MISTAKE #1: Know Your Numbers
This is the number one question asked: What Are Your Numbers?
Now if you're not sure what they mean by this (and that's a bit scary if you own or are running the small business), here's at least a few you should know immediately.
• Turnover – by week, month, quarter and year
• Gross Profit - by week, month, quarter and year
• Total Expenses - by week, month, quarter and year
• Net Profit - by week, month, quarter and year
• Costs to make a product/service (eg coaching program), wholesale price (to an organisation) and retail price (to an individual)
Too often, these numbers are ignored completely because 'I'm too busy' or I get told 'I don't need to know those numbers because I have an accountant and/or bookkeeper and that's their job'.
No it's not – it's yours!
Too many people running small businesses have no idea about
• How much money they need to break even each week, let alone make a profit
• What it costs to employ a staff member
• What a product/service really costs including development and delivery time
• How many customers are needed for each product/service to break even, and then be profitable
I could go on and on but hopefully this means you're nodding Yes because you have the answers OR you've put time aside in your diary today to find out.
And always remember the Banker's Mantra because it's no good having a great product/service if you're broke.
Turnover is Vanity
Profit is Sanity
Cash is Reality (or King)
MISTAKE #2: Don't Insult The Entrepreneurs
There's a reason these business entrepreneurs are known as a Shark or a Dragon. They know their stuff, practise what they preach and have multiple businesses, many of which they've built from scratch.
Please respect their knowledge, expertise and credibility and learn from it, rather than thinking you know best. Because if you did, you probably wouldn't need them to invest in your business, oh wait, yes you do need them.
So which small business experts are you ignoring or not investing in rather than utilising them to make things easier, quicker, better and more profitable? And this includes your staff.
MISTAKE #3: Don't Pitch If You Can't Scale
Most deals are for product based businesses which can be quickly and easily scaled, either through manufacturing economies of scale and/or streamlining business operations.
Now whilst small businesses probably don't think of services they offer as a product, the same principles apply if you're looking to grow your business, seeking an investor or looking to sell.
Do you have the capacity within your current team to manage growth in enquiries and take up – either planned or unexpected?
Do you have the capability within your current team to manage this growth or do they need more training?
If you answered no to either question, then I would look at how can you develop/simplify your processes before you decide to market to the world.
Because if you can't cope NOW (and most businesses can't without additional staff and better systems), you'll do more brand damage when you provide inconsistent service and lower your standards instead of spending time in developing strong foundations.
MISTAKE #4: Know Your Ideal Customer/Target Market
Pitching to investors when you can't answer this question very specifically is a cardinal sin.
EVERYONE in (insert your industry sector or geographic location) is not an ideal customer or target market.
EVERYONE is not your ideal customer so if you think they are, sorry you need to spend time answering this question and decide who is your ideal customer and more importantly, who is not.
Once you have clarity about this, then start talking to this ideal customer, in their words, solving their problems (which isn't I need your product/service) and you'll be amazed at the quality of enquiries which start coming through your door.
MISTAKE #5: Have A Realistic Valuation
Again, I shake my head at owners who come in with a $1M valuation and they've sold less than $1000 of product.
Hope is not a strategy and just because there's eg 8 million vegans in the world who need X product, doesn't mean they will buy it.
I've seen the same thing with small businesses who believe they're going to go from zero to 1000 customers in a year, with no database and no clear marketing strategy of how to build and engage their community.
So be realistic about any financial targets and work on the philosophy of under promise and over deliver in everything you do, and that wishful target may eventually turn into reality.
And if you're looking to sell at any stage, unless you have simple documented procedures which actually work, you won't get the multiplier valuation you're seeking because knowledge in people's heads isn't sustainable, scaleable or saleable.
MISTAKE #6: Lack Of Focus Or Running A Second Business
Many people come into the Tank/Den wanting to do 27 things with the business or have 50 products – none of which are working really well.
And some have another business or two and think it's strange when they don't get a deal because they can't demonstrate single minded focus and commitment to this business (yet they want 100% commitment and focus from an investor). Ironic hey?
The same issues apply to small businesses who have too many products/services available so they can't tell me what they specialise in, and this also means staff have to jump from one project or industry to another.
You need to have single minded focus and embrace the learnings from the past few years.
Your focus should be all about Less is More and Do Less Really Well.
MISTAKE #7: Little Or No Negotiation Skills
People can get very excited when they receive an offer and rightly so, but it's important to come back with a reasonable counter offer to show the entrepreneurs you can respectfully and successfully negotiate.
But don't lose sight of the value of an expert, Too many owners have walked out of the Tank/Den without a deal because they didn't want to give up another 2% of equity.
Experts bring their years of expertise and learnings from the mistakes they have made and that's priceless so do you want to give up some equity to get that or not?
MISTAKE #8: All Talk Is About Them And Not Enough About The Business
Sharks/Dragons want to hear about the business specifics and often when pitchers just talk about themselves, it's a red flag that they don't know the details needed to convince someone to invest.
Investors want to know about the customers, the market, the team and how you are going to help them, the investor, get their money back.
So if you had to pitch to someone about your small business (aka marketing), can you provide this detail, quickly and easily?
I'd also encourage you to look at your website – is it all about your customers and their problems – in their language, or is it all about you?
MISTAKE #9: Won't Listen To The Entrepreneurs
Or even worse, talks over the top of them, which links to my pitching mistake #2.
Think about how often you do this to a coach/consultant you've engaged, a staff member you've employed, a customer providing constructive feedback?
I'm hoping not a lot but usually all of us (and yes I include myself) speak more than we listen.
And look at what gold and invaluable advice/ideas we miss out on.
If you're investing in help, please remember, whether you're paying or not, they're giving up their time and expertise so listen more and react less. Your business will thank you for it.
And if you don't want to do this, then unfortunately, keep struggling on your own because no one is successful without help from others.
MISTAKE #10: Little Or No Market Research Or Testing
Coming into the Tank/Den with a product which has minimal or no testing with the ideal marketplace makes it almost impossible to get a deal.
Again, this is a more like a Wish and a Prayer Strategy than providing the extensive data showing how many people will actually buy the product or service.
Too many small businesses spend so much time, money and energy developing a full product/service without actually going out to the ideal customer with the concept and the price to see if people will buy.
Because until the dollars hit the bank account, it's not a real product or service; and people will say anything looks good until they are pushed to invest their hard earned cash.
If lots of people do, then you can start developing the product/service. Otherwise, it's back to the drawing board because even though you believe it's great, the market is telling you no.
Morale of the story
Be prepared!
Look at previous shows to ensure you can answer the questions and listen to the tips provided so you don't end up making a critical mistake, and ultimately losing a possible deal.
And remember:
Just like your customers and your staff; if everything else seems viable, the Sharks/Dragons will then decide to buy you – your personality, your passion, your focus and your willingness to listen and be coached by some of the best business minds.
So how do you and your small business stack up?
