BQE Guest Blogger: Leslie Shiner—author, speaker, and trainer—has more than twenty-five years of experience as a financial and management consultant. She is the owner of The ShinerGroup, a consulting firm helping businesses gain financial control.
I have to confess – I love watching Shark Tank. I enjoy watching the Sharks grill the entrepreneurs. The Sharks ask many questions that all business owners, even those not seeking investors, should ask themselves on a regular basis.
The first step for an entrepreneur on Shark Tank is to ask for a specific dollar amount in return for a percentage of ownership of their company. When the entrepreneur presents this number, the first thing I do is the math to determine how the entrepreneur has valued their company. The math behind this is: Dollar Investment divided by Percentage Ownership = Value.
The valuation is easy to estimate when the entrepreneur asks for something simple, such as $100,000 for 10% of their company (this puts the valuation at $1 million). But sometimes, the entrepreneur asks for a different amount and different percentage, such as $325,000 for 13%. As I sit on my couch, I whip out my phone and open the calculator. In this example, the entrepreneur would have valued their company at $2.5 million. ($325,000 / 12%)
The discussion between the entrepreneurs and Sharks boils down to knowing your business. These are the 7 points that I’ve learned from the Sharks to help you improve your company and creating a business that can be stable, growing and profitable.
1. Know yourself
Know your strengths and weaknesses. Do you need help or excel at sales, project management, financial management, employee management? Look for ways to fill the gaps of your strengths; when hiring, don’t just hire a clone but hire someone to do what you don’t do very well.
2. Know your customer
Many entrepreneurs overestimate the size of their market. Focus on which customers provide the most profitable projects, not just the largest ones. Determine your sweet spot and sell projects that are within those parameters.
3. Know your numbers
While you may have created a business based on your specific skills, and those skills may have helped you grow the business, those skills may not be the skills you need to run a business. As one of the Sharks, Mark Cuban, said: “Follow the green, not the dream.”
The Sharks always want to know the numbers – sales volume, margins, and projections. If you are not able to clearly answer the same questions about your business, you need to focus on learning how to manage your business by the numbers, not by the gut.
4. Know your costs
Some costs are variable and other costs are fixed. If you don’t know the fully burdened cost of adding another employee, you cannot grow profitably. If you can create an operating budget and analyze your costs based on different levels of revenue, you can be confident that an increase in revenue can be accompanied by an increase in net profit.
5. Know your marketing
The sharks commonly ask questions about customer acquisition, such as:
- What is your customer acquisition costs?
- Do you know how much it costs to get a new customer or a new project?
Make sure you create a marketing budget and track the results of different marketing campaigns.
6. Know your employees
Barbara Corcoran, one of the sharks, said: “Make sure you pick good people to build your business with, as they'll determine 80 percent of your success."
Your employees are the face of your company. And you should pay attention to the image they project. Invest in training and consider creating an incentive program.
7. Finally – close the deal!
If an entrepreneur gets the investment, this is just the first step. There is then due diligence, contract review, and possible buyer/seller remorse. Sometimes the deal never goes through. It’s similar to your sales process. Just creating the sales proposal doesn’t mean you get the project. Know the questions the client will ask even before they do. Overcome the objections so you can finally close the deal – all the way through!
Want more tips to improve your bottom line? Click below to download a free eBook on key financial metrics to measure your project preformance.