Business advice

The “Shark Tank” is educational
October 11, 2009, 7:37 pm
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I hope everyone has been watching it as it shows up on prime time television.  There are many business lessons here in easy-to-understand language.

Last week’s biggest issue was the evaluation of a business that was already up and running.  Entrepreneurs come in asking for a set figure in return for giving up a certain percentage of their business.  Most offer to give away a much too small amount; and in some cases it causes them to lose out and have their trip be for naught.

A group came in with a company that sells designer belt buckles.  They were asking for $500,000 and this was based on current sales and what they were willing to give away.  No matter how the numbers were put together, it didn’t add up.  The business owner wanted the sharks ‘to see the bigger picture.’  That translated to sales he hoped to have in the future.  Obtaining venture capital doesn’t work that way; or, at least it shouldn’t.

The next most important issue that either makes or breaks a deal here in the ‘Tank’ is sales.  Do not come to them or any other venture capitalist with only a prototype of a product.  A couple of them did just that and it wasn’t enough.  They want to know sales during the past year.  They want to know the dollars you brought in and also how much was left over.  In other words, what was the net on the sales you made?  They want to know the projections for future sales.  Do you have orders?  Do you have a distribution chain lined up?  Have you been going to trade shows?  And in some instances, have you approached a major competitor, for a possible sale.  They and any other venture capitalist want to know if you see the big picture.

Knowing your market is also a part of it.  They want to know and do ask regularly how big the market is for any given product.  One woman had designed gadgets to insert into meat while it was cooking on the grill.  It told the chef whether or not it was well done, medium, etc.  The person had the numbers on how big the grilling business was.  It is huge.  George Foreman made a couple of mints on his grills.  That information along with her previous planning got her the deal.

Additional factors that come up:  do you know your competition; how much of your own money have you put into the business already?  Many details turn out to be important to the Sharks.  One man revealed to his determent that he had a personal bankruptcy.  That lost him the deal.  The Sharks concluded that theirs wouldn’t be the only money he would ever need to grow his business to its fullest potential.  If it came time for him to go to a bank and ask for more money it wasn’t going to happen.

Some of the misconceived ideas entrepreneurs come in with include thinking they are going to give away only 10 or 15 percent of their company in exchange for a big chunk of money.  It doesn’t work with these guys and I’m betting it doesn’t work with banks or other venture capitalists.  Get real when it comes to asking for financing.

Some of the entrepreneurs seem taken with the idea that one of the Sharks is going to help them.  The only they are doing is trying to do is make more money for themselves by investing with one of the small business owners.

The Sharks also want to know where and how you are going to use your money.  They have learned since the late 90s when entrepreneurs took investment money and threw wild parties.  That time is over.  Also, be prepared, if asked, to know when you will be able to pay this money back.

This show is a business class on prime time television.  If you don’t know when it is on in your area, search the tv guide website.



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