- Founder Spotlight: Laura Fitton,CEO/Founder At OneForty & Twitter For Dummies Co-author
- 40 Startup Pitches At Copenhagen Startup Weekend 2010
- These 15 Companies Raised Over $190 Million In Funding This Week
- Ethical Shoppers Can Now Shop With “The Good Shopping Guide” iPhone App
- 19 Reasons Why You Should Use Mobile To Your Advantage
Reality TV has been criticized as a cesspool of dysfunctional behavior that does nothing more than feed our voyeuristic desires. Critics are then proven right every week thanks to shows like “The Bachelor,” “Jersey Shore,” and “Real Housewives.”
While I agree that reality TV could clean up its act, there is one reality TV show that provides a valuable service (and I’m not talking about the show “Who’s Your Daddy?”). It’s “Shark Tank,” ABC’s reality TV show that features a panel of five investors who evaluate investment opportunities. This show can help prepare entrepreneurs for an investment pitch session while also providing entrepreneurs the ability to evaluate their idea, start-up or business to see if it is ready to accept capital.
Here are a few things “Shark Tank” has taught me:
1. How to Determine Your Business’ Worth
The reason you are there is to raise money for your company. However, it never ceases to amaze me how many small business owners have no idea what their business is actually “worth” to an investor. The worth is determined by the percentage ownership you are willing to give up based on the amount of money you need. The factor here is how much money you are actually making! It is key to know that if you aren’t making any money then you have to offer more of the company to an investor. They really are taking all the risk.
To often numbers are pulled out of a hat, even if you do have sales to date. For example a company might have $80,000 in sales over 3 years and is asking for $200,000 at 25% equity. This suggests that you are valuing your business at $800,000. This is 10 times the amount of money you have grossed over a three year period. To an investor this looks as though you are completely lost in what your company is truly worth. The odds are you will never see investment with these types of numbers.
Although you may need $200,000 you have to base it off what you are earning. If you needed $200,000 with the same revenue model up the equity to maybe 80% and see what happens or sell your business outright.
To make it easier to come up with a number first determine what EXACTLY the money will be used for. If you have an order to fill and you can’t fill it, then an investor will be much more likely to invest! You have to have a clear plan for the money. Once you have this plan see if it fits into this number scale. Sales (per the year) and a half is a good starting point. So if you sold $40,000 it is safe to ask for $60,000.
In addition to knowing the value of your business, investors want to know how much you have invested in the company or idea, how much you’ve sold, how much profit you have made, how much you need, why you need the money, and when they can get their money back.
2. No One Knows About Us
One of the popular questions asked by the Sharks has to do with sales. The response to this question ends up with the entrepreneur fumbling around the concept of: ‘No one knows we are out there” “I have no money for advertising” or other similar concepts. This is probably one of the worst excuses for why you aren’t doing well. No one knows about you because you aren’t willing to do what it takes to make your product bigger. As a business you have to learn Search Engine Optimization(SEO). SEO is a FREE service you owe to yourself to get your product known on the internet. It takes a lot of time to get your product out there and if you aren’t doing the basics why would someone invest in you?
3. Focus on the Market not the Product
Many entrepreneurs focus on their product first and then try to find a customer to buy it. While this has worked, it is not the preferred method for many businesses, especially start-ups. The lean business model is really what the Sharks are looking for. Did you fill a need and who and how many people are willing to pay for that service. While the sales pitch is important, more times than not showing that the product you created was designed around a proven need (as in people are buying and you can’t fill your orders) the Sharks will fund you. Plus this is a good problem to have!
4. Quality not Quantity
When pitching, I’ve noticed a lot of the entrepreneurs talk about growing their company so they can mass produce the product. Time and time again, the Sharks preach staying within a specialty market and charging more. It is a misconception that in order to have wealth that you need to sell your product all around the globe. More often than not if you stay in your local area your product will do much better. You can save yourself thousands of dollars and nail a specific geo targeted area. This obviously depends on the size of the market, the type of market being targeted and what it would take for you to spread your wings in the service or goods you are providing.
5. Perfect Your Pitch
As an entrepreneur, it’s your job to sell your unique solution. To do this effectively, you need to master the art of the elevator pitch. An elevator pitch is a short overview of your product/service that can be delivered in the amount of time it takes to ride an elevator. The key with your pitch is to SHOW not tell. The better you can show how your product is working the better your chances of having an amazing presentation will go. You will also have an easier time telling your story.
A strong elevator pitch must effectively communicate your company vision, mission statement, customer demographic, and your unique solution in less than 3 minutes. PRACTICE!!! You have to practice this a ton. It should be second nature. Once your nerves kick in you need to rely on repetition to get you through your talk.
6. It’s Not Personal, It’s Business
Entrepreneurs are so passionate about their ideas they often think they can convert investors with sheer enthusiasm. While investors want to work with someone who can passionately sell their own product, they do not care about the entrepreneur’s commitment or sacrifices made. At the end of the day, all the investors care about is how their investment can make them more money. This has been seen a few times where the Sharks have discussed firing the person selling their product once they have purchased the company for 100%.
Many of the entrepreneurs have found this to be disrespectful. I feel like as an entrepreneur you need to weigh your options. Do you really have the ability to make your product bigger? Are you really the right person to take you business to the next level? And do you really want to keep working on this project as a side job, while continuing to work a full time gig to pay the bills?
If viewers pay attention to what “Shark Tank” has to teach them, they will quickly master the points above and will be swimming with the sharks in no time.
About the Author: Tim works for CableTV.com as an SEO and marketing strategist. He has watched every episode of Shark tank. He and his wife are partnering in an amazing company and the lessons learned from this show have been invaluable. We love when people struggle, present good and bad ideas and especially when they get funded. Follow Tim on Twitter. @TimLCooley