Corporate Shark Tank?

I’m a big fan of Shark Tank and so are folks I work with. Though, I’m surprised when we discuss it what they don’t see.

Some co-workers want to bring a shark tank-like process into the company to generate and vet new ideas.

In their corporate version of Shark Tank, they see employees pitching their ideas to a committee of leaders, who ask pointed questions, like the Sharks, to ferret out the best ideas and then cast votes for the best ideas to proceed, ‘just like Shark Tank.’

I think they miss key incentives from Shark Tank that make it work.

I suspect their version of Shark Tank would end up looking a lot like the political and bureaucratic processes that already govern capital and resource allocation in large companies.

For those who like the Shark Tank committee idea, consider the following questions.

What do folks pitching the ideas have at stake? What groundwork have they done? Who is on the committee? What do the folks pitching ideas have at stake? How do ideas advance?

What do the folks pitching the ideas have at stake?

These Shark Tank fans haven’t seemed to notice that the folks pitching ideas on Shark Tank have a good deal of their own money, creativity and effort at stake. It’s well beyond idea stage.

Their idea passed an important first filter: the founders thought enough about it to sacrifice their time and money for it, over all the ideas they may have had.

Ideas without proof are just talk and talk is cheap.

What groundwork have they done?

They also miss that startup founders have done a good amount of groundwork of proving their ideas — often into prototype or full product mode with real sales, which means the ideas have been put through a second important filter — do customers actually want it?

One of the classic speeches on Shark Tank was given by Barb Corcoran, directed at a founder from the corporate world who spent all of his time making sure the operations of his business would be ready to fulfill when the orders started rolling in.

Corcoran said something like, you are like many we see from the corporate world. You’re very smart, but you spend all your time solving getting the back office set up that you skipped checking the most important step: is it something customers actually want?

The Sharks hone in on many signs of early sales, customer demand and the cost of acquiring paying customers. Products that people want have a very low or zero cost of acquiring paying customers because customers instantly see the value prop, then they tell their friends and family (word of mouth) and they also repeat purchases.

These are products that sell themselves. Most successful products are products that sell themselves. Chipotle, for example, didn’t spend much on advertising until after it had already saturated the market with restaurants. Prior to that, simply opening new Chipotles was enough to get new customers.

Sales signals are 1,000 times more telling than whether or not the idea just sounds good and the sharks know this.

All the Sharks have changed their mind on a product where the idea didn’t sound good to them but the sales said otherwise. They know enough to know that their personal assessment of the merits of the product isn’t as good as the market’s assessment.

So, by the time the ideas see the Shark Tank, most have passed two important filters — the founder’s sniff test and markets/customer tests, in some form or fashion.

On occasion, Sharks do invest in products that are still in the idea phase. It might be a product that complements another product in their portfolio well, so they have a read on potential sales from that.

More often, Sharks dismiss the idea saying it’s “too early” for them. That means, they don’t have enough of a read on the second filter and it’s just too big of a guess for them.

Who is on the committee?

The corporate shark tankers envision executives on this internal Shark Tank committee.

These Shark Tank fans haven’t noticed that the sharks earned their way onto the panel with their own startup and business performance.

Most corporate executives do not have this experience. They may be good at delivering projects on time and under budget and playing office politics, but that doesn’t mean they can sniff out a good idea as good as a Shark, especially when they don’t have much at stake.

This is an easy mistake to make. Business leaders are often confused as good business people, but that’s not true.

It’s also important to notice that the Sharks are betting their own money on the businesses. They aren’t just giving a simple yay or nay vote with no consequence on whether the idea succeeds. That changes the decision-making considerably.

Without these incentives, the corporate shark tank would turn into more or less a venue for mental tennis.

How do ideas advance?

In the corporate shark tank, ideas advance through committee by majority vote.

Again, these folks miss that it only takes one shark in Shark Tank to buy-in. In this sense, the bar on this filter is lower on the real Shark Tank.

But, it’s balanced out that the Shark is putting their own money, time and expertise into the deal, which causes them to be a lot more careful in their decision.

Compare to the executive committee majority vote. Nothing is on the line for anyone. If a project they voted for fails, it costs them nothing.

When a Shark is wrong, it hits their pocketbook.

But, I do like the idea of bringing Shark Tanks in corporate worlds as one avenue of ideas. But, here’s what I would recommend to execute it to keep the incentives and filters that make Shark Tank (and venture capital) work.

More on that in the next post.

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