3 Small Business Lessons Learned from “Shark Tank”
Whether you tune into ABC every Friday night or you’ve come across reruns on CNBC chances are that you’ve at least seen part of the reality show Shark Tank. On the program small business owners present their companies to the Sharks — a panel that currently includes Robert Herjavec, Lori Greiner, Kevin O’ Leary, Daymond John, Barbara Corcoran, and Mark Cuban — in hopes of getting an investment. Like any reality show there are elements of Shark Tank that aren’t as they appear (segments are edited and deals may fall through after the taping) yet overall the show is not only entertaining but can also be inspirational to entrepreneurs. In fact there are at least three lessons to be learned from the show that apply to all small business owners:
1) Know Your Numbers
If you ever see a segment of the show where an entrepreneur is unable to or unwilling to answer the Shark’s questions in regards to their bookkeeping you know they’re about to be eaten alive. Some of their questions are basic such as “what are your sales?” while others may get a little more technical like “what is your customer acquisition cost?” Obviously having these numbers in your head on a day to day basis is different than when you’re pitching an investor but there is value in monitoring a few basics.
One number you’ll certainly want to know is exactly how much it costs you to get an item ready to sell. This could include materials and labor costs to make it, the price you paid to buy and ship the items to you, and any additional items associated with the sale such as bags or, for e-commerce, shipping to the customer. Knowing your exact cost will allow you to properly price your item for sale while maintaining a healthy profit margin.
This factors into another important number to keep an eye on: your actual profit. Too many times the Sharks are wowed when the entrepreneurs announce that they have $1 million in sales only to be left scratching their heads when they go on to say they only made $50,000 in profit from that. A lot of things can affect your profits including labor, marketing, and utilities but if there’s that big of a discrepancy between how much your selling and how much you’re actually making then something is wrong. By keeping on top of your numbers you can spot these issues and figure out a way to correct them before you waste tons of cash.
2) Have a Well Thought-Out Growth Plan
When entrepreneurs enter the tank it’s usually to secure money to fund an expansion of their business. This quickly leads to discussions of how they plan to scale their business and whether it’s even feasible. Sometimes the Sharks love the owners’ ideas and sometimes they hate them. What’s the deciding factor?
Often times the Sharks biggest gripes with companies looking to expand are that they’re a) trying to do too much too fast or b) entering a new arena that’s not right for them. When small business owners start to see success with their first venture they may start dreaming of replicating that success by opening more locations. After all, if you can make $200,000 a year at one store, what if you had 10?! However smart entrepreneurs like the Sharks know that along with all that potential comes a whole lot of risk and capital. Your plans to expand should be guided by demand and not greed.
Another classic mistake that business owners make is to expand beyond what they know or what they’ve been successful at. Perhaps the entrepreneur has done well playing in a niche market but now they want to take on the big guys in the mainstream. As Mr. Wonderful would say, “what stops them from coming in and crushing you like the cockroaches you are?” That may be harsh but the sentiment is right. It’s often better to make the most of your small market by adding complimentary products and services than to try to enter a bigger and more competitive market just because you think you can.
3) Trust Your Instincts but Be Open to Other Ideas
How many times do entrepreneurs lose out on a deal simply because they think they know more than the investors? All five Sharks could be telling them they’re plans are misguided but the business owner would still stick to their guns. Granted the Sharks may not always be right but they’re probably worth listening to.
Being an entrepreneur can be a blessing and a curse. Your hard work and drive to succeed can bring you to amazing places. However some business owners can be stubborn in their approach to business, which could lead to their detriment.
The strongest business people know a good idea when they hear one and you should always be willing to consider someone else’s suggestion. This doesn’t mean that you should always do whatever someone tells you to (that’s another thing that will get your head chomped off in the tank) but you should at least have an open mind. In the event that you do take someone’s advice and it pays off you’ll never be so happy to have been wrong.
The lessons that small business owners can learn from Shark Tank go beyond knowing how to put together a good pitch. Many of the fundamentals that the investors stress can help entrepreneurs run their businesses more efficiently and grow sensibly. Although it may be easy to write off the reality show given the brain-dead reputation other programs in the genre hold, when it comes to Shark Tank, there might actually be some knowledge to gain.