Starting A Business: Is it Ready For The Sharks?
On ABC’s hit show “Shark Tank,” individuals in the early stages of creating and growing their business solicit investments from a group of highly successful entrepreneurs or “Sharks,” as they are referred to on the show. While several popular businesses and products have resulted from investments made by the Sharks, far more have been eviscerated in front of a television audience for issues ranging from lack of revenue, poorly executed strategy, or simply because the business was built on a bad idea.
In the United States alone there are approximately 30.2 million small businesses, of which roughly two thirds have fewer than 20 employees. If you’re thinking of starting your own business, or even have a new business in place, you clearly aren’t alone. Despite those large numbers, roughly 20 percent of businesses fail in their first year of operation due to underfunding and lack of profits. How can an entrepreneur overcome those challenges? What steps can be taken to ensure your new business venture is formidable enough to swim with the sharks? While every business is different, here are three common topics to consider as you work to get your own business off the ground.
Solve a Problem
Creating a business from scratch takes vision and optimism; the belief that there will be demand within a given market for a concept, idea, or product. In season five of “Shark Tank,” an inventor’s son pitched the Sharks on the Tree-T-PEE, which protects trees from frost damage and reduces watering costs. The simple plastic design cost just $2.95 to produce yet could save tree farmers thousands of dollars a year in water costs. The inventor received an offer from the Sharks because his device fixed a very large problem in a low cost, efficient way. Identifying pain points for consumers or businesses is key to creating a business that is scalable and profitable. Looking at industry trends, what the competition is doing, and finding shortfalls between those two areas can be immensely helpful in determining whether an idea solves a significant enough problem to make it worth pursuing as a business.
Solid Business Plan
While not every business starts with a clearly drafted business plan, if the eventual intent is to scale the business significantly, a written plan will need to be put in place. Chipotle founder Steve Ells had no business plan in place when he opened his first few fast-casual burrito restaurants in Denver, but to expand and access outside capital, he realized putting together a business plan was crucial. Though they come in many forms, at its core, a business plan is meant to outline what exactly the company is trying to accomplish and how it’s going to do it. It’s a roadmap meant to primarily convince the business owner and potential investors that the business model is viable and capable of succeeding. A comprehensive plan might include financial statements such as a balance sheet, income statement and statement of cash flows, as well as a more holistic overview of the industry, possible competitors, and what strengths, weaknesses, opportunities and threats (SWOT) exist for that particular business. For tips on formatting and content, there many helpful websites.
If your business is just starting out, chances are you’ve already used your personal funds to get things started and even sought out friends, family or a bank loan to ensure you can meet cash flow requirements. While those are all good initial options, if a business isn’t producing enough cash flow early on to self-fund its operations, then taking on larger amounts of debt or selling equity in the business may be necessary. Wealthy individuals known as Angel Investors or small venture capital funds may be interested in providing liquidity to your business in exchange for some combination of debt or equity, provided you can show proof that the concept behind your business is currently or will be profitable. In more recent years, individuals starting their own business have also turned to crowdfunding to raise money. Websites like Indiegogo allow you to list your business on their site so that individual investors can purchase small equity portions of your business. Small businesses may use a combination of these funding methods, so be open to different strategies and be mindful of which may be the best fit for your business. While it can initially be difficult to navigate some of these topics, talking with a wealth advisor to better understand how your financial picture relates to these areas can be really helpful.
The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be personal legal or investment advice or a solicitation to buy or sell any security or engage in a particular investment strategy.
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