7 things you could (and should) learn from Shark Tank to help you reel investors in
Creating and running a successful business requires more than just innovation, it requires business acumen and a hint of psychic powers. How do you get some of that you ask, well, you could always study an MBA, read a ton of books, attend (over-priced) business seminars with industry expert keynotes and see if that does the trick…orrr, you could just watch shark tank and learn from real life situations.
Granted, watching shark tank will not turn you into a rockstar CEO overnight — what it will do, however, is give you a sneak peek into what it takes to build an investable business.
So, if you’re starting your entrepreneurial journey with the hope that someday, you can reel in some huge investors and transform your business into a national, continental or global presence — then, keep reading!
Having a product isn’t the same as having a business
This is a misconception that many budding entrepreneurs have; developing a product doesn’t always mean that you can build a business around it. Many products will not be able to serve as the cornerstone for a fully fledged business and realising early on if your product can do so or not will save you a lot of time and ensure that you employ the right strategy early on.
Distribution is key
You’ve built this great product and everybody wants it, kudos, you’ve made a great first step. Here’s the thing though, investors want to know that you have worked out a way to get the product to all your prospective buyers. Now, I’m not saying you need to have all the distribution channels set up before any investor will take you seriously, you do, however, need to have a pretty good idea how you’d get the product to consumers going forward — avoid ambiguity and be as specific as possible when you’re communication your plans to your investors; it’s a great look!
Keep track of your numbers
Regardless of how hip, useful, futuristic or in-demand the product you’ve created is or how likeable you are as a person, to your prospective investors, the bottomline is, what are your numbers?
From the moment you set up shop, it’s important that you track all the revenues you’ve generated from sales. Invest time in keeping proper records that clearly highlight growth (or decline) from one time period to another. Investors (the good ones anyway) are always thinking bigger picture; what the product could be rather than what it is today. It’s your job to help them see that and extrapolate how big your product could get — this is the part where you dazzle them with sales projections.
There are very few things more attractive to an investor than a product with a huge margin. Knowing your margin means you’ll have to keep track of all your expenses as well so that you can express how the margin has been changing over time. Be sure to let your prospective investors know if the margin can be increased in the future and how you intend to do this.
If your product is intended for the mass market (say a juice box or candy), many investors will be especially lured in of you can slash the price while maintaining a high margin. From this, you can tell that ultimately, you want to keep your costs of production at an absolute minimum.
Why does margin matter so much to investors you ask…well, profit is inextricably linked with margin!
- Cost of User acquisition
Remember how we said investors were all about the big picture, well, part of that big picture is being able to visualise your product achieving accelerated growth. As such, they want to know how you’ve acquired customers up until that point and how much it cost you to do so. You always want this figure to be as low as possible and more likely than not, the investors will want to know what the rate of customer retention is as well.
- Debt and/or sunk capital
Building a new business is neither easy nor cheap and it’s likely that you’ve invested some of your own money and/or taken a line of credit to stay afloat. Keep a record of all funds that go into the business as well as the sources of said funds. Investors generally avoid heavily indebted businesses, but if your sales and margin are strong enough, then, the debt might not matter too much. Also, you having invested a ton of your own money demonstrates that you believe in the business and demonstrates a willingness on your part to get things done!
It matters who the investor is
Getting investors in is such a daunting task, so daunting in fact that after speaking unsuccessfully to a couple of them, you’ll likely start to get more and more desperate and settle for investment from…well, anyone. Here’s the thing, some investors are more valuable than others.
Depending on your line of business and their expertise, some investors will offer your business boosted credibility, advice, a network of their associates, positive involvement in the day to day on top of the financial resources you need; others will have no more value than their ability to write you a cheque. You should always look beyond the stack of cash and look at the investor’s profile to make sure you’re getting an investor who’ll be more than just a name on a list.
Build the right team
More than anything, an investor opting in is an acknowledgement of your efforts and abilities as a team. Ergo, as you prospect the investors, you’re going to want to be able to show that all members of the (well structured and led) team add real value to the business.
A great team can salvage a lousy business…a crappy team will drive even Google to the ground
A company valuation that doesn’t make you seem naive
When all is said and done, the call-to-action to the investors will be something like so: “We are seeking a $ 10,000 investment for a 10% stake in our company.” Let’s look at what this statement means to the investor:
Company valuation = $ (10,000 * 10) = $100,000
If your valuation seems ridiculous to the investors, this can only hurt your chances of walking out with a smile on your face. I found a great post by Stéphane Nasser explaining 9 methods for startup valuation as well as an amazing infographic on fundersandfounders.com explaining how startup valuation works. These resources should get you well on your way to creating a valuation that doesn’t hurt your chances of getting the funding your business needs to thrive.
The presentation matters
You’re saying to this group of investors that they should write you a cheque of their own hard-earned money so, yeah, of course the presentation matters. I wrote an article Perfecting your investor pitch that you might find helpful.
Let’s wrap this up
Shark tank is great TV, but it’s also a great way to see how investors and company founders interact in a myriad of real life situations. Good luck on your journey to catch a great white of your own.
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