I believe that every entrepreneur should watch Shark Tank. It is a great show and features some very successful entrepreneurs, turned investor. It also can be a glaring example of what not to do when approaching investors for money. Being prepared is so crucial and below I want to share 7 tips based on mistakes I saw presenters make on the show. I wanted to mention each participant or company to give them a “shout out” but I didn’t want people to get the wrong impression and think I was putting them down for the mistake they made. What they did took guts, whether they were well prepared or not.
1. Have a Realistic Valuation of Your Business. The value of your business is not a just a number you pull out of air, or what you “want” or “feel”. You have to have numbers to back up your valuation numbers, and not all businesses are valued using the same method. Most people believe their business is worth more than it is from what I have seen.
2. Be Focused. Just because you have had success in a certain area, does not mean you are qualified to expand in another area. An investor would rather invest in you and your core competency, than your next unproven idea.
3. Get a Buy In From Those You Know. If your friends and family won’t invest in you, strangers will be less likely to invest in you. There are several stages of investment, and “friends and family” should come before outside investors.
4. Be Passionate. If you are not passionate your business, your investors will not be passionate putting their money behind it. I know it’s basic, but I have seen some lethargic and uninspiring entrepreneurs. If you need a good “face” for the business, get a partner who has passion.
5. Know Your Numbers. I was amazed to see business owners who did not know how much it cost to acquire a customer or other key information such as profit margins and fixed costs. That’s just a bad sign when you are in front of investors. You’ve got to know all of your numbers, and know them well.
6. Know Your Industry. Similar to not knowing your numbers is not knowing your industry. Investors are sharp, so if you tell them “you have no competitors”, you better be sure. Almost every time I hear someone say this on the show, one of the sharks actually knows a competitor, and it goes downhill from there.
7. A Confused Answer is Always NO. I learned this from one of my business coaches. If an investors says “I am not sure what you are offering”, that’s a bad sign. Even worse if you can’t clearly articulate what your plans are for the money (and I hope it’s not just a nice salary for you), your chances continue to decline. You have to be clear in your presentation of what you offer, what problem you solve, and how you will use the investors money to make them more money.
Whether you are planning on raising money or not, Shark Tank is on my “must watch” list for entrepreneurs. If for nothing else, it’s great entertainment, but if you listen and watch closely, you will learn a thing or two.