One of my favorite TV shows is Shark Tank. In fact, my kids watch it with me religiously. They still don’t quite get concepts like valuation and equity, but they love cheering on the entrepreneurs, and critiquing their businesses like the sharks. Even though the show is designed to entertain, there are always good core business lessons in every show.
The fundamental flaw of every entrepreneur, myself included, is that we fall in love with our business. Why not? We put our heart and soul into the business. It doesn’t matter if you are starting your agency or have been in the trenches for decades; it’s your blood, sweat and tears. It's your baby.
Speaking of babies, how many parents have you met believe their baby is the cutest and most adorable? All of them right? Well, the harsh truth is while all babies are endearing, not every baby is perceived as “the cutest baby” by others. Plus, my kids are by far the cutest anyway, no contest there.
All kidding aside, just as all parents are blinded by how adorable their children are, entrepreneurs and agency owners are also blinded by the passion they have put into their business. The problem is that their passion often blinds them to the flaws of the business.
When you watch Shark Tank, how many times were the entrepreneurs shocked when the sharks would attack their business? Many of them were genuinely surprised by the lack of interest or dumbfounded by the barrage of questions they could not answer. They genuinely thought their idea was the next big thing.
So what went wrong?
These entrepreneurs failed to look at their business from an investor’s point of view. What would cause an investor to open their wallets and give you a deal? What would cause an investor to say “I’m out!” before your pitch is even done?
Although most of agency owners may never seek investor money, understanding how an investor evaluates a business is critical. It doesn’t matter if you will never raise capital for your agency. It’s important to know what holes and weaknesses can prevent your agency from taking off, or getting to the next stage. Below is a small list of common questions investors may ask. Can you answer them today?
1. Who are you? Who’s the team? Do you have the right team?
Remember, the best CEOs surround themselves with people smarter than they are. This team watches out for the CEO’s blind spots. If you are the smartest at everything in your agency, there is a problem. This may be okay when you are a solo shop, but will not be long term if you have major growth goals.
2. How do you do things differently or better than others in your industry? Do you have a secret sauce?
If you don’t have a secret sauce, then what’s your plan to differentiate?
3. Who is your competition? What are they doing? Are there barriers to entry?
“What’s going to prevent them from crushing you you like the cockroach you are?” – Kevin O’Leary
4. What are your goals and milestones? Are you on track? Why or why not?
If you are driving from California to Texas but see signs for Oregon, there’s a problem. You must know your goals, and milestones to measure if you are on track.
5. What is your market? What is their pain?
Do you have your market defined? Who are you selling to? If you know who they are, what are problems they face?
6. How big is your market? What is the potential?
It is important to know the potential in your market geography or market segment. This will help measure your potential and evaluate success in penetrating your market. It allows you to quantify your goals and set milestones.
7. How badly does your market actually want to solve their problem?
Understanding your market’s psychology would assist you in developing your marketing and sales plan. It allows you to focus in on their pain points and how you can resolve them.
8. What is your unique selling/value proposition? Why does the market want it from you?
How are you better at solving your market’s problems that your competitors? Again, you are a “cockroach” when you are small or new. So what are you going to do better or different?
9. What are your financial goals and timeline?
Remember, a goal without a deadline is just a dream. Do you have revenue goals and when you plan to achieve them?
10. What can go wrong? What’s around the bend that can catch you off guard?
It’s imperative to anticipate what can be around the corner (e.g. disruption, competition, economy, legislation, etc.) Knowing this can help you stay ahead of the curve and create contingency plans and even take advantage of the changes.
You must be willing to be honest with yourself as you answer these questions. To take this exercise a step further, identify other trusted advisors to review your answers and ask additional questions. This should not be your mom, spouse, or best friend, unless this person is willing to be objective. It doesn’t have to be someone from the industry because sometimes, the best advisors are people who “don’t get it.”
If you are lucky enough to find a few people willing to be honest, then the next part is the difficult one. The hard part is listening to the feedback and insight provided by them. Many times, our first instinct is to defend our business. After all, it’s not their baby, it’s ours. If you wanted it your way, then go to Burger King.
Instead, we must bite our tongue and open our minds. The reality is if they found flaws in your business, so will your customers and partners. Like Shark Tank, it's better to be torn apart and reboot before you get chewed up by Mark Cuban or Kevin O'Leary on national TV. Like Shark Tank, even when you do get chewed up, you may actually receive pearls of wisdom as you recover from your wounds.
Remember, this is not a one-time exercise. As you grow and evolve, the answers to these questions may change. Even if you stay the same, the market will change around you. Repeating this exercise with yourself and your trusted advisors regularly will help you navigate through the shark infested waters safely and arrive at your goal.