How entrepreneurs can think like a “Shark Tank” shark
I'm a “Shark Tank” fan. In a one-hour show with four to five entrepreneurs pitching five very successful business owners/investors, we get a good sense about what's core to making a business successful.
Think about it. The sharks are investors and are looking for a return on their capital and their time. What's most interesting is that the best entrepreneurs, the ones who almost always get an investment, approach their business in the same way, as an investor of both their time and money.
To think like a shark, entrepreneurs should ask themselves a simple question, “How can I maximize the return on my entrepreneurial investment?”
The answer lies with the questions the sharks almost always ask. First and foremost is passion. Sharks want to make sure the entrepreneur is passionate about what they do and are committed to it full-time.
Without that, everything else doesn't matter.
With passion and commitment established, sharks usually ask the following types of questions.
• What are current sales?
• How much does it cost to produce the product?
• Who are your customers?
• How do you reach your customers?
• What is the customer acquisition cost?
• Are your products and/or company unique?
• Do you have a patent?
What the sharks are seeking to understand are operational aspects of a company, namely sales volume, production costs, margins, marketplace, marketing and sales strategy and tactics, and competitive advantage.
Effectively answering the critical questions and focusing on return on investment requires entrepreneurs to operate in two management modes. The first is the entrepreneur as a business operator. This is a sleeves-rolled-up, get-the-job-done role.
Entrepreneurs have to operate in this mode because that is how the value of the business gets created in the eyes of their the customers. Operating entrepreneurs improve their product, service and value. They identify the best customers and hire the best people. By doing the smart operational things, entrepreneurs drive the most important element of success: sustainable and profitable revenue.
The second management mode the entrepreneur should incorporate is the entrepreneur as asset manager. Asset managers are decision makers regarding the assets of the business: the people, the management team, the money and the markets.
Effectively managing assets maximizes margins, creates operational efficiencies and increases profit. Increased profits increases owner's equity, which is the balance sheet item most important to a shark and an entrepreneur.
Thinking like an asset manager involves some changes in approach, including:
• recasting company financials, focusing on EBIDTA (earning before interest, depreciation, taxes and amortization) as a primary financial measure of strength and success
• changing spending habits, tightening up on unnecessary expenditures
• managing inventory levels
• looking at the past for a true picture of where the business is, not looking at the future projections as indicators of what you can bank on
An asset manager is deeply involved in the business but also steps back from the business, viewing it as a shark would view it. What would a shark consider important from an asset manager perspective?
• Financials
• Management team and staff
• Customer pipeline
• Technology
These are the assets that interest an investor, and they should be the ones that are paramount for the entrepreneur. The asset manager asks the question, “How do I leverage the business' assets (especially the above four) to maximize profit and value?”
Being an operating entrepreneur and an asset manager means keeping one eye on building value and the other on ROI. It's your time and your money. You have the ability to control the return you get on that investment.
The stronger the return on the investment, the faster you become a shark. n
Ken Cook is the co-founder of How to Who, an organization focused on helping people effectively build relationships and building business through those relationships.
Learn more at www.howtowho.com.
WBJ Web Partners
Most Recent
Most Recent
0 Comments