5. "How Will You Use the Investment?"
Reason for asking: There are many reasons why a Shark would ask these questions. The first might be effective capital utilization, ensuring the funds will be used efficiently and effectively to grow the business. A second reason would be to evaluate the entrepreneur's financial acumen and strategic planning capabilities. A third would be Risk Assessment: To understand the risks associated with the proposed use of funds. And last but not least, alignment with business goals. To see if the investment aligns with the company's long-term goals and objectives.
Answer: "The investment will be meticulously allocated to ensure maximum growth and ROI. Allocating the investment strategically, 50% ($500,000) will be used to scale production, aiming to boost output by 40%, directly addressing a market demand surge. This will enable us to decrease unit costs by 15% due to economies of scale, enhancing gross margins. The 30% allocation ($300,000) to marketing is projected to increase our customer base by 50%, focusing on digital channels with a targeted ROI of 120%. The remaining 20% ($200,000) will fund R&D, aiming to deliver two new products, expected to contribute an additional $1 million in revenue in the next fiscal year. These investments are mapped to precise financial goals, ensuring a clear, measurable impact on our growth trajectory.
This response is effective because it ties the investment directly to specific business areas with clear objectives and expected outcomes. It demonstrates a strategic approach to using the funds, backed by market research and aimed at measurable KPIs coupled with milestones instilling confidence in the investors about the prudent and goal-oriented use of their investment.
Bonus: "Why Should I Invest in You?"
Reason for asking: To help assess the entrepreneur's personal qualities and suitability for leading the business to success. They want to gauge the entrepreneur's passion, vision, and commitment to the venture, as well as their ability to navigate challenges and lead the company effectively. This question also helps investors understand the entrepreneur's unique value proposition and whether they possess the skills and experience necessary to achieve the business's goals.
Answer: "I bring a distinctive blend of skills and insights, crucial for navigating this rapidly evolving industry. As an investor, you're not just investing in a product; you're investing in my life's passion for technology and sustainability. My journey over a decade in tech and eco-innovation isn't just professional, it's personal. This drive and commitment has fueled our team to achieve and surpass remarkable milestones as is evidenced by consistent sales growth and a robust strategy for future expansion. Your investment would fuel a venture at the forefront of sustainable technology, led by a seasoned professional dedicated to making a meaningful impact in the market. With your investment, we're not just scaling a business, we're accelerating a mission to make a tangible, positive impact on our world."
Answering with passion and personal commitment is crucial as it shows investors that you're deeply invested in the business beyond just financial aspects. It illustrates your dedication, which can be a key differentiator in a competitive market. Investors are often drawn to entrepreneurs who are not only skilled but also genuinely passionate about their ventures, as this can drive innovation, persistence, and long-term success.
Summary
In pitching to both Sharks and investors, detailed responses to their questions are crucial. This includes outlining ambitious future plans for business expansion, discussing multifaceted exit strategies, highlighting unique product features like AI-driven personalization, metrics, milestones and emphasizing the importance of robust intellectual property like patents. These responses demonstrate the company's strategic vision, market differentiation, and long-term viability, key factors that investors seek to understand. The goal is to present a well-rounded, forward-thinking approach that underlines the potential for growth and success.
