Seven simple words that every entrepreneur long to hear when standing in front of five examples of hard work paying off. They are an inspiration, whom people aspire to be, and hope they are one of the lucky ones to receive insight and the resources to grow their own business to new heights.
If you haven’t guessed already, I am talking about Shark Tank (in the UK it’s called Dragon’s Den). I am obsessed with the show and not just because I wait with much anticipation for what innovative (or ludicrous) idea is revealed, but because I find the Shark’s assessment fascinating. How they talk through the business idea, how they evaluate the risk, and structure an offer. Got to love a Mr. Wonderful royalty deal!
It also illustrates how important it is to know your numbers. It’s one of the quickest ways to go from peaking the Sharks interest to leaving with no offer. If the numbers don’t make sense then a Shark rarely takes a bite.
Of course, those appearing on the show are seeking business funding, but even if you’re not, it’s good to review your business as if you are pitching in front of a panel of investors. How would you answer their questions? Would you feel confident in your numbers and explaining them to someone else?
The first question the Sharks seem to ask is “what are your sales?”. It’s not just about knowing your numbers but the backing and support that goes with it. Anyone can say they will have $100k in sales in their first year, but you should have a realistic idea of where this is coming from because sales require strategy. Are you targeting the correct demographic that will increase the chance of closing that deal? Have you thought about who your perfect customer looks like and where they might be? What is your process from initial communication to purchasing your good or service?
This also requires balancing between challenging yourself and being realistic. If you are currently trending at bringing in $1k a month, raising the target of $50k a month is going to be very tough to achieve without a specific plan. A good place to start is calculating how much you need to bring in to cover your costs. If your expenses total $5k then your break-even (the number that makes your sales less your costs equal zero) is $5k. Any less than that and you’re losing money in your business.
Another big question is ‘what are your costs?”. It’s fantastic if you’re bringing in $500k a year, but if your outgoings are $490k a year, then your margins are pretty thin. Yes, your sales are a big driver, but you want to make sure that you are running your business profitably as well. How well do you know your costs? Are you aware of how much you’re spending on subscriptions, advertising, or overhead? Could you talk about your margins confidently? It’s a great exercise to review your costs to ensure that you are not spending unnecessarily which will help with profitability.
Take it from some of the most successful entrepreneurs out there. The numbers can make you or break you, and without continuous review you are steering your business in the dark. Look at your business standing from the outside. It’s so easy to get caught up in the details when you’re in it. You are trying to get through your emails, paying bills, updating your social media, but you want to make sure that you invest the time to spend on the bigger picture of your business.
Those who have not watched it the show, go find an episode now! It will put your business plan into a different perspective. If you are an avid watcher like myself, what’s your favourite pitch so far?