Just getting on ABC’s reality pitch show “Shark Tank” is an achievement in itself, bringing a great deal of publicity and new business to any growing company. But even confident entrepreneurs with solid revenues can get tripped up and lose potential deals if they’re not prepared for the questions that are almost certain to come their way.
The investors on “Shark Tank,” and investors generally, typically ask several specific questions to get the answers they need. Some are straightforward and some a bit trickier, but hopefuls would be wise to have excellent answers prepared or tailor their pitches to answer each right off the bat.
Here are eight questions that every entrepreneur should consider before pitching:
1. What are your sales?
This is always the first question. And just knowing the dollar figure isn’t enough. Where are they coming from, on what platform, are they driven by promotions, and what sort of partners are you working with? Is the marketing working?
The number better be good, too. You can’t charm the Sharks into liking a company that isn’t likely to make any money.
Most importantly, the Sharks want to know if sales are growing and what your plan is to keep it that way. You should have a story about how expanding to new geographies, new product lines, or online has boosted or can potentially boost sales. The investors are profit-focused, and the more a business can scale, the better.
2. What do you bring to the table?
The investors on “Shark Tank” say over and over again that an investment isn’t just in an idea or a business, but in the entrepreneur themselves.
That means being able to highlight a record of success, industry experience, or why you’re dynamic enough to justify taking a gamble on. A strong personal story or a great narrative about the business, along with strong presentation skills, go a long way toward answering this question.
3. Why do you need our money?
This might be the question that trips up entrepreneurs the most. It’s usually not enough to seek funds to simply grow the business and have the help of an experienced investor.
Instead, it’s much more effective to know exactly what you could do with the amount of money you’re asking for, and how it could help the company grow and scale rapidly. Whether it’s building out production, hiring, or marketing, spell out exactly what the plan for the funding is.
4. Why the big valuation?
It’s in the Shark’s interest to get a big equity stake in a promising company for the least amount of money invested. So if you’re asking for a hefty valuation at a significant revenue multiple, you better be able to explain your justification logically and in detail.
5. Is your product unique?
If you’re entering an already crowded market, you had better have an excellent case for why your product or service can beat out competitors.
And if it’s something new, can it be copied easily? If you’ve invented something that’s truly unique and don’t have a patent, you haven’t done your homework or adequately protected your business model.
Knowing what sets your business apart, and how it can be protected against competitors is absolutely essential.
6. How much debt do you have?
If your business is funded by money you have to pay back, an investor is going to want to know. They’ll likely be wary of helping make someone’s debt payments for them.
If there’s a large amount of debt, be able to justify it, and know the terms it’s been borrowed under.
7. How much inventory do you have?
One of the best signs of a well-run business is that you don’t have a whole bunch of product lying around. Excess inventory is dead weight, since it’s money you’ve spent that you’ve earned zero return on.
Being able to produce products in response to demand is a sign of having good data, a good sense of the market, and a good supply chain. A big warehouse of product makes it look like nobody wants it, even if that’s not the case.
8. What are your costs?
Investors want to gauge your ability to make high profit margins by keeping costs low or having enough demand to keep prices high, or ideally both. You should be able to explain what it costs you to make each product or service, and the difference between that cost and the unit sales price. You should also prepare to outline overhead costs, such as rent, utility expenses, and insurance.
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