The Ethics of Shark Tank
Analyzing the Ethics of Sharks for Shark Tank Nation
Shark Tank is a reality television show where would-be entrepreneurs try to sell their new ideas for business ventures to one or more well-established investors (i.e. the Sharks) in return for a stake in the business. The show is based on BBC’s Dragon Den Series in which budding entrepreneurs get three minutes to pitch their business ideas to five multi-millionaires willing to invest their own cash.
Shark Tank is so successful that it now has a following: Shark Tank Nation. Repeats of the show are shown every night during the week with a new segment on Fridays from 9:00-10:00 pm on ABC.
Once an entrepreneur’s pitch is accepted by one or more Sharks, a contract is executed that says the show may terminate access or delete content in any way, at any time and for any reason. So, from a legal standpoint if something should happen and a deal goes South or they decide not to air the segment, the contestant is out of luck. Of course, lots of due diligence is done after a deal is made to ensure the claims made by contestants are accurate and legal. From an ethical perspective, I can understand the terms of agreement. It’s a business deal and the show has an ethical right to control content.
It's amazing how many people go on to Shark Tank with very little sales and value their business at some ridiculous over-inflated market valuation. For example, a $1 million equity request with only a 10% stake for the Sharks means the business is valued at $10 million. Sometimes the sales to date are only in the thousands, say $100,000, so the value is 100 times sales. This strategy doesn’t sit well with the Sharks who start to doubt the entrepreneur’s business knowledge. It tends to give the Sharks a bad taste and not so pleasant a time for contestants in the Shark Tank.
Here is my take on the ethics of the Sharks – the good, the bad, and the ugly (sorry, Kevin).
It’s interesting to observe how the Sharks interact with the contestants and some of their expressions used to characterize the offers and negotiations. For example, Kevin O’Leary, aka Mr. Wonderful, is one-dimensional. All he cares about is making money. He doesn’t seem to care about helping contestants to mature as business owners and to give them a chance at the American Dream, and he is oftentimes rude toward contestants. O’Leary is the king of royalty deals with contestants saying things like: I don’t want any equity but pay me $1 per sale of the product in perpetuity. As other Sharks have pointed out, this is akin to interest on a loan, not an equity stake. O’Leary likes to tell contestants trying to compete in a well-established product line that the big boys “will crush them like the cockroaches that they are.” Since O’Leary doesn’t seem to genuinely care about the contestants, he fails the ethics test of caring and empathy for others. The ethics of O’Leary can be summed up in the expression he uses when a contestant does not accept his offer: “You’re dead to me.”
Robert is a very affable person. He seems genuinely interested in the well-being of the contestants. He is a savvy Internet/technology/security-issues investor who seems to be more involved in making offers than the other Sharks. One expression of his I never understood is when he questions a contestant’s valuation by saying: “I just can’t get my head around it.” I suppose it means to understand the basis for the offer, but why not just say that?
Daymond John is very likeable. To me, he is the most ethical Shark because he won’t go into business with a contestant when he already has a presence in the same market (or space, as the Sharks say). He recognizes the potential for a conflict of interest and bows out as should any decision-maker when even the appearance of a conflict exists. Perhaps Daymond should train our politicians in the fine art of avoiding conflicts of interest. I love Daymond’s saying when he questions the overly-aggressive amount a contestant asks for: “I know a guy in the hood who will do it for…”
Lori is also quite ethical. She is the self-styled queen of QVC so she’s seen it all with respect to would-be entrepreneurs and their products/services. I like the fact that she actually has a test for a good investment rather than arbitrarily deciding on its potential for success. Lori tells contestants she instantly knows the difference between “a hero and a zero.” She cares about the contestants and makes a strong case for genuinely trying to help them to build a business. She seems empathetic towards their needs and what it takes to be successful in business. She’s also the sweetest Shark by far (sorry, Kevin).
Barbara Corcoran seems to be the cheerleader of the sharks. Of all the sharks, Barbara appears to have the strongest motivating skills and looks for people, work ethic, and character when deciding who to invest in, as well as whether the business will be sustainable in the long-run and she will recoup her investment. It has been said by those who know her that "You didn't work for Barbara; you worked with Barbara." She comes off as genuinely concerned about the entrepreneurs and a very sincere person. Perhaps it is a female thing but, like Lori, Barbara exhibits the ethical qualities of caring and compassion unlike some of the other sharks (sorry, Kevin).
All I can say is ‘Go Mavs.’ My main criticism of Cuban is sometimes he puts pressure on a contestant by using a 24-second clock for them to make up their minds on his offer or he will withdraw it. In this way, his objective is to eliminate offers from other Sharks by insisting on an immediate answer from the contestant. Cuban seems to be oblivious to the (ethical) fact that contestants deserve a few minutes to weigh each offer and then decide what to do. It is their life and livelihood at stake. I do like the expression he uses to convey to contestants who are striving to be rich and successful – they are ‘Wantrepreneurs,’ not entrepreneurs.
I’ve learned so much from Shark Tank with respect to the language of business including ‘price point,’ having a product ‘in this space,’‘scaling the business’ and ‘cost of customer acquisition.’ It is a great show for college student-wantrapreneurs to watch and college professors to use in their Entrepreneurship classes.
I watched a repeat segment on Shark Tank Nation last Thursday where a contestant with a product called ‘Caddyswag’ tried to make a deal with the Sharks for his cooler bag designed to bring drinks onto a golf course in a bag, not out in the open, while playing a round of golf. The question raised by the Sharks was to ask if golf courses allow players to bring beverages (including beer) onto the course. The answer seemed unclear, but the explanation of the contestant was not. It was, in my opinion, unethical. The contestant said the cooler bag was made in such a way as to conceal the fact that beverages were brought onto the course. In other words he had developed a product that was deceitful in purpose – and that was the driving force behind it. Unfortunately, none of the Sharks picked up on the ethical issue that to take an action that may be against the rules and try to conceal it from others is dishonest, self-serving, and lacks transparency.
I’ll close with an expression used by my favorite Shark, Daymond John: “It’s what you think you already know that will prevent you from learning.” It’s a great saying that hits the mark when telling students they need to keep an open mind when learning about new and challenging ideas. I’ll use it in my classes at Cal Poly.
Blog posted by Steven Mintz, aka Ethics Sage, on November 20, 2014. Dr. Mintz teaches in the Orfalea College of Business at Cal Poly San Luis Obispo. Professor Mintz also blogs at www.workplaceethicssage.com.