Love it or hate it, Shark Tank can show you how good – and bad – some startup ideas are, how prepared some people are and that truly any idea ‘could’ be a good one. With even the ‘sharks’ making mistakes – such as the wifi enabled doorbell, that the Sharks said wouldn’t work, being purchased not 12 months later for over $1billion by Amazon – everyone can take away some serious learning from Shark Tank how to get their own ‘start-up idea’ off the ground and running – and potentially on the show.
One of the most important elements of any business is its ability to scale. If your business can do 1 or 10 million units easily, then you are ready to roll. Getting to this point, however, is not a walk in the park.
As a start-up, often founders look to add more value, but doing more, for less. However, when a business has a cost base that is really high, it does not appeal to investors at all. The trick is to ensure that costs are kept to a minimum, that the cost of providing a good or service can be proven to ‘go down’ as your business sells more or scales and that through outsourcing key functions – such as manufacturing or sales – you can run lean and drive profits.
Where is the value? One of the key elements of any business is to know what it is worth. Don’t just say that it’s worth $1million. Know. Speak to a financial advisor or accountant. You need to factor in your brand, your inventory, your assets, liabilities and of course the goodwill to your brand. Then you need to look at your annual turn over and work on 2-3 times that as a general rule. That being said, the best thing is to understand a ‘true’ and ‘current’ indication of what your company is worth before pitching to anyone, let alone the shark tank.
Just because it is your idea, it is sometimes a better idea in the interest of business growth to give up the controlling stake in order to get where you want to be. 49% of $10million is better than 100% of $100,000. Sometimes, and yes, this is hard you see on Shark Tank the owners of the business getting offers, which would see them lose potentially 20% even 50% of their business to the Shark. This is ok if the growth prospects are exponentially better by doing it. You need to know when to hold them, and know when to fold em!
Not every deal is a good one. Sometimes when deals are not giving you the growth potential you need – which in 90% of cases is more important than the dollars, it may be time to walk away. Sometimes if you walk from negotiations, you gain the upper hand and concessions from potential investors – remember it’s not just a one-way street.
Before you step on the set of ‘Shark Tank’ or any business pitch for that matter, know why you are there and what you want. Understand your business, know it in and out, then enter the negotiations. Understand what ‘you’ bring to the table personally and what specifically you are looking for – outside of simply money. Marketing help, scaling help, sales training, operational planning ensure that you have a ‘game plan’.
Know you ‘competitive advantage, what you are better at than anyone else, what you have a trademark over, so they know they can make some money based on what you – and eventually them – own.
Sharks are Sharks because they attack. Just because you don’t get your magic number, negotiate, work with them, play with them…remember they love the fight. Venture Capitalists are not looking for a push over, they are looking for competent experts or people that they can work with to make money.