Time Capsule: Lessons from Shark Tank — Beware of Vendors Borrowing Money or Going Public

I wrote weekly editorials for a boutique industry newsletter for several years, anxious for both audience and income. I learned a lot about coming up with ideas for the weekly grind, trying to be simultaneously opinionated and entertaining in a few hundred words, and not sleeping much because I was working all the time. They’re fun to read as a look back at what was important then (and often still important now).

I wrote this piece in August 2009.

Lessons from “Shark Tank” — Beware of Vendors Borrowing Money or Going Public
By Mr. HIStalk

I don’t watch a lot of TV, but lately I’ve been watching this show called “Shark Tank.” It’s a reality show from Mark Burnett, the Survivor guy who made TV 100 times more of a vast wasteland than anyone thought possible, killing lame dramas and comedies in favor of cheaper and even lamer junk shows that make Dead Billy Mays infomercials look like Shakespeare plays.

The premise of “Shark Tank” is this: small business owners who need funding pitch their business idea to a panel of private investors who critique it nastily (it’s reality TV, after all) and maybe begrudgingly offer to loan the owner money at quite unfavorable terms (such as demanding half of the company in return).

So, the businessperson has three ways to look stupid: they can be turned down cold, they can take the offered money at usurious rates, or they can voluntarily walk away as the investor panel agrees among themselves just how stupid the business owner is for not wanting to throw in with whiz kids like themselves.

The last show had a guy who had invented a folding guitar. He had sold a few hundred of them at $500 each and, by applying some questionable math, decided his company was worth $10 million (the expressions on the faces of the money lenders when they heard that figure were priceless).

One sympathetic money man (sympathetic on a greedy bloodsucker scale, anyway) asked him an excellent question, though: do you want to make really great guitars or do you want to make a lot of money?

His message was clear. Big profits and quality just don’t mix. The idea of actually making a great product was incomprehensible to the money man. The real money was to be made in licensing the folding neck idea to other guitar companies. Instead of being an engaged, driven entrepreneur making guitars he’d be proud to sell, the guy could just sit on the porch and cash checks.

This made me sad. The money man was right – people like him don’t care about quality, customer benefits, or long-term value. They don’t even care about the product or service. Everything they need to know is contained in the financial and marketing numbers. And if the visionary founder takes money from them, he or she will be elbowed aside as the business is pillaged to yield the biggest, quickest return possible. So, forget that great product – wouldn’t you rather get rich instead? All of the money people, it turned out, made their pile selling out to some bigger company (which often regretted it, I found out from Googling).

It makes you wonder how many great innovations have been pushed aside because a dollar-fixated money man didn’t see the point. It also makes me wonder how many dull, average companies got that way because they took someone’s cash, put the founders out to pasture, and set all the fun, smart ideas aside and turned themselves into a bad mutual fund run by second-tier MBA school graduates.

My hospital got burned once when the vendor we had just chosen went public and the obligatory new gunslinger corporate executives suddenly became more worried about the company’s quarterly numbers than my hospital or their products. I’ve had vendors that were bought by GE and were never heard of again. Others borrowed themselves to the hilt and had to put the money men in charge as collateral, which naturally meant the answer to every problem was to charge us more, give us less, and sell of chunks of the company to anyone interested.

I like to think the time for change is at hand. The financial industry melted down because of that kind of short-sighted greed. The government will either have to live within its new lesser means or keep selling the country off piecemeal to foreign debt-holders. People want to shop local, keep it simple, and live green. Rich people and monolith corporations suddenly don’t look so infallible any more.

So while you’re out their driving your Prius and eating organic apples, give this a try. Every now and then, buy an IT product or service from a low-debt, founder-led company that thinks creatively, has fun, and cares about its customers. The last thing we need is more faceless widget factories run by money-lending Sharks.

In fact, I kind of hope Shark Tank gets cancelled.