Want to start your own business or land an investment to take an existing business to the next level? Watch Shark Tank. Until you add this show to your Hulu or DVR, don’t say you’re serious about entrepreneurship. One hour of the popular reality TV series can teach you more than a dozen magazines, even if you’re just watching it in the background. Here are 6 Business Lessons Learned from Shark Tank that are sure to take your aspirations to the next level.
1. Costs, scale, outsourcing and eliminating waste.
The unnecessarily high cost of doing business can be detrimental to your company and to investors. Whether seeking a venture capitalist investment, higher profit margins or both, nothing can derail that faster than a high cost-per-unit or the inability to scale for future growth.
Salaries have been stagnant the last several years while the cost on virtually every good out there has gone up. It doesn’t matter if you sell a product or service, there is always room to cut out needless expenses, and the economic climate for the foreseeable future will increase those demands.
Watching Shark Tank will teach you in a hurry that outsourcing and going offshore is not such a bad thing for the small business owner. In fact, one’s willingness to manufacture in other countries is often the difference between a contestant landing a shark or going home with nothing.
In your own business, it’s about deflating the cost of what you sell and inflating profit margins.
2. Learn to credibly value your company.
Kevin O’Leary – the self-proclaimed “Mister Wonderful” on Shark Tank – may annoy you with his crude comments and repetitive questions, but there is a lot of value in what he has to say. Watch any contestant appear in the tank, and the first thing O’Leary generally attacks is “the valuation.” You’re asking for $150,000 for 10% of your business, he states. “Tell me why your company is worth so much.” The good business people are able to do that with sales figures, secured patents and other forms of hard data. Without these things, you’d better have a darn good idea and the ability to pull it off if you hope to survive the Tank.
But whether you’re seeking investors or not, it’s important to value your company credibly. It helps in knowing where you are, where you’ve been and where you’re going for future growth. In the example mentioned above, a $150,000 investment for 10% of the company would mean that the player values his company at $1.5 million. Whether it’s really worth that or not will be shown in sales and profit margins.
3. Know when controlling interest is important (and when it isn’t).
Many players in the Tank are concerned about giving up too much control of their business, but there comes a time when it’s a good idea. Knowing when that time is can make all the difference in the world between advancing your business or closing its doors. Have a specialized idea that requires demonstration as a major selling point? Home Shopping Network creator Lori Greiner is probably your best bet. Something in the sports and entertainment field? Try Mark Cuban. Fashion? Daymond John’s your guy.
Whether inside or outside the Shark Tank, it’s important to know what you do well and what is holding you back. From there, a potential investor’s knowledge base, contacts and business acumen could be helpful enough to consider giving up a broader stake in your company. In simplified terms, you might not make $5 on every widget sold anymore, but knowing when controlling interest is important (and when it isn’t) can be the difference between selling 10 items at $5 profit or 10,000 at $1. Most would rather the latter.
4. Be prepared to walk away.
Players have blown opportunities and secured deals by their willingness to walk away. The key is in knowing when it’s right and when it isn’t. And that doesn’t strictly apply to seeking investments either. Every day you have to look at whether an idea is producing the types of results that it should be to grow your business. If it isn’t, you can retool. But at some point, if you’ve sunk too much time and money into it without seeing the results, then you need to be prepared to walk away same as you would from a Shark, who is trying to low-ball you.
5. Have a clear assessment of your goals before negotiations begin.
Many a business person has screwed up their chances in the Tank because they didn’t know whether to sell a product, license it or franchise. Unclear goals can be critically harmful to the success of securing an investment, but it can also cause your business to never take off. It’s the “Jack of All Trades, Master of None” Syndrome at work. Your business can never excel unless it does something extremely well. And it’s rather difficult for that to occur when your goals are confused and cluttered.
6. Stay hungry.
Negotiations in the Shark Tank deteriorate quickly when a business owner overreaches on the amount he is looking for from an investor. Cuban has said on more than one occasion that he looks for business persons that are “hungry,” and that someone seeking a six-figure salary in order to prove an idea at a new level is probably just looking for someone “to take care of them.” That isn’t the type of person that a Shark would want to invest in.
But even outside the Tank, your business can only grow to optimum heights if you stay hungry. The minute you get comfortable is the minute you stop growing. And in an increasingly challenging business environment, status quo might as well be falling behind.