ABC’s ‘Shark Tank’

Capitalism 101: The good, the bad, and the ugly

I have been thinking about our nation’s economic system and our widening gap of haves and have-nots. This seemed especially relevant after having recently taught at a small, for-profit college in the Philadelphia area where the students generally come from some very humble backgrounds. It turns out that reality TV, of all things, has given me a valuable lesson in economics.

Well, the Sharks are having a good time. (Photo © ABC)

ABC’s hit TV show Shark Tank, if you haven’t seen it, is a 60-minute microcosm of capitalism. The “Sharks” are four wealthy investors looking to invest in up-and-coming entrepreneurs. The entrepreneurs enter the “Tank” through a hallway lined with videos of life-size sharks swimming about. The hopefuls then make their pitches. If they can get a Shark on board, they will get a lucrative investment deal and partnerships with some seriously connected people; otherwise, the entrepreneurs are sent packing.

Not only is Shark Tank a ratings star, but it is also probably as educational as it is entertaining. It is easy to see why some parents sit down to watch this show with their kids. Yet Shark Tank also exposes another side of capitalism — though I wonder how many viewers are seeing that part.

Likable predators

These Sharks are not bad folks, for the most part. One, Robert Herjavec, gets an occasional ribbing for being too soft. Billionaire NBA team owner Mark Cuban has had a reputation for being a bit of a loudmouth, but he’s actually pretty likeable on the show. Another, however, Kevin O’Leary, may dismiss an entrepreneur that does not meet his terms by declaring, with a straight face, “You’re dead to me.” So, no, this is not Let’s Make a Deal.

The entrepreneurs have a few minutes to present their products and their business plans, and otherwise get the Sharks excited about their business. The Sharks then proceed to test out the products — such as a caffeinated, on-the-go waffle (too bland) or a stationary surfboard for exercise (a hit) — and grill the presenters. Viewers get to hear what exactly investors are looking for: “Is your business proprietary?” “How much money do you need, and what will you do with it?” And so on. Those who don’t have the right answers go home empty-handed, sometimes pretty demoralized. After all, often it is the person’s dream, life savings, or his or her family’s future that is being killed off.

Come into the Tank passionate and prepared; show some salesmanship; and have a record of sales, already, and you have a shot. So what’s not to love? The Shark Tank is American capitalism at its best: efficient, dynamic, merit-based, and, in this case, highly entertaining! Even a show about capitalism is profitable! Try producing a show about some poor socialists standing in line to get their paperwork processed!

Meritocracy? What meritocracy?

Yet Shark Tank highlights all aspects of capitalism. What is made so clear in this simple format is that these Sharks are not standing at the top of any free and pure meritocracy. They may have worked hard for their spots at the top, yet in the world of capitalism, having a mound of capital is in and of itself an enormous lever, or weapon, that can be used to hammer the aspiring entrepreneur down to size.

These wannabe entrepreneurs are explicitly people excluded from higher levels of success due to various and immutable laws of capitalism, e.g., they lack the cash needed to increase the scales of production to drive manufacturing costs down exponentially, or they lack the access to the right people, whether it’s a program exec at QVC (e.g. Shark Lori Greiner) or those who control the existing distribution networks for clothing apparel (e.g., Daymond John), or other essential connections.

The capital-rich Sharks, on the other hand, can afford to sift through deals, ignore the less prime prospects, and simply pluck out the gems. Certainly some presenters have hot commodities that evoke a feeding frenzy among the Sharks, but that is the exception. Again, the ideal prospect not only has the best product and marketing plan, but also a proven sales record. Hey, why take a bad risk if the system allows you to avoid it? There is no question as to who has the leverage in the Tank, so this TV show exposes the realities of a market-corrects-everything theory of economics.

How so? Sometimes when none of the Sharks is making an offers and there is an air of desperation, O’Leary may severely lowball an entrepreneur to see just how desperate he or she really is. Or, other times, another Shark will make a quick, first offer to a presenter and then tell the presenter that he or she must accept the deal within an arbitrary time period, such as by the count of ten or maybe before another Shark makes a competing offer. Want to elicit four separate bids and weed through the best offers? Sorry! If the entrepreneur does not meet the arbitrary demand, the offer is withdrawn. The risk in not biting, of course, is that no other offers may be forthcoming. In that case, the Sharks all remain rich, and the entrepreneur remains poor and desperate and goes home.

Making the rules

And why do Sharks sometimes make such arbitrary and anticompetitive rules? Because they can, of course. They may not have been drafted in Harrisburg or Washington D.C., but these rules are every bit as real — and you can believe that we all play by them. The playing field is always drastically slanted in the favor of the Shark. In fact, as the Sharks continue to capitalize on that slanted playing field, their leverage continues to increase accordingly. Thus, not only does this lopsided bargaining process continually repeat itself, but the disparity grows exponentially: The bigger the sharks, the more the leverage, etc. This is how the market regulates itself. I think.

The lesson of Shark Tank is not just that it is better to be a shark than a guppy, but that sharks are, by nature, killing machines that do not play nice. It might make for good TV but without significant outside intervention, life in a shark tank is neither just nor sustainable. I hope those Shark Tank viewers with big dreams are seeing that part of the show as well.

Our readers respond

Mark Lord

of Swarthmore, PA on January 07, 2015

Fact checking: There are not four sharks, there are five (you can count them in the photo that accompanies the article). It's Robert Herjavek, not Mark. Although the time each contestant appears on screen is "a few minutes," they actually spend an hour or so with the Sharks. Many of the contestants are actually highly successful before they appear on the show. They are not "explicitly... excluded from higher levels of success." And a point of interest: all contestants on Shark Tank agree to give up 5% of their company or pay a 2% royalty on future sales— just for the privilege of appearing on the show. For details, click here.

Author's Response

The article points out that some are already successful. The presenters are certainly there to get something the Sharks have and that they do not, whether it's (especially) a ton of capital or access, so they seem pretty excluded to me. Another example is that presenters are regularly asked, “Did you try to get into the big box stores/retail outlet?” and the standard response is that the big guys won't even take their calls, but they will certainly take calls from the Sharks. None of this detracts from the whole point of the article, I believe.

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