A Deep Dive Into Entrepreneurship With Shark Tank’s Robert Herjavec

Maya Noeth: Good morning everyone, and welcome to day two of Venture Atlanta. Robert, I'm really excited to be up on stage with you today to kick off today's programming.

Robert Herjavec: Thank you. Thank you. Hi everybody.

Maya Noeth: Robert, I've been watching Shark Tank for many years now and actually have your investment in Tipsy Elves to thank for my entire family's Halloween costumes this year. So thank you for backing that company early on. But we're all truly very excited to have you here to learn from the wisdom and the perspective that you've garnered over the last 30-plus years as both an entrepreneur and investor. So thanks again for joining us.

Robert Herjavec: Thank you.

Maya Noeth: And maybe let's just launch quickly into Q and A. So Robert, from your role on Shark Tank, you know that there is no shortage of ideas and of entrepreneurs. On the one hand, we're very fortunate to have the cost of starting a company come down meaningfully over the years. And the emergence of social media platforms like LinkedIn and Twitter make it really easy to promote your business. But I think those two things have made it really crowded as an entrepreneur, and so it's really hard to rise above the noise. So Robert, what is your practical advice for how to be seen and how to form connections with the people that will matter most to you as an entrepreneur?

Robert Herjavec: Wow, that's such a great question, Maya. It's amazing. We've been doing the show for 15 years in the States and the mean bald guy and I started the show in Canada, and it actually runs in 64 countries, talk about the power of branding. The show was originally started by Sony in Japan, and there's a division of Sony that does format, and the show runs in 64 countries. It's called Dragons Den.

So when they brought it to the US, they sat down with Mark Burnett who produced Survivor, The Apprentice, he's the guy in TV. And I was in that meeting and Sony said, look, Mark, here's how the format works. There's five dragons, here's how it works, but feel free to change it for the US market and you can change anything, but you can't change the name, you can't change “Dragons Den” because that's really important to us. And Mark looked at them and said, what's a dragon? Mark was like, it's never going to work in America. I'm going to call it Shark Tank.

Brilliant, and what a great name. And now the show Shark Tank runs in those same countries where they have Dragons Den. So, long-winded answer, it's brand. It was very, very difficult to break out for the show. I mean, if you think about our show, we are five not-so-famous people at the time talking about business.

People used to think we were on Discovery Channel about Shark Week. I remember the first time we got nominated for an Emmy. I actually went and the guys from The Deadliest Catch who ended up winning the Emmy were sitting in front of us and he leans over and goes, Hey man, we kind of have a similar show. And I'm thinking, my show is nothing like your show. He's like, yeah, we catch fish. You guys dive all over the world with sharks. I'm like, no, no. Completely different show what we've seen over the 15 years.

To answer your question directly, it's brand, but it's authenticity. So we talk about this a lot on the show. In some ways, this is the best time in history to start a business because the barriers to entry are so low. When I started my first tech business, I was limited by the amount of servers I could afford to buy. Computing power was a limitation to my scale. Today with cloud, I mean it's zero in other ways, it's the hardest time in history. It's start a business because everybody else can do it. The barrier to entry is so low. So what we found is you got to stand out above the noise. And the one thing that seems to work over and over and over, Tipsy Elves, Sand Cloud, these are all companies that came on the show. Tipsy Elves sales was doing $600,000 a year. They'll do $100 million this year. Sand Cloud was doing I think $800,000. They'll do $75 million this year. The common thread is authenticity with their consumer base. They are very, very clear who the consumer of the product is and how to connect with them.

So Sand Cloud, give you a small example, had this great program where they didn't pay for influencers, they didn't do any kind of paid stuff, but they found that college kids loved their product and so they would invite people to post on their site and then they'd make them ambassadors and it became cool to become a Sand Cloud ambassador. And just a small example, and I'm not saying that paying for influencers and all of that doesn't work just in our experience collectively as the Sharks, it is not the overriding win. We have people that come on the show that pay zero for social media influencers. They just know how to connect with their audience.

And my final point that we find is, so you got to think about the format of our show. We're sitting there, and by the way, I'm on TV three hours a day every day in the States. We film eight days a year. Four days in June, four days in September. It's the easiest gig in TV. 

Maya Noeth: That’s incredible.

Robert Herjavec: And we all complain eight days a year, oh my God, why can't we do this in seven? Seven will be so much better than eight, but it's the easiest gig to do. But we're bored. We're tired, we're filming 12 hours a day. We all got businesses to run. I'm not sitting there waiting for somebody to come out when those doors open. We know nothing about the people. The typical pitch is about an hour. The first question is always, what's your name? We have no information about them, and it all gets edited into seven minutes.

The consistent thread from people that get deals to those that don't, it's not the numbers, it's not the product. It's people's ability to get our attention. Before you sell me on your product or your incredible tech innovation and the history of mankind, no one has ever thought of, ever sell me on yourself. Sell me on you. Get my attention. If you can't engage, I'm not going to listen.

Maya Noeth: Yeah. Well maybe on that note, if people are successful in grabbing your attention, what are the next things that you look for in terms of top attributes of an entrepreneur that you want to back and what are some red flags maybe?

Robert Herjavec: I mean, so what's funny about us is if we like you, our empathy is very high. So sometimes if you watch a show and the first pitch comes out and they don't know their numbers, we're like, you're an idiot. You don't know your numbers. How did you get out here? And the next person comes out and they don't know their numbers. We're like, ah, don't worry about it. We got accountants. We'll help you. It's such a dichotomy, but if you can engage us, you’ve got to be able to sell. And it's not used car salesman kind of thing, but you've got to understand the core value proposition of your product or service and be able to articulate it clearly to who the customer is.

Sometimes people come out and we're like, who do you guys sell to? And we're like, oh, our technology or product applies to everybody. And people think that we like that answer, but we hate that answer. So sales and you got to know your numbers, you've got to know cost of goods, you got to know margin, you got to know product cost, all of that kind of stuff.

Maya Noeth: Yeah. So it sounds like a balance of actually knowing your business really well, plus the EQ level to really connect with you as a person.

Robert Herjavec: Very much the EQ, and we're very patient with people if we like them.

Maya Noeth: Yeah, gotcha. Do you think now that we're in this sort of weird and depressing market environment, that the entrepreneurial skillset has shifted over the last five years, have they had to learn how to do other things and hone skills that they haven't had to before?

Robert Herjavec: Geez, that's a great question, Maya. So I actually don't think the market is that bad. I think the market for raising money is not great. It's challenging. I think the capital markets aren't great, probably not a great time to think of an IPO as your exit. But in terms of demand, we're still seeing strong demand for great technology.

I mean, I'm in the cyber space, so where the demand hasn't waned. People are still buying, cycles are definitely taking longer. People are rationalizing every dollar of corporate spend, but they're still spending, I think the one skillset that most entrepreneurs have had to learn is how to make a profit. So in my space, I'm the only company that makes money. I'm probably the oldest guy in cybersecurity also. So I come from a time where people actually cared about EBITDA and when I was raising money two years ago, and when I say I'm the only guy that makes money, I really mean that my closest competitor loses $75 million a year. Another competitor was losing $200 million a year. When we went out to raise money for the first time two years ago, I had 20 investors like you guys that I was pitching to, and I would have 10 slides about our profitability. Every company I get to those slides, they'd be like, yeah, we don't care about that. Just move on. It was all about growth scale, how quickly we can grow. And now the biggest shift is if you don't have a clear view to profit, you're going to have a very, very difficult time getting funded and surviving.

Maya Noeth: Yeah, we're definitely seeing that as well. I mean, on that note, how do you guide your entrepreneurs on how to balance having this culture of innovation and risk-taking with this kind of focus discipline approach, thinking about profitability, how do you guide them on how to thread the needle between those two things?

Robert Herjavec: Well, I think in tech it's always about growth. I mean, if you think about most tech companies, even our stage, and we're about a billion now, about a thousand people, we're never going to make enough EBITDA to get a really big exit or a massive IPO. So growth is still the overarching north star for I think most tech businesses. But there's a discipline around EBITDA, and I think what we try to tell people is never kill innovation for the sake of profit. But if there is no profit, there is surely death and death is bad. It's really hard to come back from the grave.

Maya Noeth: Yeah, makes sense. Do you have any examples from your portfolio of some maybe entrepreneurs that have had to be really nimble to sort of thread that needle or make really tough choices when they're doing their forecasting for the year?

Robert Herjavec: I think every one of our companies, in the last two years, we had a number of portfolio companies where literally the plan was scale, grow, raise another round, and what we've had to do is go back to those founders and say that, raise another round. You got to get rid of that. That may not happen.So, how far can you go on the investment you have now? Can we scale growth back a little bit in order to continue to profitability?

Maya Noeth: Yeah. Got it. Maybe switching gears a little bit, it feels like every startup today is rewriting the company description on their website to be more AI-centric and even some full pivots to being an AI company. So how have you as an investor thought about investing in AI? Is it too crazy of a market to engage with right now in terms of where deals are getting priced? Are you super bullish on AI as really a sea change happening in the category like cloud was? Or are you kind of hanging back?

Robert Herjavec: Yeah, I'm super bullish on AI, but you have to keep in mind the space I'm in is a lot of deep learning, big data lakes. So AI for us is not a new development that came out of nowhere. So for us, AI is an evolution of a lot of the data science kind of work that we've been doing. But I think it is a fundamental shift. I think you got to be careful to follow the trends. In the nineties, I had one of the first internet security companies and it was called Brack, and then all of a sudden, dot-com became the thing. So every company that was like dot-com something or whatever was getting funded, and I was so frustrated. I actually changed the name of our company from BRAC to brac.com. I thought we would be worth more, and it was stupid.

Maya Noeth: That's what we're seeing in AI today.

Robert Herjavec: That's what we're seeing in AI today. So I don't think changing your core brand or business around it necessarily increases your value or decreases your value, but I think it, it's definitely a trend that's going to change a lot of things. And if you're not using it, applying it or taking advantage of it, you're definitely going to get left behind. But it's no different than cloud. It's just another wave. This wave is not going to crash and burn. This wave is going to be around for a very long time.

Maya Noeth: Yeah. Do you have a view on whether the incumbents who have maybe the benefit of distribution and maybe have raised a lot of capital versus the startups that are now building from the ground up, AI-specific tech, does one of those have sort of an advantage? How do you think about who will win?

Robert Herjavec: Yeah, it's great. So we literally just finished filming Shark Tank last week, and [Mark] Cuban and I were just talking about this, and every company I've started that's been successful started in a recession bad time. So at the enterprise level, not necessarily at the consumer level, if you're selling B2B or enterprise, there's something wonderful about tough economic times, and that is money flows to value when things are going great and everybody's making money, and corporations have unlimited budgets, they tend to defer to relationships. Well, I really like you. I've known you for a long time. I'm going to go with you the incumbent. When times are tough, nobody cares about your relationship. They care about the value that you add. So disruption in economic difficulty always wins. If you can add greater value in a disruptive economy, you can usurp a lot of the incumbents.

Maya Noeth: Yeah. Do you have a perspective or a view when you think of your own investments that you make on what sort of layer of AI is most interesting? Is it the application layer? Is it the infrastructure layer, the model layer, somewhere in between? Or are you open-minded in how you think about where the value world?

Robert Herjavec: Yeah, we don't really focus on one or the other. I mean, Paul Judge and I were just talking about this, and you have different kinds of investors. You have people that are very good at skipping stones, meaning they can throw the stone, skip it multiple times across different industries. And I have very wealthy friends who own gas stations and do commercial real estate and invest in tech. I'm a cybersecurity guy. That's all I've ever been. I think I know it really, really, really well. So I tend to focus on that, but I think there's tremendous opportunity in anything. I think this is an incredible time of disruption.

Maya Noeth: Yeah, that's a really interesting segue to my next question, which is, as you said, you've operated as an exec largely in the cybersecurity space, but in your role as a shark on Shark Tank, you hear super varied pitches that happen every day. And like you said, you don't know what's coming at you when those doors open. So maybe for the investors in the room, how do you think about the benefit of being a generalist investor versus somebody who is very sector-specific? Is there pros and cons to one or the other?

Robert Herjavec: So great question. So when we're filming Shark Tank, I'm a cyber guy. I've been doing this for 30, 40 years and I'm very good at it. So we're filming season two comes around and I'm seeing pitches that are just crap, this consumer stuff, and I'm like, oh my God, what am I doing on this show? This is such a waste of time. I'm a real business guy. And so I take Mark Burnett out for dinner and I'm like, Mark, why don't we see real tech on the show stuff? I can really bite my teeth into hardcore tech. And Mark's like, Robert, I don't know how to tell you this, but what you do is really boring. Nobody in America or Middle America cares. And I was like, ah. Now this was 15 years ago. And so I went back and I stopped looking at the investments through my filter, and I started looking at 'em through the platform of the show I was on. And what I realized is the business of America is consumerism.

So our show runs in 64 countries. The only country in the world where a product appears on your screen and people buy it right away is America. The show runs in Canada. People in Canada see a product. They're like, oh my God, that is amazing. I love it. Then a week later, they see it in a retail store and they're like, oh my God, that's that thing I saw on Shark Tank. They still don't buy it. A month later, they're like, maybe I should buy it. What do you think in America? They're like, oh yeah, I'm buying that. People's products blow up on our show. The most common thing we tell people is, make sure you're ready. Make sure you're ready. The demand is going to go through the roof. And I got to tell you, even to this day, 50% of the people that get a deal, their sites crash with orders on the day the show airs. And so it's really about understanding what the platform is and the value that you're adding because our show is really about consumerism.

That's why I invest in Tipsy Elves. I was waiting for this big tech deal, season two, these two, I'm going to give you the entire pitch right now. This guy comes out, he's a lawyer, the other guy's a dentist. They're tired of being a lawyer and a dentist, they want to start their own company. They Google companies to start, oh my God, I'm not making this up. One of the top 10 searches is ugly Christmas sweaters. They say, how are we going to stand out in the ugly Christmas sweater business? We're going to make inappropriate ugly Christmas sweaters. So like Santa peeing in the snow, Merry Christmas, three reindeer doing it, ménage à trois, crazy stuff.

And I'm sitting there listening, and they were horrible presenters. They were really dry. And I'm sitting there going, oh my God, why am I here? And Mark drops out, everybody drops out, and I'm just like, ah. I'm like, do you guys have any sales? And they're like, yeah, $600,000. I'm like, Ooh, what do you sell the sweaters for? $70. What does it cost you to make them? Seven bucks? I'm like, oh, I'm in. Knew nothing about distribution. Somehow in the 15 years, people always, I was on Good Morning America. And Robin asked me, oh, I guess if you get a clothing deal, you really turn to Damon for advice. And I'm like, no. Damon knows so much about clothing. He never wants to invest in clothing. I'm the clothing guy. I knew nothing about tip seals. I knew nothing about towels. But now I'm like the guy because I've learned to understand that business.

Maya Noeth: What about from the entrepreneur's perspective, if they're in the lucky position to have a bunch of different investors pitching them, how should they think about maybe choosing to work with a sector specialist that really understands their category versus somebody that is more generalist?

Robert Herjavec: Gosh, great question. So I'll give you my personal experience. Paul Judge and I were talking about this. So every company I've started, I've had three exits now. I sold one company to AT&T, one company to Nokia and some smaller investments along the way. Every one of those companies, I owned a hundred percent of. I didn't believe I was going to build a multi-billion dollar company. I believed I was going to build a multi-hundred million dollar-plus company. And so I bootstrapped everything along the way. I mortgaged my house. I lived off credit cards, but I was really proud of owning a hundred percent of it. And then in this current business, I built it to about $300 million and I owned a hundred percent of it, and I was so proud of that. And then Covid hit and I earned a business, began to grow by 40-50%, and I couldn't keep up anymore. So I had to make a decision. Either I sell or I continue to grow, and I really believe in our mission. So I started raising money and we had over 20 firms pitching us, which is great, so if you're in a position where you have multiple investors pitching you, you are a unicorn with sprinkles today because that's very rare.

We wanted a partner that could add value. I mean, goal number one was to get the money. So if I only had one firm pitching me, your question wouldn't apply. I would've taken that. But we were lucky, we had multiple. So we looked for somebody that added value to us as a company. We think we're great operators. We think we know how to run a business. We wanted help in terms of value, how to build scale, all of those things. And so we took that deal and in two years, we've tripled the size of the business.

So my advice now, I was the guy who always said, oh, I would never raise money. Borrowing a hundred percent of it. Now I'm like, I'm an idiot. I should have raised money way sooner. I've been able to grow. The problem with owning a hundred percent of it is what needs to be done, but the risk of being all invested and doing something wrong is just so high. And so we picked a partner that we thought could really add value. And it was funny because we, out of the 20 companies, 19 of them loved us. Were super nice to us. Every conversation started with Robert, we love your sector. We love you. We love Shark Tank. The one company that we ended up going with was out of England. And they would like, you're on a TV show. Why are you on a TV show? We just don't understand this. Is there any value? Would you be willing to quit that show? And I'm like, who are these guys? They don't love me. But we learned that love is good, value's better. And so we ended up going with a company that really understands our space company called Apex. And there was other great companies, but it's turned out really well for us.

Maya Noeth: That's great. I should start bringing you on my pitches with me. This is basically the pitch that I give people on why to take capital.

I think we're out of time today, but thank you so much for joining us, and thank you to you all for coming and being part of Venture Atlanta.

Robert Herjavec: Thank you guys.