5 lessons for money seeking entrepreneurs
Here are 5 lessons for money seeking entrepreneurs from the Shark Tank:
1. Know your numbers: I can’t tell you how many times variations on the following conversation occurs on the show:
Kevin O’Leary (shark): “Let me get this right. You are offering 20% of your company in exchange for an investment of $500,000?
Entrepreneur: “You bet, we have a great product!”
O’Leary: “But that means that you are valuing your company at $2.5 million. You only have $120,000 in sales. Your company is not worth close to that my friend.”
Entrepreneur: “Uh, uh . . .”
Investors want to know how you are valuing your business, how much money you are going to make, how much profit you have made, and why you need their money. Potential is great and all, but numbers talk, BS walks.
2. Understand that money has no feelings: Kevin O’Leary is fond of pointing this out. This is about making a profit for the investors, nothing more, nothing less. How, exactly, will you do that? How you feel about your business is fairly irrelevant.
3. Have a real business that can be scaled: The business cannot be you doing labor, unless that labor can be duplicated en masse. If you make homemade cedar toy chests that cost $300 but take 25 hours to build, it is difficult to see how that is a business that can be ramped up to sell mass quantities. A business that makes widgets for $2 that retail for $4 is a business that is scalable.
4. Have real (not false) confidence and be emotionally intelligent: Yes, it’s all about the numbers, but then again, it’s not all about the numbers. You have to be a cheerleader for your business while being able to read the room.
Says Barbara Corcoran, “Make sure you can sell your product, because if you as the head of the company can’t sell it, who will? Also be sure you’re ready to answer the two key questions too many of the entrepreneurs who come on the show can’t: 1) What will you do with my money? and 2) How will I get my investment back?”
5. Be unique in the marketplace: The products that get some love are usually those that are 1) different, and 2) clearly serve a market need. Again, Barbara Corcoan puts it well: “If your business idea clearly answers a need in the marketplace, it’s probably a good idea. If the need is already being met by well-entrenched competitors, it can still be a good idea if it’s a new, cheaper or more clever way of doing it.”
Follow these rules and hopefully you wont be eaten by the sharks.